Picking up on a call by one of the loudest congressional critics of the no-strings-attached bailout of banks and insurers, President Obama today ordered Treasury Secretary Timothy F. Geithner to pursue legal challenges to the American International Group's plan to pay out hundreds of millions of dollars in bonuses to executives.
"In the last six months, A.I.G. has received substantial sums from the U.S. Treasury," Mr. Obama said of the embattled insurance giant that wants to give one percent of its bailout buckage to the people who made the mess -- and have yet to find a way out of it.
A.I.G., which intends to pay its executives $165 million in bonuses, has collected $170 billion from the federal government.
Sensing a heist could be taking place, Obama is deputizing Geithner to block what looks like bailout banditry.
The president told his treasury secretary "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
That's precisely the approach urged on the White House by Wisconsin Senator Russ Feingold, a lawyer and veteran member of the Senate Judiciary Committee, who raised the call for a legal strategy with regard to A.I.G.
Feingold began pressing Geithner after details regarding the A.I.G. bonuses became public to explore legal options for canceling the bonuses, recouping the money from the recipients, or suing the executives for breaching their fiduciary duties to AIG shareholders.
In a letter to Geithner, the senator wrote:
I am deeply troubled by reports that the American International Group intends to pay about $165 million in bonuses to its executives. As you know, the federal government has provided AIG with $170 billion in taxpayer money and currently owns 80 percent of the company. I share your outrage that a company which has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money.
Reports suggest that AIG's chairman claims AIG is legally obligated to pay some or all of these bonuses. I write to ask why any bonuses would be legally required, given the company's abysmal performance. In addition, I would like to know what legal options have been explored for canceling the bonuses or recouping the money from the recipients, and in particular whether the administration has considered holding AIG executives accountable in court for any breaches of their fiduciary duties to the shareholders.
Feingold, one of the handful of senators who was smart enough to oppose the no-strings bailout, rejects AIG's ridiculous -- and, frankly, insulting -- defenses of the bonuses.
AIG says the money is needed to attract "talent." Feingold replies, "Since some of the recipients of these bonuses may have been responsible for the practices that drove the company to the brink of collapse -- jeopardizing the financial system -- I am sure many Americans will question whether they are indeed 'the best and the brightest' and whether they deserve this level of taxpayer-subsidized compensation."
That's the right analysis, as Feingold notes. "President Obama is doing the right thing by pursuing all legal options to cancel these bonuses," says the senator. "At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money."
Obama's move signals that his administration will be more serious than George Bush's when it comes to holding bad bankers to account.
That's good news. But Feingold, Vermont Senator Bernie Sanders, Ohio Congresswoman Marcy Kaptur and other progressive-populist critics of the bailout won't be resting.
Blocking the A.I.G. bonuses is merely the first step in bringing an end to the bipartisan neglect of real economics and real responsibility that, over the past several decades, created the crisis that has spread from Wall Street to Main Street.