18 March 2009

Treasury Will Make Grab to Recoup Bonus Funds.

March 18, 2009.

WASHINGTON -- The Obama administration said Tuesday it would seek to recoup from American International Group Inc. the $165 million in bonuses paid to employees of the bailed-out insurance titan as it tried to contain a national furor over the payments. White House officials are looking to use an executive-pay provision inserted into the recently passed stimulus law. The administration has seized on language that would allow the Treasury secretary to claw back payments if they were "inconsistent with the purpose" of the Troubled Asset Relief Program or "otherwise contrary to public interest."

In a letter to Congress Tuesday, Treasury Secretary Timothy Geithner said the Treasury planned to use the law to deduct the cost of the bonuses from the government's pending $30 billion cash infusion, and will also extract additional penalties from AIG operating funds.

With angry emails and letters pouring into Congress, a number of legislators had earlier expressed support for a special tax on the so-called retention bonuses paid to 73 AIG employees. Recipients of the funds, at AIG's financial-products subsidiary, include 11 people who no longer work for the company.

Senate Finance Committee Chairman Max Baucus (D., Mont.) and Sen. Charles Grassley (R., Iowa), the committee's top Republican, proposed a 35% tax on employees receiving bonuses and another 35% on the firm that paid it. In a move likely to further unnerve banks, the bill would apply to bonuses earned or paid after Jan. 1, 2009, and would cover not just AIG but all companies that received funds from the government's financial bailout fund.

An AIG spokeswoman has repeatedly declined to comment, except to point to AIG CEO Edward Liddy's letter Saturday to Mr. Geithner, in which he said he found the payments "distasteful." Mr. Liddy was appointed by the Bush administration last year.

The bonuses have crystallized public anxiety over the economic downturn and frustration at the government bailouts, creating a firestorm for the White House. President Barack Obama knew he had little power to stop AIG from issuing the bonuses, even as he stood before television cameras and vowed Monday to "block these bonuses," White House officials said.

By the end of the day, the White House acknowledged its limited options. Its back-and-forth response to the scandal poses a potential threat to Mr. Obama's broad agenda -- especially his ability to wrest fresh bailout funds from Congress, lawmakers say. The bonus flap is also another blow to Mr. Geithner, following criticisms concerning his tax history and the launch of his bank bailout revamp.

White House officials say the president's comments Monday reflected his intention to express personal outrage, even if nothing more could be done to block the payouts. He also wanted to start a new legal review of the AIG contracts, the officials say.

Lawmakers received thousands of calls and emails Tuesday about the bonuses paid to executives in the unit that caused AIG's near collapsed. "It smacks of greed, arrogance and worse," said Sen. Sherrod Brown (D., Ohio).

Mike Markey, an electrician in Swanzey, N.H., emailed his representative and both senators to express frustration that lawmakers hadn't acted sooner. "Why don't you people look into these things before you make a law?" he wrote.

"It's not like we're getting a bailout," says Dana Meier, 46 years old, of Rogue River, Ore., who works out of her home for a company that sells supplements for horses and other animals. "Why is AIG allowed to get away with this?"

Some Republicans, while just as angry as Democrats at the bonuses, were less enthusiastic about a tax penalty, with some questioning the propriety and even the legality of interfering with private contracts.

The law generally allows high taxes on bonuses, even for narrowly defined groups of executives, according to legal experts. Directly singling out executives of AIG in legislation might raise a constitutional issue, however, said Robert Cudd, a partner with Morrison & Foerster LLP in San Francisco.

The fact that AIG was set to pay bonuses to employees at the financial-products division wasn't a secret. AIG disclosed the retention payments in May 2008 in a securities filing, and lawmakers routinely criticized them.

"Fed and Treasury officials have coordinated closely on all aspects of the U.S. government's support for AIG during this extraordinary period," a New York Fed spokesman said.

Though the U.S. government controls AIG through an 80% equity stake and as a major lender, it doesn't have legal authority to freeze payments on its own. The U.S. has committed $173.3 billion to AIG, including $70 billion from Treasury's rescue fund.

