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No paychecks have generated more heat this year than the $165 million in bonuses paid to employees at the insurance giant AIG. Today, a federal watchdog blamed failures of management and oversight at the Treasury Department when it was caught off-guard by those bonuses. The AIG employees are still in line for more bonuses next spring.
NPR's Scott Horsley reports.
SCOTT HORSLEY: So far the federal government has invested more than $180 billion to keep AIG from going under. The company was the leakiest ship in the financial flotilla and it got the biggest bailout by far. So when news broke last spring that taxpayer dollars were being used to pay hefty bonuses to workers in the very division that crippled AIG, New York Congressman Edolphus Towns says the public was justifiably outraged.
Representative EDOLPHUS TOWNS (Democrat, New York 10th District): Don't get me wrong. Americans don't resent people who make a lot of money. We all want to make a lot of money. But what infuriates people is when bosses at bailed-out companies continue to rake in millions. That's the problem.
HORSLEY: Towns chairs a House committee that got an update today from the special inspector general overseeing government bailouts. Neil Barofsky says Treasury Secretary Timothy Geithner was blind-sided by those AIG bonuses. But he didn't let Geithner off the hook.
Mr. NEIL BAROFSKY (Special Inspector General): Secretary Geithner did not learn of these bonus payments until just days before they were made. It was a failure of communications and it was a failure of management.
HORSLEY: Barofsky says Geithner bears ultimate responsibility for the missteps, not only as Treasury Secretary but also because of his previous job. Last fall when the government started putting money into AIG, Geithner was president of the New York Federal Reserve Bank. The Treasury Department relied on the New York Fed to keep an eye on AIG's compensation. But as Barofsky told Ohio Congressman Dennis Kucinich, the New York Fed was more concerned with recovering the tens of billions of dollars the government loaned to AIG than it was with the tens and millions of dollars the company was paying out in bonuses.
Mr. BAROFSKY: What they explained to us was, in substance, they didn't think it was such a big deal. $168 million was a drop in the bucket. Their concern, their focus was on repaying…
Unidentified Man: Think about that bucket.
Mr. BAROFSKY: No, it's a big bucket. This was sort of the outsourcing of oversight to an entity that just doesn't have the political sensitivities, particularly at that time, that you would expect from Treasury.
HORSLEY: Barofsky recommended closer coordination between the Treasury Department and the New York Fed. He also said before putting money into any more companies, the Treasury Department should review the bonus plans itself. A Treasury official said the government has no present intention of buying another financial firm.
Meanwhile, employees in AIG's financial products division are due for another round of bonuses totaling $198 million next spring. Like the earlier bonuses, these payments are a contractual obligation for AIG. But since the federal government now owns nearly 80 percent of the company, Barofsky says it does have some leverage to renegotiate.
Mr. BAROFSKY: And I think a good example of that is in the auto industry, where the federal government made billions and billions dollars of support to Chrysler and to General Motors, but then went back with the threat of bankruptcy to force very significant concessions.
HORSLEY: After the uproar over the last round of bonuses in March, AIG employees agreed to return some of the money, about $45 million dollars worth. Barofsky told Congressman Towns, so far less than half that money has been paid back, as employees hold out for some idea of what will happen with their next round of bonuses.
Rep. TOWNS: So they're holding in ransom.
Mr. BAROFSKY: I think it's the - it's been described to us as a wait-and-see attitude. They want to see what they're going to be getting before they commit or fulfill their commitments to pay back the bonuses.
HORSLEY: Towns recalled the common sentiment when the financial meltdown hit last fall that the party seemed to be over. At AIG, he said, the music is still playing and the musicians are still hanging around.
Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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