WASHINGTON, Mar 18 – AIG boss Edward Liddy was set on Wednesday to take the hot-seat in front of furious US lawmakers as a political firestorm rages over lavish employee bonuses awarded by the bailed-out insurer.
Members of the House of Representatives subcommittee on capital markets were expected to give Liddy a mauling over his decision to pay out the 165 million dollars in bonuses despite the government\’s strong objections.
Following widespread outrage, Treasury Secretary Timothy Geithner said late Tuesday that AIG will be required to reimburse the government for the bonuses in order to get additional bailout funds.
In a letter to House Speaker Nancy Pelosi, Geithner said it was impossible to prevent the contractual bonuses from being paid and said it may be difficult to recoup the payments.
However Geithner said the government would "impose on AIG a contractual commitment" to repay the 165 million dollars to taxpayers. And furthermore he said that the same sum would be deducted from the 30 billion dollars pending from AIG\’s bailout of more than 170 billion dollars.
The capital markets subcommittee\’s Democratic chairman, Pennsylvania Congressman Paul Kanjorski, warned that Liddy\’s job could be on the line as President Barack Obama grapples with an outpouring of public rage at Wall Street greed.
"Mr Liddy either has to tell us what he\’s going to do to change this and give back these bonuses … or else we should consider removing Mr Liddy and putting someone else in charge," Kanjorski told MSNBC television Tuesday.
Liddy, formerly chief executive of the Allstate insurance firm, was tapped by the US government to take over American International Group in September, two days after the giant insurer was saved from bankruptcy with an 85-billion-dollar lifeline.
The bailout has since grown to 180 billion dollars. But it only emerged at the weekend that the very London-based traders who drove AIG to the brink and helped trigger the global financial crisis were in line for staggering payouts.
Senate Majority Leader Harry Reid called the bonuses "repulsive" as millions of Americans agonize over what the future holds in the worst recession for decades.
"I can\’t imagine how this company, led by somebody that we brought in from the outside that had come out of retirement … why he allowed this to happen. I had more confidence in him than this," he said.
The bonus contracts were drawn up last April, well before the bailout and Liddy\’s arrival, but the CEO is under fire for claiming that the outsized payments were not just legally correct but necessary to retain top staff.
His argument was undermined Tuesday when New York Attorney General Andrew Cuomo revealed that 11 executives had quit AIG despite being paid "retention" bonuses of at least a million dollars each to stay with the firm.
Cuomo, who slapped subpoenas on AIG Monday as part of a broader probe into Wall Street\’s meltdown, said 73 AIG employees each received bonuses of one million dollars or more.
Senate Democrats sent a letter to Liddy demanding he renegotiate the employees\’ bonuses or else they would push through legislation to tax the payouts at more than 90 percent.
"Given the fact that it was the employees in this unit that brought your firm to the brink of bankruptcy and caused such havoc in the world, rewarding them is not only morally reprehensible, but entirely indefensible on any business grounds," the letter said.
AIG was rescued because the government deemed its intricate web of ties with banks worldwide posed an imminent risk of financial collapse not just for the United States but globally.
The hearing in Congress could also prove uncomfortable for the Obama administration, as the president tries to balance the backlash against AIG with the need to sustain political support for costly new plans to prop up US banks.
House Minority Leader John Boehner said Republicans had long been calling for more protections to ensure that taxpayers know how 700 billion in bailout dollars are being spent by financial institutions.
"It is time for the administration to provide Congress and American taxpayers an exit strategy that will get the federal government out of the private sector and out of the bailout business," he said.
The Obama administration\’s public relations battle has not been helped by news that AIG used much of the bailout money to pay back European banks that took out its products as insurance against risky investments.
That disclosure has been overshadowed by the bonuses row. But lawmakers are vowing to press Liddy on the issue at Wednesday\’s hearing, contrasting the helping hand for foreign bankers to the plight of recession-hit Americans.