In negotiating rescues of AIG late last year, some within the government argued the bonuses should be curtailed. Others said that such a move could cause employees to flee and prompt the firm's collapse. Instead, the government looked for other ways to limit executive compensation, including capping severance pay.

AIG set up a committee in November to examine the bonus issue, says one person familiar with the committee. The group included representatives from the Federal Reserve and Ernst & Young, the Fed's auditor. "If they had wanted to reject the bonuses, they had four months to do so," said this person.

Created in 1987, the financial-products business sold insurance-like contracts to cover a variety of risks using the insurer's triple-A credit rating. In 2007, the business recorded a $10.6 billion operating loss, reflecting the falling value of contracts protecting other firms against losses on assets backed by mortgages. The retention packages in question were tied to levels of pay in 2007 that didn't reflect certain losses incurred by the unit, according to company disclosures.

An administration official said that despite having engineered the first two rescues of AIG while president of the New York Fed, Mr. Geithner didn't know about the pending bonuses until last week.

On March 5, just days after AIG received its fourth round of government aid, the New York Fed informed a Treasury official the payments would be made on March 15, according to an administration official. That information wasn't conveyed to Mr. Geithner until last Tuesday, the official said. The next day, Mr. Geithner called Mr. Liddy and had him perform a legal analysis about whether the payments had to be made. Treasury began its own review of whether it could break the contracts.

On Friday, Messrs. Geithner and Liddy conferred again, and the Treasury secretary didn't protest when the AIG chief said the contracts were inviolable.

By the time National Economic Council Director Lawrence Summers appeared on the Sunday morning talk shows, the bonuses were already in the works, said White House spokesman Robert Gibbs. Government lawyers concluded abrogating the contracts would cost more in legal fees than letting the bonuses go forward.

White House officials say the economic team was reflecting the administration's position. But news of the AIG retention bonuses had hit the newspapers that morning, and anger was building. Some Obama advisers said the economists' language needed to be translated into plainer English. On Sunday evening, the president met with his economic and legal team and told them to keep looking for options on the bonuses.

—Sudeep Reddy, John McKinnon, Michael Crittenden and Kelly Evans contributed to this article.

Write to Jonathan Weisman at jonathan.weisman@wsj.com, Naftali Bendavid at naftali.bendavid@wsj.com and Deborah Solomon at deborah.solomon@wsj.com


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1 comment:

jacksmith said...

Finally, the time has arrived to fix Americas Healthcare crisis, and Americas healthcare knightmare. Hundreds of thousands of you are killed needlessly every year by your healthcare delivery system in a rush to profit. And because of a rush to profit Hundreds of thousands more of you are needlessly dying from treatable illness that people in other developed and civilized countries don't DIE! from. Rich, middle class, and poor alike. Insured, and uninsured. Men, women, children, and babies.

Additionally, thousands more of you are driven into financial ruin, and bankruptcy just because you, or one of your loved ones got sick or injured. And all of this is happening at a time when America spends twice as much of it's GDP (Gross Domestic Productivity) on health care than any other country in the developed world. Individual Americans spend about ten times as much on health care as any other people in the developed world. This is a CRIME AGAINST HUMANITY. AND IT MUST END!

But before we can truly fix this healthcare crisis and disgrace, everyone needs to clearly understand what the problem is. And everyone needs to clearly understand the real enormity of the problem. The problem is that HEALTHCARE AND MEDICAL DELIVERY IN AMERICA IS SEVERELY CORRUPTED AND COMPROMISED BY GREED! AND THE PRIVATE FOR PROFIT MOTIVE. And it is corrupted, and compromised IN EVERY ASPECT, AND EVERY PLACE OF HEALTHCARE AND MEDICAL DELIVERY. Unfortunately for all Americans, compromised healthcare ALWAYS results in needless suffering, injury, disability, and or death. Which is exactly what is happening now in America in shocking numbers.

Health care is NOT! a private for profit business. Healthcare is an essential public service. Like police, and fire. And healthcare is also a human right! PRIVATE FOR PROFIT HEALTHCARE IS AN OXYMORON, AND AN IMMORAL AND UNETHICAL PERVERSION OF HEALTHCARE AND HUMAN RIGHTS.

