By SARAH NETTER, MATT JAFFE, KATE BARRETT, JOHN HENDREN and ALICE GOMSTYN
March 16, 2009
Add former AIG chief executive Hank Greenberg to the growing list of public figures fuming about the $165 million in retention bonuses awarded to executives at the bailed-out insurance giant.
Greenberg, who stepped down as CEO in 2005, told ABCNews.com that it was "mind-boggling" that AIG executives were promised retention pay in the first place.
Given how much the company has lost, "why would you make it up in bonuses? It's hard to understand," he said.
"I think many of the people who received bonuses did not deserve them."
Greenberg has been criticized for supposedly helping to create the financial problems plaguing AIG today. It's an accusation that Greenberg vigorously denies, saying that the investments leading to the company's decline were made after his departure. (Read more about Greenberg's response to critics here.)
During his time at the company, Greenberg said, retention packages did not exist at AIG Financial Products, the Connecticut-based division of AIG now under fire for the bonuses.
"We would never have been blackmailed into such an arrangement," he said.
"I know from long experience that you don't retain people by buying them. You don't buy loyalty," he said.
A company achieves loyalty, Greenberg said, when "people believe and share the same values as you do." It's an issue of leadership, he said.
Meanwhile, President Obama said today that he has asked his Treasury secretary to "pursue every single legal avenue" to block the AIG bonuses.
"This is a corporation that finds itself in financial distress due to recklessness and greed," the president said.
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said today during a news conference announcing an aid program for small businesses. "How do they justify this outrage to the taxpayers who are keeping the company afloat?"
At one point, Obama coughed and said half-jokingly, "I'm choked up with anger."
Obama said Treasury Secretary Timothy Geithner was working to resolve the conflict with AIG CEO Edward Liddy, who took the company's reins after the contracts allowing the bonuses were agreed to last year.
"I know he's working to resolve this matter with the new CEO, Edward Liddy, who came onboard after the contracts that led to these bonuses were agreed to last year," Obama said.
"This isn't just a matter of dollars and cents. It's about our fundamental values," he said. "All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."
Obama said the bonuses underscore a need for overall financial regulatory reform to prevent a similar situation in the future, and "so we have greater authority to protect the American taxpayer and our financial system in cases such as this."
New York Attorney General Andrew Cuomo, who has been investigating AIG's executive compensation, sent a letter today to Liddy saying he was "disturbed" to learn of the scheduled bonuses and asked again for the names of executives who had received extra cash.
"We need this information immediately in order to investigate and determine ... whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout ... and whether such contracts may be unenforceable for fraud or other reasons," Cuomo wrote.
A source close to the beleaguered company told ABC News, "AIG gets it."
Liddy "doesn't blame people for being angry," the source said. "It's not like he woke up in October and said, 'Let's pay millions to these people!'" It's a point that Liddy will make when he testifies before Congress Wednesday.
"Everyone gets that this doesn't look good," the source added.
Not only are people outside AIG upset, but also within the company, because the same people who "tarnished" the whole company are now receiving millions, the source said.
Federal Reserve Chairman Ben Bernanke also criticized the AIG contracts in a rare interview Sunday on "60 Minutes."
But he gave Americans a glimmer of hope, saying that the recession could wind down as early as this year.
"We do have a plan. We're working on it," Bernanke said in rare interview on "60 Minutes" Sunday. "And I do think that we will get it stabilized, and we'll see the recession coming to an end, probably this year."
"We'll see recovery beginning next year," he continued. "And it will pick up steam over time."
That progress, he said, would hinge on whether the government can keep the banks from failing and if the banks, in turn, could start to lend more freely.
Outrage over AIG hasn't seemed to dampen Wall Street's spirits: The Dow Jones industrial average was up more than 40 points by the mid-morning, continuing an upswing that began early last week after Citigroup reported strong performance for the current quarter.
But Bernanke's optimism didn't take away from his anger over AIG's spending of $165 million in bonuses.
He told CBS' "60 Minutes" Sunday that out of all the events in the last 18 months, the federal government's intervention with AIG makes him the angriest, saying the company made "unconscionable bets."
