AIG hysteria reaches fever pitch

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America is pissed -- and so are its Congressmen. According to MSNBC.com, the House of Representatives and Senate is each expected to introduce legislation that will levy a tax on bonuses awarded to executives of companies receiving bailouts. The tax rate in the House's version? Ninety percent. Ouch is right.

Of course, such a draconian measure is probably unconstitutional, but the rage over the American International Group Inc. (AIG) bonuses is so great that questions of legality have become secondary. Rep. Barney Frank (D-MA) is even arguing that the government should file suit to get the money back. Legal experts predict both efforts have little chance of standing up in court. The chances they could make a few tens of millions us feel a little better, though, are substantially higher.

Meanwhile, AIG Chief Executive Edward Liddy looked like a deer caught in the headlights when he testified before Congress today about the $165 million in bonuses awarded to workers in the company's Financial Products division, whose recklessness is responsible for bringing the world's largest insurer to the brink of financial catastrophe. He tried to offer an olive branch by saying some employees have agreed to return their bonuses.

"I've asked those that received retention payments in excess of $100,000 or more to return at least half of those payments," Liddy said. "Some have already stepped forward and offered to give up 100 percent of their payments."

Congress was not impressed. Frank, chairman of the House Financial Services Committee, said he will push for Congress to subpoena AIG for all the names of the employees who received the bonuses. Liddy demurred, explaining that death threats have already surfaced against recipients.

The rage against AIG shows no signs of ebbing. Although the White House has said that the Treasury Department first learned about the bonuses last week, Liddy told Congress that the Federal Reserve was aware of them. That spells trouble for Treasury Secretary Timothy Geithner, a former head of the New York Federal Reserve, who would, or should, have been in the loop when the payments were discussed. President Obama is backing Geithner, but his support appears shaky.

Questions abound about who knew what, when. Things are going to get ugly.

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