Officials Knew Of AIG Bonuses For Months

Washington Post: Key Congressmen Knew About Bonuses In October

(Washingtonpost.com)  This story was written by Washington Post Staff Writers David Cho and Brady Dennis.

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As American International Group chief executive Edward M. Liddy returns to Washington to face Congress today, new details are emerging about how long federal officials were aware of the company's recent bonus payments to its executives and of how inflammatory the payments could be.

Documents show that senior officials at the Federal Reserve Bank of New York received details about the bonuses more than five months before the firestorm erupted and were deeply engaged with AIG as well as outside lawyers, auditors and public relations firms about the potential controversy. But the New York Fed did not raise the alarm with the Obama administration until the end of February.

Timothy F. Geithner, who became Treasury secretary early this year, was the head of the New York Fed when it became aware of the bonus details. But his name is not among those of senior New York Fed officials mentioned in the summaries of phone calls, correspondence and other documents obtained by The Washington Post.

Those documents also illuminate who in the government, beyond the New York Fed, knew what about the bonuses at AIG's most troubled unit, and when.

Key members of Congress began investigating the payments as long ago as October and, beginning in January, repeatedly warned the Treasury about the matter.

In early February, Fed officials in New York sent details about the bonus program to their counterparts at the Federal Reserve in Washington, to prepare Chairman Ben S. Bernanke in case he was asked about the payments at a congressional hearing.

By the time the Obama administration was fully engaged in early March, the New York Fed had determined that AIG was legally bound to pay the bonuses to its Financial Products division, the documents show. Top New York Fed officials also huddled with AIG about developing a strategy to mollify angry lawmakers -- but that did little to quell the firestorm that ensued.

The furor over the bonus payments at AIG -- the crippled insurance giant that is benefiting from a government bailout of more than $180 billion -- disappeared from public view as quickly as it erupted in mid-March.

At the height of the controversy, the House passed a resolution that would tax the bonuses at 90 percent and the Senate introduced an even harsher bill, which it abandoned as AIG employees began promising to return the money.

But even after the storm, the fallout remains. As the financial crisis demands their attention, senior Treasury officials have met several times a week since March to review, one by one, the bonuses of even lower-ranking AIG executives, sources familiar with the discussions said. Geithner attended some of the initial meetings.

Ongoing Legal, Tax Issues

AIG is still grappling with the legal and tax issues surrounding the bonuses while trying to stay afloat. And while employees of AIG's Financial Products division have said they intend to repay nearly a third of their $165 million in bonuses in response to the public outcry, it is unclear when or how much will be returned.

After the initial $85 billion federal bailout of AIG in September, the New York Fed, which is accustomed to dealing with banks, struggled to understand a complex global insurance company.

"They really didn't know us at all," said one AIG executive, who was not authorized to speak publicly. "We had a real education process with them. They were asking us questions on a gazillion different issues."

By Sept. 29, the bonus matter first appeared on the radar of the New York Fed, which was designated as the primary contact for AIG, documents show. Senior officials from the New York Fed met with AIG officials to discuss the compensation plans in place at Financial Products, whose risky derivative contracts had brought the insurance giant to the brink of collapse.

AIG e-mailed officials at the New York Fed copies of the company's compensation plans, which detailed bonuses and retention payments, including those at Financial Products, documents show. The issue arose in scores of meetings and conference calls over the ensuing months. AIG also disclosed its retention programs in public filings.

For the New York Fed, the primary contacts were Jim Hennessy, counsel and vice president, and Sarah Dahlgren, a senior vice president and head of its bank supervision group. Leading the effort at AIG was Anastasia Kelly, the company's executive vice president and general counsel. Ernst & Young participated as an outside auditor, along with New York law firms including Sullivan & Cromwell.

Throughout the fall, the correspondence between New York Fed officials and AIG proceeded but without the urgency of later discussions. The company was still in danger of imploding -- along with the rest of the financial system -- so examining bonus payments to several hundred employees was not a top priority among the Fed officials.

Geithner has said in interviews that he was getting regular updates as president of the New York Fed and was vaguely aware of the bonus issue but that he was not apprised of the specifics.

A Political Storm Erupts

The spark that would grow into a political firestorm began in October when lawmakers began to request documents about the compensation at Financial Products.