'Fooled by AIG'
While there's seemingly no shortage of outrage AIG's plan to pay the bonuses, it may turn out that the best the country can hope for in response is to learn its lesson for next time and make sure it doesn't happen again.
Sen. Richard Shelby, R-Ala., told "Good Morning America" today that the American people had been "fooled by AIG."
"These people brought this on themselves, now you're rewarding [them,]" he said. "A lot of these people should be fired."
AIG has refused to comment on the contracts' specifics, including how it could allow for such bonuses after losing $61 billion in a single quarter, while taking $170 billion in government bailout money.
"It's ridiculous," U.S. Rep. Elijah Cummings, D-Md., told "GMA," adding that he doesn't buy the notion that the government doesn't have enough control over taxpayer dollars to stop bonuses like these.
Even though they may not like it, the nation's top financial officials can't seem to do much to stop it, citing AIG's position that they it's contractually obligated to pay the bonuses.
"We are a country of law," Lawrence Summers, chairman of the White House National Economic Council, said on ABC's "This Week With George Stephanopoulos." "There are contracts. The government cannot just abrogate contracts."
AIG CEO Edward Liddy said in a letter to Treasury Secretary Timothy Geithner that the payments can't be stopped and that his "hands are tied."
Cummings admitted that the stimulus package was moved through Congress so quickly that there may be room for improvement going forward, including add-ons that would prevent failing banks and institutions from using government money to reward the same executives who were responsible for the company's failure in the first place, such was the case with AIG.
"We have to be very careful ... we don't allow these things to happen again," Cummings said.
Lawmakers Furious About AIG: 'This Is an Outrage'
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Summers said this morning on ABC's "This Week With George Stephanopoulos." "What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous."
Summers repeated the characterization several times on the morning talk show circuit.
Lawmakers, too, are furious at the payout of big bonuses at a company that has so far eaten up $170 billion in taxpayer money, and whose risky behavior has helped push the economy into one of the biggest financial crises in American history.
"The message here, I'm afraid, to any business out there that's thinking about taking government money, is let's enter into a bunch of contracts real quick, and we'll have the taxpayers pay bonuses to our employees," Senate Minority Leader Mitch McConnell, R-Ky., said on "This Week." "This is an outrage."
Sen. Russ Feingold, D-Wis., sent a letter to Treasury Secretary Timothy Geithner saying he "would like to know what legal options have been explored for canceling the bonuses or recouping the money from the recipients, and in particular whether the Administration has considered holding AIG executives accountable in court for any breaches of their fiduciary duties to the shareholders."
An angry Geithner called AIG chief executive Edward Liddy Wednesday, demanding he slash the bombshell bonuses.
"AIG'S hands are tied," Liddy replied. In a letter to Geithner yesterday, Liddy said he found the bonuses "distasteful" but he added, "These are legal, binding obligations" and "we must proceed with them."
Obama's top economics adviser agreed that despite committing $170 billion in bailout money to AIG, the government was limited in its power to stop the bonuses.
"This is an example of people at the commanding heights of the economy misbehaving, abusing the system," Rep. Barney Frank of Massachusetts said on "Fox News Sunday."
"I do think it's inappropriate for those people to stay in power at that company," Frank said.
Rep. Cummings Harsh Criticism of AIG: 'You Got to Help Me Screw You'
AIG's Liddy was recruited last year by the Bush Administration to run the company, and the bonuses were negotiated before he arrived.
Cummings cites AIG's lavish corporate parties and historic losses and says Liddy should step down. He said he can't believe most of the bonuses are to retain the executives who have been leading AIG.
"It's like, OK, you got to help me screw you," Cummings said. "And by the way I'm going to take your money and I'm going to slap you with it. As I walk into this $1,500-a-night hotel to have fun."
Liddy will face soon more questions about the bonus backlash as well. He'll be in the hot seat at a House hearing this week to explain how American taxpayers ended up paying millions more to executives who have already cost them billions.
ABC News' Matthew Jaffe and The Associated Press contributed to this report.
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