AIG bonuses won't stand one way or another, Democrats say

WASHINGTON -- Talking tough, Democrats confronted insurance giant AIG with an ultimatum Tuesday: Give back $165 million in post-bailout bonuses or watch Congress tax it away with emergency legislation.

Republicans said the Democrats weren't blameless, accusing them of standing by while the bonus deal was cemented and suggesting that Treasury Secretary Timothy Geithner could and should have done more. While the White House expressed confidence in Geithner, it placed responsibility for how the matter was handled on him.

Geithner sent a letter late Tuesday to congressional leaders informing them he was working with the Justice Department to determine whether any of the AIG payments could be recovered. He cited a provision in the recent economic stimulus law that gave him authority to review compensation to the highest-paid employees of companies that already have received federal assistance.

New York Attorney General Andrew Cuomo reported that 73 separate company employees received bonus checks of $1 million or more last Friday. The government propped up the company with a $170 billion bailout.

The financial bailout program remains politically unpopular. The White House is aware of the nation's bailout fatigue -- anger that hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others that have done no wrong paid the price.

Senate Majority Leader Harry Reid of Nev. speaks to reporters following the weekly policy luncheons on Capitol Hill in Washington, Tuesday, March 17, 2009. (AP Photo/Harry Hamburg)

AIG chief executive Edward Liddy can expect a verbal pummeling today when he testifies before a House subcommittee.

On Capitol Hill late Tuesday, House Democrats directed three committees to come up with legislation to authorize Attorney General Eric Holder to recover bonus payments made by companies like those paid by AIG.

Senate Democrats, meanwhile, suggested that if the AIG executives had any integrity, they would return the $165 million in bonus money.

"If you don't return it on your own, we will do it for you," said Sen. Chuck Schumer of New York.

Not all Democratic leaders were racing in that direction. Penalizing people with the tax code could be inappropriate, declared Rep. Charlie Rangel, D-N.Y., chairman of the taxwriting Ways and Means Committee. He said, "It's difficult for me to think of the code as a political weapon."

Others saw the connection as reasonable and relevant. House Financial Services Committee Chairman Barney Frank, D-Mass., noted that the government, through the bailout, is now an 80 percent owner of the company and suggested that was grounds to sue to recover the bonuses.

Republicans said President Obama and his administration should have leaned harder on AIG executives to reject the extra pay, raising some speculation over Geithner's future.

"I don't know if he should resign over this," said Sen. Richard Shelby, R-Ala. "He works for the president of the United States. But I can tell you, this is just another example of where he seems to be out of the loop. Treasury should have let the American people know about this."

The administration quickly moved to quash talk of Geithner's ouster. White House spokesman Robert Gibbs said Obama retains full confidence in his treasury secretary.

There was a daylong rush to the microphones on Capitol Hill -- a bipartisan campaign to out-outrage each other.

Sen. Chuck Grassley, R-Iowa, led the stampede with a statement Monday night on a radio show that AIG executives should either return the money or commit suicide in what he described as the Japanese style of taking responsibility. He spent much of Tuesday backtracking but still calling for corporate titans to take responsibility for grievous errors in judgment.

Other Republicans said Democratic leaders last month killed a plan that would have forced financial institutions to compensate taxpayers if they paid their executives large bonuses after receiving federal bailout money.

Sen. Olympia Snowe, R-Maine, a co-sponsor of the amendment to Obama's stimulus bill, said striking it "left open an escape hatch of golden parachutes for top executives on Wall Street."

AIG has received more than $170 billion from U.S. taxpayers. With bailouts in hand, AIG has paid out tens of billions of dollars to banks, municipal governments and other financial institutions around the world.

AIG is no stranger to controversy, nor is it the only publicly rescued company to give bonuses while being bailed out of financial ruin.

Merrill Lynch paid $3.6 billion in bonuses to its executives while its sale to Bank of America Corp., a big recipient of bailout money, was pending.

Morgan Stanley also came under fire Tuesday. Sen. Robert Menendez, D-N.J., urged Geithner to halt retention awards planned by the company's joint brokerage venture with Citigroup. Both firms have received billions of dollars in government bailout funds. Morgan Stanley is reportedly planning to pay its brokers up to $3 billion in retention payments -- a spokeswoman said the program amounts to a nine-year loan -- to keep them from jumping to other firms.

Cuomo said AIG last week paid bonuses of $1 million or more to 73 employees, including 11 who no longer work there. Despite their company contracts, the AIG employees agreed to take 2009 salaries of $1 in exchange for receiving their bonus packages, he said.

Administration officials said Geithner did all that he legally could to avert the payments.

Geithner urged AIG chief executive Edward Liddy last week to renegotiate the contracts that called for the bonuses.

"He recognized that you can't just abrogate contracts willy-nilly, but he moved to do what could be done," Larry Summers, Obama's chief economic adviser, told The Associated Press in an interview Tuesday.

Though AIG's bonus plans were disclosed last year, Congress' outrage and threats have begun pouring forth only recently.

At least three Democratic bills and one Republican measure were introduced to crack down on the Treasury Department and stiffen rules for recipients of bailout funds. Two bills in the House aimed to impose a 100 percent tax on the bonuses.

In the Senate, the top two members of the Senate Finance Committee -- a Republican and Democrat -- announced a proposal to impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent excise tax on the employees receiving them.

The Internal Revenue Service currently withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million.

The Obama administration said it was trying to put strict limits on how future government bailout dollars could be used, and Reid on Tuesday said he urged the administration to step up its pace on that.

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Associated Press Writers Stephen Ohlemacher, Martin Crutsinger, Julie Hirschfeld Davis and Dave Espo contributed to this story.