WASHINGTON – The government will deduct $165 million in proposed aid to bailed-out American International Group Inc. to recoup the cost of bonuses paid to employees of the giant insurer last week, Treasury Secretary Timothy F. Geithner said Tuesday.
In a letter sent to congressional leaders, Geithner said he persuaded AIG Chief Executive Edward M. Liddy last week to scrap hundreds of millions of dollars in future payments after determining that the bonuses already granted would be “legally difficult to prevent.”
Geithner said the company would be required to pay the $165 million from corporate operating funds as part of the final terms for a previously announced $30 billion line of credit from the government. In addition, the credit line will be reduced by the same amount.
The action came amid public outrage over the bonus payments made last week to employees who created and sold the risky financial instruments largely responsible for bringing the New York conglomerate to its knees and helping to wreak havoc in world financial markets.
“There is ire that almost verges … on hate,” said Sen. Dianne Feinstein, D-Calif.
The employees still would keep their bonuses. Seeking to change that, Congress is stepping in with proposals to rip the funds from them by taxing the extra income so much that they would be left with little or nothing.
At least three bills have been introduced in the House this week seeking to place an excise tax of 95 percent to 100 percent on the $165 million in bonuses paid to about 400 employees of AIG’s Financial Products division. Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Charles E. Grassley, R-Iowa, were drafting similar legislation slapping large excise taxes on companies and employees when bonuses are paid by any company receiving government bailout funds.
Grassley, the senior Republican on the Senate Finance Committee, asked Treasury Inspector General Eric Thorson to open a probe into the AIG bonus payments and to determine whether top Treasury officials had some role in approving the payments, according to Grassley’s office.
In a letter to Thorson, Grassley asked whether Treasury officials made any previous efforts to block the bonus payments or demanded that the payments be waived before releasing taxpayer bailout funds.