Federal Reserve Chairman Ben S. Bernanke says American International Group, the insurance giant that has received more than $150 billion from the federal government to avoid collapse, makes him angrier than any other institution in the current financial crisis. He's not alone. Add Treasury Secretary Timothy F. Geithner and President Barack Obama to the list of people outraged by the $1 billion in bonuses AIG is continuing to pay to employees, including some involved in the risky deals at the center of the company's near-collapse. Mr. Obama wants the government to do all that it can to block those bonuses. Good luck, gentlemen, there's likely more outrage ahead.
The performance bonuses due to be paid this month, including $165 million to employees of the financial products division that was largely responsible for driving the company into the ground, should make anyone's greed meter go off. But the problem is the bonuses were promised in employment contracts, and the government's man at AIG - CEO Edward M. Liddy - says there's little to turn this around. But that shouldn't stop the Obama administration from trying, or at least using this tough-to-swallow scenario to its advantage.
Maryland Rep. Elijah E. Cummings, a senior member of the House Committee on Oversight and Government Reform, has a few good ideas. He wants Mr. Geithner to identify the company employees receiving the bonuses and explain how the Treasury Department plans to hold AIG responsible for its promise to reduce bonus payments.
But while government action may delay or reduce some bonus payments and expose some AIG executives to public scorn, federal aid to the company is almost certain to continue with a total cost that could exceed $200 billion, because if AIG collapsed, it would likely take with it pension funds and many banks in the U.S. and Europe. So taxpayers are left with a choice that is really no choice at all: Reward a company for its extreme recklessness, or risk a financial failure that would affect millions.
Members of Congress are certainly partially to blame for letting AIG's unregulated "credit-default swap" trading go forward. They exempted the trading from state gaming laws in 2000. Now it's time for Congress to direct regulators to pay closer attention to this and other risky investments. As for the bonus winners at AIG, they should face the scorn of their fellow Americans and the scrutiny of the Internal Revenue Service.