Liddy: some 'distasteful' bonuses will be returned

Edward Liddy, chairman and CEO of AIG, told a congressional panel this afternoon that this morning he asked those who received more than $100,000 in highly controversial bonuses to step up and return half of their payments.

Departing significantly from his prepared testimony, Liddy said that some employees have already agreed to give up their entire bonus.

Liddy said that he shares the public and political anger at the "distasteful" bonuses given to the employees who almost drove the insurance giant to ruin.

But trying to calm the furor over the bonuses, Liddy said the payments were necessary to keep the people who can best extract the company from the risky bets that nearly bankrupted it -- and to make sure that taxpayers get repaid the $170 billion and counting in federal aid and that there is not another financial meltdown.

"No one knows better than I that AIG has been the recipient of generous amounts of government aid," Liddy testified.

The unit that caused the problems has taken $1 trillion off the books, but there is still $1.6 trillion to go, he said.

"I'm trying desperately to prevent an uncontrolled collapse of that business."

AIG paid $220 million in retention bonuses in the troubled financial products division, including $165 million in payments Friday that ranged from $1,000 to $6.4 million. New York Attorney General Andrew M. Cuomo reported that 73 people received at least $1 million.

Before leaving for California, President Obama said the AIG bonuses have been consuming attention and "rightfully so."

"They represent what all of us consider an inappropriate use of taxpayer funds," he said on the South Lawn of the White House.

But he said that just as outrageous is the "culture of greed" that led to the bonuses and the meltdown that is forcing the federal government to "clean up AIG's mess."

He said he has spoken to Representative Barney Frank and met with economic team to fast-track legislation to create a body -- similar to the FDIC for banks -- that would protect consumers and creditors of financial firms like AIG.

Frank, chairman of the House Financial Services Committee, asked Liddy to submit the names of those receiving the bonuses, but the CEO said he would only do so if they stayed confidential.

Frank replied that he would not agree with that restriction and would ask the committee to issue subpoenas for the information.

Liddy said he wanted to comply, but feared for the employees' safety, reading one of the threats he said had been received that talked of executing the workers with piano wire.

Representative Stephen Lynch of Massachusetts was among the most aggressive in grilling Liddy.

When Liddy said he took offense at the attacks, saying he wasn't at AIG when the retention bonus contracts were set last March and he would have done them differently -- Lynch replied that offense was intended.

Lynch said many of his constituents have lost nearly the entire value of their retirement plans and are appropriately outraged that some of those responsible for the market meltdown are receiving extra pay.

Earlier, Frank didn't sound too optimistic that angry members of Congress will get what they want.

"Well, I don't have a lot of confidence in Mr. Liddy's view at this point," Frank said this morning on CNN. "When he said that first he couldn't get the money back because they had contractual rights but also that he was worried about not retaining them, it left me unconvinced he's really going to be trying.

"The notion that we want to retain these people, that we want to pay the people who messed it up in the first place so they don't leave, is just backwards to me. I think we would probably be better off if they did leave," the Massachusetts Democrat added.

Frank instead is pushing the idea of suing AIG to get the bonus money back, pointing out that the federal government owns a nearly 80 percent stake in the company after giving it more than $170 billion in aid.

"I still believe that we have a right legally to recover this, because we can assert our ownership rights and say, yes, you may have had a contractual right to a bonus but your rotten performance means you should forfeit it," he said.

He also complained about the bonus system at AIG, which he says rewarded employees who made the company money but didn't penalize them for huge losses -- the equivalent, he said, of heads you win, tails you break even.

Other members of Congress are promoting bills to tax the bonuses to recoup the money.

And Treasury Secretary Timothy Geithner, who is facing tough questions of his own, told congressional leaders Tuesday night that one option is to deduct the bonus money from the latest $30 billion in federal help to AIG.

On CBS, Frank called that inadequate.

In an op-ed piece published in today's Washington Post, Liddy, who took over AIG last September, says he has seen "the bad side of capitalism" and says that "mistakes were made at AIG, and on a scale that few could have imagined possible."

In the article, which he is expected to echo in his testimony to a Financial Services subcommittee today, he acknowledges the anger at the bonuses but says they were necessary. "Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high."

Liddy also says that under his watch, total 2008 compensation for the top 47 executives at AIG was 56 percent lower than their total 2007 compensation. "My annual salary is $1," he writes. "My only stake is my reputation."