WASHINGTON (AP) — The chairman of the House of Representatives’ Finnancial Services Committee charged Monday that a decision by financially strapped U.S. insurance giant AIG to pay millions in executive bonuses amounts to “rewarding incompetence.”
Echoing outrage expressed on both sides of the political aisle in the wake of revelations that American International Group will pay roughly $165 million in bonuses, Rep. Barney Frank said he believes it is time to shake up the company.
“These people may have a right to their bonuses. They don’t have a right to their jobs forever,” said Frank, a Democrat.
Appearing on NBC television’s “Today” show, Frank noted that the Federal Reserve Board, using a 1930s statute, was the institution that gave AIG its initial government bailout, before Congress passed legislation providing for additional assistance. He said he did not think sufficient safeguards were built into that initial bailout by the U.S. ccentral bank.
The $165 million was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue.
Said Frank: “These people may have a right to their bonuses. They don’t have a right to their jobs forever.” He added on NBC television’s “Today” show that “it does appear to be that we’re rewarding incompetence.”
AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
It also was disclosed over the weekend that AIG used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks — France’s Societe Generale at $11.9 billion, Germany’s Deutsche Bank at $11.8 billion, and Britain’s Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
On ABC televisions ‘s “Good Morning America” Monday, the top Republican on the Senate Banking Committee, Sen. Richard Shelby, said Congress must do everything it can to make sure the government money going to AIG is handled appropriately. He also said he was angry.
“We ought to explore everything that we can through the government to make sure that this money is not wasted,” Shelby said. “These people brought this on themselves. Now you’re rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It’s outrageous.”
Frank said he was disgusted, asserting that “these bonuses are going to people who screwed this thing up enormously.”
“Maybe it’s time to fire some people,” he said. “We can’t keep them from getting bonuses but we can keep them from having their jobs.”