Washington - US president Barack Obama Monday added his
anger to mounting criticism of the bailed-out insurance giant
American International Group Inc (AIG) over its payment of huge
bonuses and vowed to block them.
The firm has revealed it intends to hand out 1 billion dollars in
reward pay, including 165 million dollars already given to the very
traders who sold financial instruments that helped trigger the global
credit crisis.
'This is a corporation that finds itself in financial distress due
to recklessness and greed,' Obama told a group of small business
owners. 'I mean, how do they justify this outrage to the taxpayers
who are keeping the company afloat?'
AIG head Edward Liddy described the bonus plans in a letter to US
Treasury Secretary Tim Geithner over the weekend.
Obama said he had asked Geithner to 'pursue every single legal
avenue' to block payment of the bonuses. Meanwhile, in New York,
Attorney General Andrew Cuomo has vowed to take legal steps by late
Monday if AIG does not divulge the names of bonus recipients.
Last year, the US government took 80 per cent ownership of the
firm in exchange for its bailout of AIG, which has reached 200
billion dollars over four successive rescue measures since September.
The firm is a key to the global crisis since it has insured so
many of the shaky financial derivatives and instruments, such as
credit-default swaps and bundled mortgage securities, that have
turned sour and eroded the financial system.
The bonus plans have stirred anew debate about how far the US
government can go in dictating to private firms how they conduct
their business, even if they are on a government lifeline. It has
also increased pressure for stricter regulation on the financial
industry.
AIG claims it is legally obligated to pay the bonuses, which it
says are needed to retain good talent andt were included in contracts
before the bailout.
The flamboyant Barney Frank, chairman of the House of
Representatives financial services committee, told NBC news Monday
that AIG was 'rewarding incompetence.'
'These bonuses are going to people who screwed this thing up
enormously, who made terrible decisions,' he said. 'If they were in
high school, they wouldn't have gotten retention, they would have
gotten detention.'
AIG, under pressure from Congress to reveal how it has spent the
government's money, has also detailed the disbursement of an
estimated 90 billion dollars to struggling banks to date.
Two foreign banks were among the top three recipients - Societe
Generale of France, with 11.9 billion dollars, and Deutsche Bank,
Germanys biggest lender, with 11.8 billion dollars, Bloomberg
financial news service reported.
The biggest chunk went to New York-based Goldman Sachs, with 12.9
billion dollars.
AIG, which does business worldwide, nearly collapsed in September
after credit-rating downgrades forced the insurer to make payments to
banks that had bought swaps. Its securities-lending programme, which
invested in sub-prime mortgage holdings, also had a huge shortfall.
Earlier this month, Federal Reserve Chairman Ben Bernanke slammed
AIG for taking needless risks and helping bring the US financial
system to its knees.
In testimony before Congress, Bernanke said AIG was critical to
the stability of the wider financial system, but he was uneasy about
the government's nearly 200- billion-dollar investment in the world's
largest insurance company.
'If there is a single episode (of the financial crisis) that has
made me more angry, I can't think of one,' Bernanke told the Senate
Budget Committee.
Your Talkback on this Story