So how do we fix this healthcare disgrace? I believe the fix for Americas healthcare disaster is essentially the same thing that every other developed country in the World has essentially done. "NOT FOR PROFIT, TAX PAYER SUPPORTED, SINGLE PAYER, AUTOMATIC, FREE UNIVERSAL HEALTHCARE FOR ALL. Essentially HR676 (enhanced, and expanded medicare for all). Just like every other CIVILIZED! country in the developed World has. There is no other way to truly fix and reform our current disastrous healthcare delivery system.

All Universal health care systems work best when everyone participates. But I know that the healthcare lobby, and some politicians will try and undermine "Not For Profit, Tax payer supported, Single payer, Automatic, Free Universal Healthcare for all" by falsely claiming that it will limit your choice, and require you to participate.

So, I propose that everyone be included in the national plan unless they choose to opt out. If you opt out and need medical care the national plan will insure your provider that they will be reimbursed under the rules for members in the national plan. But those who opted out, and their insurer will be responsible for the FULL! cost to the national plan for providing your care if you or your private insurer fails to reimburse the provider or the national plan in a timely manor to at least the standards of the national plan.

Including reporting you to credit agencies, withholding of taxes, leans, and garnishment of wages for unpaid medical bills. Just like you have now under private for profit healthcare, and private for profit health insurance.

Further, people who opted out will be required to provide proof of financial responsibility for future illness or be required to participate in the national plan. And everyone with children will be required to participate in the national plan. Or provide proof of insurance coverage on each child to the standards of the national plan. It will be against the law to report anyone in the national plan to a credit agency for unpaid medical bills.

Frankly, only a dope would want to opt out of the national plan and opt to keep our current disastrous private for profit medical, and insurance plans. But they will be free to choose. The most important thing is that the vast majority of Americans that want the protection, benefits, and higher quality of a universal national plan have that choice.

You see, one of the most important aspects of a universal healthcare system is easy access, and patient protection. This is accomplished by having a single payer without a conflict of interest in patient care. And by having a payer who has the power to enforce minimum standards of excellence in healthcare delivery for everyone in the plan. This is much of what Medicare does now for senors. "Aeger Primo" (The patient first). Unfortunately in our healthcare system the patient comes last. We are just a peace of meat to them. Cash cows to be slaughtered for profit.

So this is IT! my fellow Americans, My fellow human beings, My fellow World Citizens. And my fellow Cyber Warriors. :-) The time has come. D day. H hour. HEALTHCARE REFORM THIS YEAR! Let no one stand in our way. Contact your representative and tell them you want "Not For Profit, Tax Payer Supported, Single Payer, Automatic, Free Universal healthcare for all. And tell them you want that choice now. Tell them you want President Obama's budget passed without delay. President Obama's budget is brilliant. And exactly what is needed now.

President Obama, and his allies will need all the support you can give them. The healthcare lobby will try to take out his people if they can, like they did with Tom Daschle and Nancy Killefer. And they will try to neutralize President Obama's popularity, and political power. Or they will try to take him down someway. Don't stand for it. If they attack him. Go after them ten times harder and remove them from office. We had an election. And you the people chose President Obama's leadership, and change agenda. Let no one in government disrespect the will of the American people and remain in office.

To President Obama, his Cabinet, the Congress of the United States, and the Supreme Court. I have noticed for some time a disturbing tendency for key members of your bodies to come down with illness, or medical problems at critical legislative times. This may just be coincidence. But I can tell you that there are a million subtle ways to medically injure someone just by doing nothing when something needs to be done. Or by doing things to someone when nothing needs to be done except to give them reassurance. I know for a fact that there are those that would have no qualms about hurting any of you to preserve our current disgraceful medical status quo.

So, I recommend as a matter of national security that you enlist the help of a friendly power to regularly review, and oversee the medical care you receive from your local regular healthcare providers. Briton, France and many other countries have excellent medical providers. As well as Canada. Briton, and Canada may be less of a language barrier for Americans.

Let's get this healthcare reform done now my fellow Americans. This year. Take no prisoners.

God Bless All Of You

Jack Smith — Working Class :-)