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New AIG bonuses more fuel for outrage

by Frank James

It's being reported that AIG, the troubled insurance giant which the federal government has rescued by pumping into it hundreds of billions of dollars of taxpayer money, is paying hundreds of millions of dollars in additional bonuses to executives because of a Sunday deadline.

AIG says it's contractually bound to honor contracts and fears lawsuits if it doesn't make the payments.

This explanation, legally sound though it may be, is likely to unleash another fierce wave of anger at the company from lawmakers and taxpayers alike already fed up by earlier reports of other AIG bonuses and company retreats at luxurious resorts.

It could also raise calls that the company be allowed to file for bankruptcy protection since one thing a Chapter 11 bankruptcy proceeding would do is allow a federal judge to place AIG's bonus plans under strict review.

An excerpt from an Associated Press story:

WASHINGTON -- American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars.

AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday.

This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Geithner had called AIG Chairman Edward Liddy on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.

Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.

In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

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