Congressmen tore into the chief of the AIG insurance company yesterday over the $165m (£116m) of bonuses paid to staff in the financial unit that was responsible for bringing the company to disaster.
They brushed aside Edward Liddy's claims that there was no practical alternative and his revelation that some employees had already offered to give up their bonuses.
"Why pay them, you ask – here's why," Mr Liddy told a House of Representatives committee. "We're trying to prevent an uncontrollable collapse of the business. This is the only way to pay back taxpayers and avoid a systemic shock to the US economy."
Had he been chairman when the bonuses were agreed more than a year ago, Mr Liddy said, he would never have approved them.
It was "distasteful" to have to pay them now but he concluded, with the agreement of the Federal Reserve, that the risks otherwise were "unacceptably high."
The testimony of Mr Liddy, who was appointed by the government, came amid mounting public outrage over the bonuses – or "retention payments" as they are more politely known – paid to staff at a company that is now 80 per cent-owned by the US government and which has already consumed $170bn of public bailout money, with the possibility of yet more to come.
The controversy has briefly overshadowed President Obama's efforts to revive US credit markets and the wider economy and has raised doubts about the job security of the Treasury Secretary, Timothy Geithner, amid complaints over his handling of the AIG crisis and his decision to allow payment of the bonuses.
As he left the White House for a town hall meeting in California, Mr Obama said he had "complete confidence" in Mr Geithner and in his "intelligence and diligence".
No one was working harder than the Treasury Secretary, Mr Obama said, and Mr Geithner was "making all the right moves, in terms of playing a bad hand".
Mr Obama again described what had happened at AIG as "outrageous" but "we must channel anger in a constructive way. We must avoid the situation where we have only two options – either to withhold government money, or have folks get bonuses, with the capacity to sue the government and get even more out of the legal system".
Mr Liddy, who is paid a symbolic $1 a year salary, told the panel he had asked employees at AIG Financial Products, where the reckless derivatives trading was centred, to give back at least half of any bonuses of more than $100,000. Some had volunteered to make 100 per cent restitution – but, he said with an almost bitter note, some would probably also hand in their resignations.
Mr Liddy thus implicitly reiterated an argument he has made previously: that like it or not, AIG needed the people who had helped create the mess to disentangle it.
"I share the anger," he said. The company had made "mistakes on a scale few could have imagined".
Although AIG Financial Products had wound down roughly $1 trillion of its portfolio, about $1.6 trillion remained to be disposed of. To do so in an orderly fashion might take up to two years, he said.
Mr Liddy passionately opposed demands for the names of employees who had received the bonuses to be made public, arguing that this might put them at physical risk. Some had already received death threats, and needed special security.
At one point in the hearing, protesters waved placards but they handed them to police when Paul Kanjorski, the chairman of the committee, said they would otherwise be ejected from the room.
Bonuses of $1m or more were paid to 73 employees at AIG Financial Products, according to Andrew Cuomo, the New York state attorney general, who is leading efforts to claw back the bonuses. Half a dozen employees received $4m or more. Of the 73 staff, 11 had left the company.Reuse content