House Prepares to Vote on “AIG Bill”

It is not officially called the “AIG Bill” of course, but there is little doubt that should the bill be passed into law, this is how it shall forever be known. Essentially, the proposal seeks to claw back “excessive” bonus payments handed out by firms receiving federal bailout money and is in direct response to the recent public furor surrounding AIG.

In the space of one week, AIG has become the poster child for corporate greed and is rapidly becoming Enemy Number 1 in the public eye. Already a target for much derision as the recipient of more than $170 billion in taxpayer dollars to save the company from bankruptcy, news that AIG paid out $165 million in bonuses – much of it to executives in the very business unit responsible for derailing the company – touched off a firestorm.

AIG Chief Executive Officer Edward Liddy was even summoned to Washington earlier this week where he told a House Financial Services subcommittee that the bonuses were needed in order to retain the “best and the brightest” talent available, simply added to the controversy. In fairness to Liddy, he only took over AIG last September at the request of the government and was not responsible for the employment contracts guaranteeing these bonuses; nevertheless, he still finds himself firmly planted on the hot seat.

The essentials of the bill are simple; employees earning more than $250,000 including bonuses that work for a firm receiving $5 billion or more in public money, will have bonuses taxed at 90%. The bill is expected to pass the vote as the Democrats hold a majority – it must then go to the Senate for approval.

The fact that this bill is in the works should not come as a surprise to anyone. The Obama administration was forced to take a stand as growing public anger threatened to derail the government’s overall recovery plans. There is just no possible way to politically sell the idea that executives responsible for leading a firm like AIG to the brink of collapse, saved only by a massive infusion of taxpayer dollars, still deserve multi-million dollar bonuses. The potential costs to the government are simply too great as more and more Americans join the ranks of the unemployed and household savings continue to evaporate.

About the Author

Scott Boyd has been working in and writing about the financial industry since the early 1990s. As a technical writer and project manager with several of Canada’s leading financial institutions, Scott has produced educational materials for investment system end-users including portfolio managers and traders. Scott now administers and contributes to OANDA FXPedia and regularly provides commentaries for the OANDA FXTrade website.

This article is for general information purposes only. It is not investment advice or a solicitation to buy or sell securities. Opinions are the author’s — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use apply.