The AIG story got more appalling all day Tuesday. I got stuck early on this paragraph from a New York Times story about state Attorney General Andrew Cuomo's finding that 73 AIG employees received bonuses of $1 million or more:
"Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.’s fragile state. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses between $1 million and $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said."
Another 41 AIG employees who left also got retention bonuses, Cuomo said.
After a day of debate that mostly seemed to conclude there was little President Obama could do to claw back the bonuses, late Tuesday night came word that the Treasury Department would require AIG to at least repay the $165 million doled out in bonuses to 418 AIG execs before it provides the next $30 billion in bailout funds to the insurance firm turned gambling parlor. Treasury Secretary Timothy Geithner told House Speaker Nancy Pelosi he would also insist that "going forward, future AIG bonuses will conform to the strict compensation limits laid out in the [American Recovery and Reinvestment Act]." But it looks like the company won't seek to get the bonuses back from the failed execs who got them.
Will this be enough to quell the populist outrage the AIG bonuses inspired in both parties this week? That's not clear yet. Like it or not, the bonuses have become Obama's problem. The Washington Post reported Tuesday that the mess is costing Obama needed political capital to push his economic and financial reforms. I didn't like the Post's analysis, but I think it's probably true.
Sure, it's easy -- and correct -- to say the first TARP didn't cap executive pay or bonuses because the Bush administration blocked such proposals. But it's also true that Geithner knew generally about AIG's retention bonus policies months ago -- and arguably should have known details -- but never raised hell until Obama himself turned up the heat. (ABC's Jake Tapper is reporting that the administration says Geithner didn't really know about the bonuses until a week ago, because he recused himself from AIG matters while his confirmation was pending because of his dealings with the firm as head of the New York Federal Reserve Bank.) This scandal could turn out to be another example of the way Geithner is too chummy with the guys who caused this mess to be able to rein them in.
Meanwhile, a bizarre subplot is developing in which Democrats are pointing fingers at one another for letting the AIG bonuses go forward. Over the weekend some Obama administration officials seemed to be putting the blame on language Sen. Christopher Dodd added to the stimulus bill; Dodd denies it, and Glenn Greenwald and Jane Hamsher lay out evidence he's telling the truth. The Huffington Post is fronting a story that says Oregon Sen. Ron Wyden tried to get his own language in the stimulus bill to cap bonuses by bailed-out firms, but someone mysteriously removed it.
It's clear the bonuses are radioactive for anyone in government who knew or should have known about them. That's why it was appalling to see the Times' Andrew Ross Sorkin argue that the U.S. has to pay the bonuses at least partly because we're hostages to the criminally amoral leaders of AIG. The best reason for taxpayers to stomach the bonuses, Sorkin argued, is that:
"A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it. A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it. So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company."
Of course, that argument ignored the fact that 52 of the retention-bonus babies have already left the company, anyway. It also ignored Andrew Leonard's great argument here: AIG's derivatives traders might be the guiltiest of all guilty parties in the great credit-industry meltdown, since they abdicated their risk-management role and in fact helped spread risk around to firms unable to evaluate it.
I felt most of Tuesday that I'd rather see AIG break the bonus contracts, under Treasury duress, and let the penalized execs sue. Wouldn't it be great to get to depose some of these brainiacs under oath?
But now none of that may be necessary. It seems that AIG has been publicly shamed into giving the money back, as the firm's name became nearly synonymous with "Madoff" as shorthand for greedy, amoral business behavior. Will this be enough for Obama to regain the moral and political upper hand in this crisis? I hope so, because he doesn't deserve the fallout from the Bush administration's bungling first of the economy, and then of the TARP plan to save it. Will it be enough to rescue Geithner from mounting criticism that he's been too close to the economy's bad guys to reform them? Stay tuned.
I'm on vacation until next Thursday. I'll blog in an emergency, but otherwise I'll see you next week.