Payback for payoffs

Our view: The AIG bonuses were just part of a larger national economic scandal that demands honest answers and regulatory reforms

March 19, 2009

Americans are still bubbling with anger over the twisted culture and shoddy ethics at AIG, the insurance giant where employees who gambled billions and lost now have received $174 million in taxpayer-funded bonuses for helping to clean up the mess. The bonuses were supposedly intended to retain key workers, but many have taken the money and run. The more people learn, the angrier they get.

But in its fury, the nation must not forget the recession's larger tragedy of lost life savings, jobs, homes and dreams caused by recent widespread regulatory failure and greed, personal and corporate. Repairing that damage and enacting regulatory reforms to prevent future abuses should be a primary goal of the Obama administration.

And the president pledged yesterday to pursue legislation giving the government greater regulatory authority over financial institutions like American International Group.

The justified outrage over the AIG payoff also should not be a distraction from recognizing that there are still unnamed villains in this saga, including now indignant members of Congress who cleared the way for the bonuses with changes in the recently passed economic stimulus bill and regulators who failed to act quickly to derail the long-scheduled payoffs.

The mysteries still surrounding the AIG scandal must be unraveled or it will be difficult for President Barack Obama or his Treasury secretary to convince increasingly disenchanted citizens and lawmakers that spending the hundreds of billions believed still needed to rescue the nation's banking system is justified.

In an effort to quell the populist uprising, AIG CEO Edward M. Liddy told a House committee yesterday he had asked employees who received bonuses over $100,000 to return half of that money and other executives have volunteered to return 100 percent of their payouts. Mr. Liddy also claimed that the bonus payments were necessary to maximize AIG's ability to pay back the government some of the $170 billion in bailout funds pledged to the company. That argument is less than credible.

Members of Congress should continue to pursue legislation that would allow the government to claw back the bonus money, either from recipients or AIG itself. And New York State Attorney General Andrew M. Cuomo should push ahead with his efforts to scrutinize the bonuses and the alleged need for them. Mr. Liddy has resisted identifying the recipients, saying many death threats had been made. Such threats must be taken seriously. But the bonus recipients know who they are, and they should do the right thing and return these unconscionable payoffs.

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