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Anger grows over bonuses for AIG staff, but little can be done about them.
Economist Staff, The Economist
March 17, 2009
The revelation that $165 million in bonuses have been paid by AIG, a giant insurance company bailed out with roughly $170 billion of taxpayers' money after it came close to collapse last year, has turned into a political drama for Barack Obama. The latest payments are in addition to $55 million paid out in bonuses in December. It is one that may constrain his ability to obtain future funds from Congress should money be needed for more bail-outs.
Mr. Obama has been forced into the embarrassing position of instructing his treasury secretary, Tim Geithner, to see if there are any legal ways to claw back the money. Since it seems unlikely that there is (contracts being contracts), this protest will merely serve to highlight his impotence. Gordon Brown, Britain's prime minister, knows all about that; a similar eruption of fury followed news that the man who presided over the collapse of Royal Bank of Scotland, Sir Fred Goodwin, was walking away with a pension worth over £700,000 ($986,000) a year. Mr. Brown and various of his ministers threatened all sorts of retribution, but there has been none. They even had to resort to hoping that Sir Fred would feel honour-bound to return the money. He has not.
Various options remain open to Mr. Obama, none of them good. He could try to invoke some form of executive power to break the contracts; but that would tie him in impossible legal knots, and it would not make sense in political terms as Republicans would be sure to attack this even more loudly than they denounced the original bonuses. And if such a thing did turn out to be possible, it raises the obvious question of why it was not done earlier, while vast sums of public money were being pushed in AIG's direction.
Instead, Mr. Obama may seek to recoup the money, on behalf of taxpayers, by withholding an equivalent amount from the next tranche of bail-out money, some $30 billion, due to be paid to AIG. "White House aides" have told the Washington Post that this is being considered.
A moment's thought, though, should show how foolish that would be. The bonuses would still remain in the pockets of the employees whose failures, so the public believes, deserve censure, not reward. AIG itself would get less; but that would send the rather odd signal that the government had been prepared to give the company more than it really needed; the point of bailing out private companies with public money, surely, is that it is in the vital public interest to do it, not that it is a matter of discretion.
Alternatively, Mr. Obama can simply ventilate a bit, as he has done; but actually do nothing. The danger here is that by seeming to have been taken for a ride by AIG's spendthrifts, he will weaken his position with Congress. Getting money from Congress has not been easy, either for Mr. Obama or for George Bush. Mr. Obama's stimulus package only went through with a wafer-thin majority; both rounds of TARP funding for the banks have been extremely difficult to procure (the first tranche of TARP was turned down by Congress, initially).
Mr. Obama may have to go back either for a second stimulus package, as is constantly being rumoured, though the whispers are firmly denied by the White House, or for a third round of the TARP. If so, he could face not just angry Republicans, who are opposed to bail-outs, but Democratic ones infuriated by the thought of Wall Streeters being paid bonuses while ordinary Americans are losing their jobs and homes. Christopher Dodd, a senior Democratic senator and the chairman of the Senate's Banking Committee, for example, has already spoken to the administration of an "unprecedented level of outrage".
The intricacies of restructuring assets and saving banks can be hard even for the experts to understand. But everyone can grasp that using taxpayers' money to pay a large bonus, or a fat pension, to bankers who have crashed their banks is a hard sell during a recession.