Rep. Elijah E. Cummings (D-Md.) in particular latched on to the issue.
By January, AIG was feeling heat from lawyers at the House Financial Services Committee, and from the offices of Rep. Paul E. Kanjorski (D-Pa.) and Rep. Joseph Crowley (D-N.Y.), who one staff member noted in an e-mail to AIG was "very upset about these payments." Kanjorski has said that around this time his staff began calling the Treasury about the issue and sending letters, but communication was hindered by the transition between administrations.

The frequency and urgency of the correspondence between AIG and the New York Fed ratcheted up. Fed officials openly debated with AIG officials over how to handle the coming storm and examined whether there was a legal way to escape making the bonus payments or at least delay them.

"Did we think people were not going to like this? Sure," an AIG executive said. "But did we think it was going to be the Armageddon of compensation? No, we didn't."

The New York Fed officials continued to keep their bosses in Washington updated. On Feb. 9, Hennessey e-mailed the Fed in Washington, informing officials that the retention programs were devised in 2007 -- "another fact relevant to any question Bernanke gets on FP retention."

Bernanke has said in congressional testimony that he was not made aware of the issue until around March 10. After his staff informed him about it, he tried to stop the payments but was counseled by Fed attorneys that there may be no legal way to do so.

In Plain Language

As the outcry on Capitol Hill grew louder, Hennessy of the New York Fed sent an e-mail to Stephen Albrecht, a Treasury attorney, on Feb. 28, documents show. The correspondence was intended to set off alarm bells: More than $160 million in bonuses would be paid in March to AIG's Financial Products unit, the e-mail stated plainly.

"This was triage, Treasury triage," said the AIG executive, noting the department had been largely absent from the discussions to that point. "When they finally realized it was a heart attack and not the measles, it was too late."

By that time, senior officials at the New York Fed and AIG were resigned that nothing could be done to stop the bonuses. On March 2, Hennessy received an opinion from an outside legal counsel concluding that AIG could be sued if it failed to make the payments as originally crafted.

That same day, the company posted a $62 billion loss for the fourth quarter of 2008, the largest corporate loss in U.S. history. The government announced its fourth bailout for the firm, raising the total rescue package to more than $180 billion.

After growing convinced they could not restructure the payments, Hennessy, Dahlgren and top AIG officials focused on devising a strategy for presenting the matter to Capitol Hill.

Senior Treasury officials have said they had been aware of the bonuses, but not their specifics, since early February. But the e-mails from Hennessy alerted the department that big trouble was on its way.

Geithner said in interviews that he had been preoccupied with the financial crisis and was taken aback when he was told about the extent of the bonuses. But he said he took responsibility for not knowing about the details of the bonuses earlier.

Geithner called Liddy on March 11, demanding that the company restructure the bonuses. Liddy began drafting a letter that bowed to some of Geithner's concerns. Because the letter was to be released publicly, Treasury officials reviewed drafts and suggested changes.

The letter was released March 14. But it was too late. The bonuses to executives at Financial Products were already heading out the door.

[the74blaster]

STOCK MARKET CRASHING

This past week, the Dow has been on its classic pre-crash signatoure - up over 1% one day, down over 1% the next day, up, down, up.

Today it's on a plunge down through 8300.

The Dow looks like the crash animation of that Continental plane that crashed in Buffalo.
Posted by weedapoopl at 8:25 AM : May 13, 2009

Could be. Can anyone tell me how the economy is going to rebuild with all the unemployment?

.

[the74blaster]

The key statement in this article is: "The furor over the bonus payments at AIG -- disappeared from public view as quickly as it erupted in mid-March."

The American public were had... lied to by a President that knew in advance but pretended he was 'shocked' for the desired effect. Obama is either very stupid or a liar... since his signiture authorized the bonuses, I'll go with "liar".
Posted by despido at 9:09 AM : May 13, 2009

According to the article they key congressional members knew about the AIG bonus payments in October of 2008. I am confused, I thought Bush was in office in October 2008.

So it turns out Bush gave it away and Obama swept it under the rug....Nice.

[ajjaxtheleast]

"FANNIE AND FREDDIE",,,,,There!,,That's for anybody who swallowed
poison and needed to vomit,,,

Uncalled-for cutesie names for serious business,,,,

I really shouldn't hate the names,,,they sound like democrats,,

"Eddie" and "Freddie" sounding like repubs I could understand.

