Thank Frank - Barney Frank and the AIG Firestorm

While American International Group (AIG) claims it was forced legally to pay executives in its Financial Products division, the same people who nearly brought down the company, Barney Frank is looking for a way out.

That is Billion with a “B”

AIG is paying $450 million in bonuses, about $210 million of which was paid to the Financial Products division.  Something is clearly wrong when a company promises bonuses even when it suffers a loss.  AIG reported a loss of $61.7 billion (yes, with a “b”) in the last quarter of 2008. These losses resulted in the government bailing out AIG to the tune of $170 billion.

AIG’s Position

While the AIG Chairman, Edward Liddy, expressed its own discomfort with these bonuses, the company contends it must pay them because of contractual duties. The Treasure Department agreed, but has asked that they scale back future payments. AIG believes it can reduce payments about 30% for 2009, but worries that reducing bonus pay too much could harm the company’s capacity to attract talented leadership.

In AIG’s Defense

In AIG’s defense, they have promised to restructure its executive bonus program for the top 50 executives.  Liddy himself is foregoing bonuses with six other executives. AIG claims the payments to the Financial Products division were retention pay, to keep executives from going to other firms.

Enter Barney Frank

In steps House Financial Services Committee chairman, Barney Frank, an outspoken opponent to big business.  Barney wants to know if the money can be recovered.  Frank believes the payouts represent abuse of the system.

Frank is committed to a deeper investigation into the bonuses paid by AIG.  He wants to know when and how the legal obligations occurred and how a decision could be made to pay bonuses even when the company is losing money. Frank calls for the removal of executives that let do the bonus policies at AIG.

Thank Frank

We can always count of Frank to say what we are thinking ourselves.  $210 billion in bonuses to the same people that nearly bankrupted the company?!?! Especially since the US Taxpayers now own 80% of AIG. While it remains to be seen if the money can be recovered, these questions need to be asked.