Obama angry over AIG's huge bonuses, vows to block them
US president Barack Obama Monday added his anger to mounting criticism of the bailed-out insurance giant American International Group Inc (AIG) over its payment of huge bonuses and vowed to block them, dpa reported.
The firm has revealed it intends to hand out 1 billion dollars in reward pay, including 165 million dollars already given to the very traders who sold financial instruments that helped trigger the global credit crisis.
"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama told a group of small business owners. "I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?"
AIG head Edward Liddy described the bonus plans in a letter to US Treasury Secretary Tim Geithner over the weekend.
Obama said he had asked Geithner to "pursue every single legal avenue" to block payment of the bonuses. Meanwhile, in New York, Attorney General Andrew Cuomo has vowed to take legal steps by late Monday if AIG does not divulge the names of bonus recipients.
Last year, the US government took 80 per cent ownership of the firm in exchange for its bailout of AIG, which has reached 200 billion dollars over four successive rescue measures since September.
The firm is a key to the global crisis since it has insured so many of the shaky financial derivatives and instruments, such as credit-default swaps and bundled mortgage securities, that have turned sour and eroded the financial system.
The bonus plans have stirred anew debate about how far the US government can go in dictating to private firms how they conduct their business, even if they are on a government lifeline. It has also increased pressure for stricter regulation on the financial industry.
AIG claims it is legally obligated to pay the bonuses, which it says are needed to retain good talent andt were included in contracts before the bailout.
The flamboyant Barney Frank, chairman of the House of Representatives financial services committee, told NBC news Monday that AIG was "rewarding incompetence."
"These bonuses are going to people who screwed this thing up enormously, who made terrible decisions," he said. "If they were in high school, they wouldn't have gotten retention, they would have gotten detention."
AIG, under pressure from Congress to reveal how it has spent the government's money, has also detailed the disbursement of an estimated 90 billion dollars to struggling banks to date.
Two foreign banks were among the top three recipients - Societe Generale of France, with 11.9 billion dollars, and Deutsche Bank, Germanys biggest lender, with 11.8 billion dollars, Bloomberg financial news service reported.
The biggest chunk went to New York-based Goldman Sachs, with 12.9 billion dollars.
AIG, which does business worldwide, nearly collapsed in September after credit-rating downgrades forced the insurer to make payments to banks that had bought swaps. Its securities-lending programme, which invested in sub-prime mortgage holdings, also had a huge shortfall.
Earlier this month, Federal Reserve Chairman Ben Bernanke slammed AIG for taking needless risks and helping bring the US financial system to its knees.
In testimony before Congress, Bernanke said AIG was critical to the stability of the wider financial system, but he was uneasy about the government's nearly 200- billion-dollar investment in the world's largest insurance company.
"If there is a single episode (of the financial crisis) that has made me more angry, I can't think of one," Bernanke told the Senate Budget Committee.