PRESIDENT BARACK Obama has called for tougher regulation of the financial services industry to ensure that taxpayers do not have to bear the cost of the failure of institutions such as insurance giant American International Group (AIG).
The president was speaking as AIG’s chairman and chief executive, Edward Liddy, testified before Congress amid mounting public anger over the firm’s payment of $165 million in bonuses to senior staff.
Mr Obama described the bonuses, which came days after AIG’s latest, $30 billion bailout from the government, as outrageous.
“Just as outrageous is the culture that these bonuses are a symptom of, that has existed for far too long: excess greed, excess compensation, excess risk-taking,” he said.
“As we work toward getting ourselves out of the recession, I hope that Wall Street and the marketplace doesn’t think that we can return to business as usual,” said Mr Obama.
Mr Liddy told congressmen that he had asked executives who had received bonuses of more than $100,000 to return half the money, adding that some had already returned 100 per cent of what they received.
“No one knows better than I that AIG has been the recipient of generous amounts of governmental financial aid. We have been the beneficiary of the American people’s forbearance and patience,” Mr Liddy said.
He insisted, however, that despite receiving $170 billion from the federal government, which now owns 80 per cent of AIG, he had to pay top rates to ensure that he retained the best employees.
“We have to continue managing our business as a business – taking account of the cold realities of competition for customers, for revenues and for employees,” he said.
Some Democratic congressmen are demanding the names of the executives who received bonus payments and others have threatened to introduce legislation to tax the bonuses at a 90 per cent rate.
“We are the effective owners of this company,” said Massachusetts congressman Barney Frank, chairman of the House Financial Services Committee, adding that the federal government should take legal action to try to recover the bonus money.
Congressmen yesterday united in outrage over the bonus payments, with New Hampshire Democrat Paul Hodes suggesting that the letters AIG stand for “Arrogance, Incompetence, Greed”.
Republicans in Congress are blaming Treasury secretary Timothy Geithner in the row over bonuses, saying he should have used his leverage over AIG before giving the company $30 billion two weeks ago.
Mr Obama defended Mr Geithner as they stood next to one another at the White House yesterday, however, insisting that the secretary was playing a difficult hand as well as possible.
“There has never been a secretary of the treasury , except maybe Alexander Hamilton, right after the Revolutionary War, who’s had to deal with the multiplicity of issues that Secretary Geithner is having to deal with, all at the same time,” the president said. “And, you know, he is doing so with intelligence and diligence. Nobody’s working harder than this guy.”
Mr Obama said he and his economic team had begun discussions with key players in Congress to introduce legislation creating another regulatory entity to govern the dissolution of large financial institutions such as AIG, as it could have a disastrous impact on the financial system if they were simply liquidated.