Wyden, Snowe Urge Geithner to Re-Examine Executive Compensation Proposal
Initiative Could Have Prevented AIG's Abuse of Taxpayer Dollars
WASHINGTON D.C. - Outraged at American International Group's (AIG) abuse of taxpayer dollars, U.S. Senators Ron Wyden (D-Ore.) and Olympia J. Snowe (R-Maine) today, in a letter, urged Treasury Secretary Timothy Geithner to re-examine the Wyden-Snowe proposal to force those financial institutions using Troubled Asset Relief Program (TARP) funds to pay excessive bonuses to either return the funds or face an excise tax. A version of the bipartisan proposal -- which was successfully offered as an amendment to the American Recovery and Reinvestment Act -- was regrettably stripped out during House-Senate conference negotiations. Had the initiative been enacted into law, the amendment could have prevented AIG from rewarding top executives in the firm's financial products division, the same group responsible for engineering risky subprime mortgages, which, in part, led to the collapse of the financial markets.
"We are writing to urge you to endorse our legislation to force recipients of taxpayer money from the Troubled Asset Relief Program (TARP) to pay back excessive bonuses or face a stiff tax penalty," Senators Wyden and Snowe wrote. "Legislation will be introduced this week and, judging by the level of public outrage over AIG's recklessness in paying out $165 million in executive bonuses last week, we expect Congress to move quickly to address this abuse of the public trust."
Under the Wyden-Snowe proposal financial institutions that received TARP funds would be required to either repay the cash portion of any bonus in excess of $25,000 or face an excise tax of 35 percent on what is not immediately repaid to the Treasury. In 2008, financial institutions received more than $274 billion through TARP, while paying out an estimated $18.4 billion in employee bonuses, which is roughly the same amount paid out in 2004 when the Dow Jones Industrial Average was over 10,000. If the Wyden-Snowe amendment had been included in the recently enacted stimulus bill, the financially struggling AIG would have had to forgo paying top executives' bonuses or pay nearly $58 million in taxes.
According to news reports, AIG has already paid $55 million in bonuses to its employees and is slated to pay another $395 million in bonuses in 2009 for a total of $450 million. More than $400 million of these bonuses would go to employees of AIG Financial Products - the unit of AIG that engaged in the derivatives trading that led to AIG's financial distress and near collapse.