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How to get back the AIG bonus money

March 16, 2009 |  6:58 pm

Some random ideas from the blogosphere on how the government can reclaim the retention bonuses paid to American International Group employees:

As the 80% owner of AIG, the government should try to force the company into "naming and shaming" the bonus recipients. Better yet, give them a choice. AIG Financial Products employees who forgo bonuses until certain taxpayer-friendly performance hurdles are met will not see their names in lights. Or maybe if they decided to contribute more than 50% of their bonus to qualified charities they might be spared public humiliation.

Note that a naming-and-shaming campaign could be in the works from New York Atty. Gen. Andrew Cuomo, who plans to subpoena AIG to identify the bonus recipients and to get copies of the contract agreements.

Right now, even Cuomo hasn't seen the contracts which AIG is convinced are so ironclad. And it might just be the case that AIG's contractual obligation to make the bonus payments is a bit like an underwater homeowner's contractual obligation to make his mortgage payments. If AIG simply didn't pay the bonuses, would the employees of the financial products arm really fancy their chances in court were they to sue to receive them?

It's possible that they would "win" such a court case -- if by winning you mean having your picture splashed across every TV screen in the land as an exemplar of out-of-control greed and avarice. Which is why AIG could probably have quite a persuasive conversation with the AIGFP employees, along these lines:

"We know we promised you this money, but it's clearly politically impossible for us to pay it to you. So you're not getting the bonus you were counting on. Sorry about that. At this point, you have three choices. You can continue to work for us, and keep your job. You can quit, and find a better-paying job elsewhere. Or you can quit, and sue us for the bonus that we promised you. Your call. But if you choose the third option, you'll probably want to hire a PR person at the same time as you hire a lawyer."

If I were president, I would simply tell the executives who opt to take the bonuses that they will automatically be enrolled in a new government anti-fraud program called "AIG Bonus Watch," which will entail intensive FBI background checks of all their business dealings for the last decade to make sure they are worthy of taxpayer dollars. The names of the executives will be mailed to former associates with confidential forms asking for tips about misconduct.

President Obama can bring retired FBI agents out of retirement to turn over every rock at AIG for a connection between the bonus and the fraud at the company. I bet a lot of those retirees are just as angry as me and would volunteer to dig around in an AIG executive's file cabinet.

Larry Summers claims that nothing can be done about the AIG bonuses. As a former Secretary of the Treasury, he should know better.

Treasury Secretary Tim Geithner should direct the Commissioner of Internal Revenue to challenge the AIG bonuses as unreasonable compensation under the Internal Revenue Code. Finding the AIG bonuses to be unreasonable compensation would render them nondeductible for federal tax purposes, and would strengthen potential shareholder derivative suits to recapture The Great AIG Giveaway.

The American taxpayers would thereby recoup some of the money they advanced to keep AIG solvent, money which wound up instead in the pockets of AIG's managers. Even if AIG does not owe any federal income tax this year, challenging the bonuses as unreasonable compensation prevents AIG from carrying the deduction forward for use as net operating losses (NOLs) to offset future corporate earnings and thereby reduce AIG's future income taxes.

Of course, with the government now controlling an 80% stake in AIG, anything that hurts the company’s long-term viability also potentially hurts taxpayers.

Peters said Monday that he will introduce legislation that would essentially tax 100% of the controversial bonuses paid to employees of AIG.

Peters’ bill would apply a 60% surtax on any bonuses over $10,000. When combined with regular federal income tax and state and local taxes, Peters said, the bill should return essentially all of the bonuses to taxpayers.

Among the challenges for any such legislation is the "bill of attainder" clause of the Constitution, which bars Congress from passing laws that punish any specific individual or entity without a trial.

Peters would seek to get around that requirement by applying his legislation to any company in which the government holds a stake of 79% or more -- a description that applies only to AIG.

Rep. Carolyn Maloney (D-N.Y.) is on the same page. Politico.com reported that she was seeking cosponsors for a bill that would instruct Treasury and the Internal Revenue Service to develop guidelines that would tax at 100% any non-commission-related bonus "for any recipient of government bailout funds in cases where the federal government is the majority owner of the company."

  • And finally, Sen. Charles Grassley (R-Iowa) offers a suggestion that presumably would make sure no more bonuses are awarded. From the Associated Press:

Iowa Sen. Charles Grassley suggests AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.

The Republican lawmaker's harsh comments came Monday during an interview with Cedar Rapids, Iowa, radio station WMT. They echo remarks he has made in the past about corporate executives and public apologies, but went further in suggesting suicide.

Grassley says AIG executives should follow "the Japanese example" by publicly apologizing and "do one of two things: resign or commit suicide."

Grassley spokesman Casey Mills says the senator "doesn't want U.S. executives to do that," but says those who accept tax dollars and spend them on travel and bonuses do so irresponsibly.

-- Tom Petruno

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