The Washington Post, Los Angeles Times, and New York Timeslead with the continuing outrage over the bonuses paid by American International Group last week. This controversy isn’t going anywhere anytime soon, and new details seem to come out daily that only help to further fuel the fire. New York Attorney General Andrew Cuomo revealed yesterday that the $165 million in bonuses went to 418 AIG employees, including $33.6 million handed out to 52 people who have left the company. A total of 73 AIG employees received bonuses of $1 million or more, including 11 who are no longer working at the insurance giant. Trying to calm the uproar that has broken out among lawmakers and the public, Treasury Secretary Timothy Geithner said he would deduct the cost of the bonuses from the pending $30 billion cash infusion to the insurance giant that would bring the total amount of taxpayer money that AIG has received to around $200 billion.
The Wall Street Journalleads its world-wide newsbox with Russian President Dmitry Medvedev striking “a Cold War tone” as he pledged to go ahead with rearmament plans in response to what he said were NATO’s plans to expand close to Russia’s border. The comments were made a few weeks before Medvedev is scheduled to meet with President Obama for the first time and were widely seen as a negotiating tactic. USA Todayleads with word that Transportation Security Administration officers will be stepping up efforts to screen randomly selected passengers before they board a plane. The TSA has already been carrying out this double-screening at airport gates, but passengers can expect to see more of their fellow fliers pulled aside while boarding, particularly in what are described as riskier flights.
Leading Democrats tried to “get out in front of the mounting public furor,” as the NYT puts it, over AIG by proposing a variety of measures that would use the tax code to punish those who refuse to voluntarily give back their bonuses. At least three separate bills have been introduced in the House that would impose a tax rate of anywhere from 95 percent to 100 percent on the AIG bonuses. For example, one of these bills, introduced by Democratic Rep. Gary Peters of Michigan, would impose a 60 percent surtax on top of the normal 35 percent income tax on bonuses over a certain amount paid by any company in which the government holds at least a 79 percent equity stake. “AIG is the only company in that category,” explains the LAT.
The Senate is also drafting similar legislation, and one proposal by the chairman of the Senate Finance Committee would impose large excise taxes on bonuses awarded by not only AIG, but any company that receives bailout funds. The NYT, however, points out that this may be an imperfect solution because some of the AIG employees who received the money are foreigners living abroad and so wouldn’t have to pay U.S. taxes regardless. Republicans were less enthusiastic about endorsing these tax proposals and warned they could run into some legal issues. Whether such a move would be legal is unclear. One expert tells the LATthat “Congress can tax anything they damn well please,” but others said that directly singling out AIG executives could raise constitutional issues.
Republicans didn’t issue any proposals to get the bonus money back but loudly questioned what these payments say about oversight of the companies that have received taxpayer cash and made it clear they would reject any more bailout requests. “No more bailouts,” House Minority Whip Eric Cantor said. “The American people have had it. They want this Congress to get back to fiscal discipline and restraint and the belief that the freedom to succeed includes the freedom to fail.”
A group of prominent Democratic senators wrote to AIG Chief Executive Edward Liddy urging that the bonuses be repaid. You can bet that the issue will be brought up again today when Liddy testifies before a House subcommittee. The WP reports that Liddy is expected to send out a letter to AIG employees asking them to return the bonus payments.
In preparation for his congressional hearing, Liddy, who was appointed head of AIG by the Bush administration in September and receives an annual salary of $1, writes an op-ed piece in the WP today. Liddy says that he “would never have approved the retention contracts” and assures readers that making the payments “was distasteful.” Liddy also insists AIG has every intention to return all the taxpayer money to the government and is “making progress” toward that goal. The most important lesson that must be learned from the AIG debacle is that the government must put in place “safeguards against the systemic consequences of failures of large, interconnected financial institutions.” As long as the American people are patient and the government continues to support the company’s efforts, “we can resolve AIG’s challenges and help its businesses contribute to a global economic recovery.”
Just because Liddy agreed to come out of retirement for an unenviable $1-a-year job doesn’t mean he’s above criticism. The WP’s Steven Pearlstein writes that Liddy could have come up with several different ways to renegotiate the contracts before last week’s deadline, but so far all Liddy “seems to have served up is a litany of complaints about what a bad hand he was dealt.” At the very least, Liddy could have been more transparent about the company’s situation with the taxpayers. “Instead, [Liddy] has not only left us wondering whose side he’s really on, but also, because of the bonus backlash, he has managed to put the entire financial rescue effort in political jeopardy.” Liddy isn’t the “only one on Wall Street who can’t quite grasp the idea that extraordinary times require a different way of doing things.” Wall Street executives still act as if it’s their duty to maximize personal profits, even if it’s the taxpayers who will be footing the bill.
In its daily front-page chart, USAT reveals that only 26 percent of Americans think people on Wall Street are “as honest and moral as other people.” In 2006, that number was 41 percent.
Just in case there isn’t enough outrage over the AIG bailout, the WSJ goes high with word that some of the taxpayer money that went to AIG could be used to pay hedge funds that made bets against the U.S. housing market. Basically that means that while the U.S. government is devoting billions to try to lift the housing market, it is also “putting up cash that could be used to pay off investors who bet housing prices would tumble and many mortgage holders would default,” explains the WSJ. Although the transactions were perfectly legal, they do illustrate how “AIG strayed from its core business” and was heavily involved in financial speculation. An investment consultant says that, in essence, taxpayers now have to pay AIG’s “gambling debts.”
The WP takes a look at how several financial firms are looking on at the outrage over AIG’s bonuses and are suggesting they want to stay as far away from it as possible. If enough financial firms are actually serious about this, it could eventually threaten the government’s efforts to persuade private investors to get involved in its numerous economic recovery programs. “Am I afraid of the populist outrage? Yes,” said the chief executive of a private-equity firm that is considering participating in the government’s efforts to thaw the frozen credit markets. Some say they’ll wait to see how early participants fare before jumping in.
The NYT off-leads word that the Obama administration is weighing whether it should extend the reach of the missile strikes being carried out by CIA-operated drones into areas beyond the lawless tribal regions of Pakistan. Some officials want to expand the covert war in Pakistan to include the area in and around the city of Quetta, which the paper describes as “a major insurgent sanctuary.” There are fears that extending the strikes would increase tensions with Pakistan’s government, which often complains the ongoing strikes violate the country’s sovereignty. But some officials say that extending the reach of the drones is imperative because many Taliban and al-Qaida leaders have fled the tribal regions, and the Pakistani military seems unable or unwilling to stop the spreading insurgency.
The NYT’s Thomas Friedman writes that the “the anger level in the country is reaching a Bonfire of the Vanities, get-out-the-pitchforks danger level.” There are several reasons why this is dangerous, but mostly because it “could overwhelm the still really difficult but critically important things we must do in the next few weeks to defuse this financial crisis.” If there’s any hope to fix the financial system, it’s likely that Obama will need to request the extra $750 billion it has already warned Congress about in order to get the toxic assets out of banks’ balance sheets. “The only person with the clout to sell something this big is President Obama.” Sure, everyone will have to pitch in, but ultimately Obama will be the one who has to “persuade people that this is the least unfair and most effective solution,” writes Friedman. “It will be his first big leadership test.”