US administration and lawmakers have again lambasted insurance giant American International Group's plan to dole out $165 million in bonuses and retention pay to employees.
A major part of this will go to employees in the very business division that wrecked the company's finances. (See: New York attorney general warns AIG over executive bonuses)
AIG has received $170 billion in tax payers money since being saved from bankruptcy in September. The insurance giant suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. (See: AIG may report largest ever quarterly loss in corporate history)
"The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous," Larry Summers, the president's chief economic adviser, said.
''There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous,'' Summers said on CBS's ''Face the Nation'' programme.
But he added: "We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken."
Edward Liddy, the AIG chairman, said he was bound to pay employee's contractual entitlements, but the troubled insurance giant has agreed to administration requests to restrain future payments by at least 30 per cent.
Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.
Liddy, who was recruited by the US government to run the insurer after the bailout, has vowed that the company will repay ''every penny'' to the US of its bailout package by selling subsidiaries. (See: AIG may sell over 15 businesses to repay $85 billion Fed loan).
He said the retention pay for talented people helps taxpayers by making the units attractive to buyers.
The Treasury Department admitted that the government did not have the legal authority to block the current payments by the company.
Senate minority leader Mitch McConnell said the example of AIG might be followed by other companies lining up for government assistance.
''The message here, I'm afraid, to any business out there that's thinking about taking government money, is let's enter into a bunch of contracts real quick, and we'll have the taxpayers pay bonuses to our employees,'' the Republican said.
During a testimony to the senate Budget Committee, after allocating $30-billion government bailout funds to the troubled insurer AIG last month, US Federal Reserve chairman Ben Bernanke said, "I think if there's a single episode in this entire 18 months that has made me more angry, I can not think of one, than AIG". (See: US government injects additional $30 billion in AIG).
The government has pumped hundreds of millions of dollars into financial institutions through various stimulus packages. The administration is now a significant shareholder in dozens of bank.
Bonus programs at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat. AIG is the largest recipient of government support in the current financial crisis.
New York Attorney General Andrew Cuomo is investigating $3.6 billion in bonuses paid by Merrill Lynch shortly before it was acquired 1 January by Bank of America.