Big AIG bonuses got nod from Fed

American International Group’s unpaid CEO Edward Liddy said the company’s board has been in close consultation with the Federal Reserve since November about whether to hand out the $165 million in bonuses it issued to its top employees last week.

The disclosure took Capital Markets subcommittee chairman, Rep. Paul Kanjorski, D-Pa., by surprise and he asked Liddy to clarify his statement.

Since the bonuses were disclosed last week, the Obama administration has said they found out about the payments just before they were handed out by AIG, which is the recipient of $170 billion in government funds and is slated to receive $30 billion more soon.

“Am I to understand you’re saying that Chairman Bernanke or his designated person at the Federal Reserve was informed that you were going to make these payments and acquiesced in that decision?” A puzzled-looking Kanjorski said.

“Yes,” Liddy assured him. “Everything we do, we do in the partnership with the Federal Reserve. The Federal Reserve is at our board meetings, at our compensation committee meetings, at our various meetings on strategy. And they have the ability to weigh in either yea or nay on anything that we decide.”

Liddy told a panel of angry House lawmakers that the AIG board agonized over the bonuses and with the help of the Fed, came to the conclusion that they should pay the money rather than risk losing employees who are managing complicated portfolios that could implode if they quit.

“There was great angst over the payments of these bonuses on all of our part and the judgment we made was that the risk was too great that we would lose all the progress that we made if we didn’t pay these bonuses,” Liddy said.

Rep. Mike Castle, R-Del., who has been critical of Geithner’s involvement in the bonus controversy, asked Liddy to submit in writing a list of the meetings about the bonuses and who was present.

The company works with the Federal Reserve Bank of New York, which was headed by Geithner before he took the helm at Treasury in January.

Liddy said he did not know if Geithner was involved in any of the meetings about the bonuses.

“We do not know a single thing of strategic importance without talking to the Federal Reserve,” Liddy said. “What we have assumed is that our discussions with the Federal Reserve were being properly communicated with others.”

Liddy also disclosed that the company has asked the recipients of the bonuses greater than $100,000 to return half the money and said some employees have already agreed to hand back all of it.

“We’ve heard the American people loudly and clearly these past few days,” Liddy said. “Accordingly, this morning, I've asked the employees of AIG Financial Products to step up and do the right thing.”

President Barack Obama was asked Wednesday morning whether he wished he knew about the bonuses earlier.

“Rather than going into the details finding out, ultimately I'm responsible, I’m president of the United States,” Obama said.

Obama said the more important issue how the government can install “regulatory mechanisms” to ensure the government does not have to bail out companies in the future.

“That requires some regulatory framework,” he said. “All we are trying to say is, you have to be accountable to somebody.”

 sferrechio@dcexaminer.com