Washington, DC – Oregon’s Senator Jeff Merkley today demanded American International Group (AIG) immediately renegotiate bonuses for employees or face legislation from Congress that would recoup the funds through taxation. In comments at a Senate Banking Committee hearing, he also called for robust regulation of the credit default swaps that led AIG and our financial markets to the brink of ruin.
“The individuals who are receiving these bonuses were the very same ones who trafficked in financial machinations that drove AIG into the ground. It is unfathomable to me and many Oregonians that they should be rewarded for leading their company to disaster,” said Merkley. “I will do everything I can to make sure these executives are not rewarded for abetting the financial crisis at the very moment thousands of Oregonians are losing their homes, jobs and retirement savings.”
It was disclosed over the weekend that AIG had authorized $165 million in “performance-based” bonuses for employees of the company even as AIG had received $170 billion in taxpayer funds to keep the company running over the past six month. Senators Merkley, Charles Schumer of New York, Harry Reid of Nevada and others wrote to Edward Liddy, Chair and CEO of AIG, to insist that the company immediately renegotiate the employee contracts to rescind the bonuses. If action is not taken, the senators pledged to enact legislation, “that would allow the government to recoup these bonus payments through the tax code.”
Also today, Merkley participated in a Senate Banking, Housing and Urban Development Committee hearing on regulation of the insurance industry. Many of the problems at AIG arose because it was operating as an unregulated insurer of financial transactions by issuing exotic securities called “credit default swaps.”
Merkley called for bringing oversight to the credit default swap market and treating the instruments as the insurance policies they are. This step is one critical piece of a larger effort to contain the financial crisis created by abuses in the mortgage and financial markets.
“This situation is an outrage to me and to the American people who, left with no other alternative because of the unbridled greed of executives at AIG and other financial institutions, agreed to put forward their hard earned dollars to try to keep our economy from total collapse,” said Merkley. “We have a duty, an obligation to fix our insurance regulatory system. “
Merkley’s full comments can be viewed here.
A copy of the letter appears below.
March 17, 2009
Chairman and CEO
American International Group
70 Pine Street
New York, NY 10270
Dear Mr. Liddy,
We write today to express our outrage at American International Group’s recently revealed multi-million dollar bonus payments. In these perilous economic times, it is unconscionable for the American taxpayer to find out that the very employees responsible for running the company into the ground have now received “performance-based” awards that are hundreds of times as large as the average American’s yearly salary. If these contracts are not renegotiated immediately, we will take action to make American taxpayers whole by recouping all of the bonuses that AIG has paid out to its financial products unit, which, by all accounts, is primarily responsible for the near-failure of the company and the devastating impact on the global financial markets.
For a company that would not exist anymore but for a $170 billion taxpayer funded rescue, it is simply morally unacceptable to spend $165 million on bonus payments, and especially offensive to spend $450 million over the next two years rewarding the employees that helped fuel the nation’s financial crisis. 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. It is the grossest perversion of the idea of a “performance bonus” imaginable. In America, we believe in rewarding success. AIG is attempting to reward the most extreme failure.
We insist that you immediately renegotiate these contracts in order to recoup these payments and make the American taxpayer whole. We stand ready to take the difficult, but necessary step of working to enact legislation that would allow the government to recoup these bonus payments, perhaps by imposing a steep tax– as high as 91 percent–that will have the effect of recovering nearly all of the bonuses that have been paid out since AIG turned to taxpayers for help.
At a time when families across the country are struggling to make ends meet, and hundreds of thousands of Americans are losing their jobs each month, the hubris of this company, and these employees, to demand taxpayer assistance for these bonus payments is simply and plainly unacceptable. We urge you to bring your employees to the table to renegotiate these contracts immediately. We expect that you will report back to Congress on your efforts to recoup these payments in short order. Thank you for your prompt attention to this matter.