[credibility2]

I wonder how many bus loads of whining complaining misfits from Acorn will be camping out in front of the houses of Fannie and Freddie execs to decry their bonus payout in the face of taxpayer bailout scandal? Where are these neanderthals? Why aren't they intimidating, inciting, protesting without permit, threatening, etc.? Oh, I forgot, these types don't care about fairness because they're to ignorant to know any better.

[despido]

The key statement in this article is: "The furor over the bonus payments at AIG -- disappeared from public view as quickly as it erupted in mid-March."

The American public were had... lied to by a President that knew in advance but pretended he was 'shocked' for the desired effect. Obama is either very stupid or a liar... since his signiture authorized the bonuses, I'll go with "liar".

[ajjaxtheleast]

"However it's unclear how much or when the repayments of the
bonuses will be returned by the AIG employees."

Fortunately we can tell them,,,,when the judge says:,,,

"Skyler Shylock I sentense you to,,,,HUH? What's this?"

"Your honor!,,, that's my promised return of the bonus money!"

[specialty8]

Wonder where all the libs that are usually kissing his back side are at today? Still reading the pirate story, or enjoying the poetry jam last night at the Whitehouse? Seems they only hear what they want to hear, not the truth.

[herman711]

"Officials Knew Of AIG Bonuses For Months"

Fer cripes sake..

[credibility2]

How long did the "officials" also know about bonus payouts by bailed out Fannie and Freddie? Why the continued witch-hunt against AIG and not the same for the sacred government cows like Fannie and Freddie? Ah yes, suppression of information by the Obama hyena jackals and their boot-licking media pals.

[impeachbhb]

Obama and his highly incompetent adminstration coupled with the idiots we have elected to Congress are going to drive us to the level of a third world country.

Tim Geithner should never have been given the job and certainly not allowed to keep it. Our Communist in Chief has never done anything except write books and run for office. It becomes more apparent every day he thinks being President is just another campaign.
Obama and Geithner together could not reconcile cash receipts as well as the average clerk in a 7-11 yet we are stupid enough to trust them with trillions of borrowed money.

Didn't someone say in his campaign that America had to adjust to live within our means.
He is spending and borrowing our means away.

Out with this bunch of illegitimate children.

[weedapoopl]

STOCK MARKET CRASHING

This past week, the Dow has been on its classic pre-crash signatoure - up over 1% one day, down over 1% the next day, up, down, up.

Today it's on a plunge down through 8300.

The Dow looks like the crash animation of that Continental plane that crashed in Buffalo.

[weedapoopl]

OK OK OK, all partisanship aside:

Why is there still outrage over the AIG bounuses, when we have learned that Fannie Mae and Freddie Mac paid the same kind of executive retention bonuses, with no outrage?

We haven't heard a peep out of Barney Frank about the bonuses at Fannie and Freddie, after he was so vocal about the AIG bonuses.

Come to think of it, I haven't heard a peep out of him about anything since that story broke.

Well, I said I wouldnt' be partisan.

It's not my fault Barny Frank happens to be a Democrat.

[weedapoopl]

Have you ever noticed that the majority of the people stealing our money are
either MBA or Law graduates of Ivy League schools ?
Posted by usafirst1 at 8:11 AM : May 13, 2009

You mean, like President Obama? Wasn't he a law professor at Harvard?

Yes, many of these thieves are staunch Democrats, like Madoff.

[specialty8]

Can you beleive the dems think they will finish off the republicans in 2010. I have never ever seen so many blunders for only 100 days. Even the ones that put this community organizer with not one lick of experiance in the Whitehouse have to be wondering whats coming down on us next. Every week it's something new.

[grabandgo]

Gee does that mean or government is in ka-hoots with these thieves?
Let the hangings begin!
nobama administration is just as corrupt as the previous admin.

[platteman]

Just as I thought, cry foul even when you know the facts. Typical, fain outrage when you know the facts.

Liar, Liar, pants on fire. Who could have guessed it!! Guess everyone has some hand in the pie somehow.
What did they know?, when did they know it?, why did they fein such outrage,? Will We Ever Know The Truth? Not if Obambi's guys are in charge!!

[mjvwsr]

"Officials Knew Of AIG Bonuses For Months"

why doesn't this surprise me?

[valh1]

Well, surprise, surprise, surprise.