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AIG names firms that got bailout cash

The disclosure, long sought, doesn't drown out the topic of the day: outrage over employee bonuses.

March 16, 2009|E. Scott Reckard and Tom Petruno

American International Group Inc. bowed to increasing pressure in Congress on Sunday and disclosed the names of dozens of banks and other institutions that benefited from the first chunk of $180 billion in bailout funds it received.

The concession came as public officials expressed outrage at the giant insurer's decision to pay $165 million in bonuses to key employees.

"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," Lawrence H. Summers, Obama's top economic advisor, said on CBS' "Face the Nation."

AIG and the Federal Reserve have been pressured for months by some members of Congress to reveal the names of the banks and other institutions that were paid after the company -- teetering on the brink of failure because of plummeting investments -- received an $85-billion loan from the Fed in September.

AIG's downward spiral was accelerated by losses related to its huge business of insuring high-risk mortgage securities against default, via complex agreements known as credit default swaps. As the housing meltdown worsened last year, AIG's guarantees, which the company had sold to major banks and brokerages in the U.S. and abroad, came back to haunt it.

The federal rescue of the insurer has since doubled in size, and U.S. taxpayers now own 80% of the company.

The company said it shelled out nearly $100 billion in the final few months of the year to satisfy some of the contracts it had outstanding under credit default swaps and other insurance and investment agreements.

The beneficiaries included major foreign banks such as Germany's Deutsche Bank and France's Societe Generale, as well as U.S. titans Goldman Sachs Group and Merrill Lynch & Co.

U.S. municipalities, including some in California, also benefited as AIG settled up payments due under guaranteed investment agreements, under which states, cities and other municipalities temporarily park funds raised from bond sales. California entities received a total of about $1 billion.

The potential for an AIG collapse to bring down other financial giants worldwide, because of what the insurer owed other institutions, was the major justification the government cited for the massive bailout. But until now, taxpayers haven't been told which institutions ultimately were on the receiving end of the money funneled to AIG.

"The aid received by AIG helped avoid severe financial disruptions by providing liquidity to important financial institutions and municipalities," the company said in a statement.

The company's critics, however, are likely to focus on whether AIG could have negotiated with its bank clients to pay less than demanded under the contracts, as a way to save U.S. funds.

But it was the outrage over the $165 million in bonuses paid to AIG brass that consumed the public and filled the airwaves Sunday.

Obama administration officials and top Republicans took to the political talk shows to deplore AIG's payments of bonuses and retention pay to employees of its financial products division, which had engineered the money-losing deals with the other financial firms.

Summers said the administration's hands were tied because AIG's retention bonuses were part of contracts agreed to more than a year ago, before there was any bailout.

Senate Minority Leader Mitch McConnell (R-Ky.) said on ABC's "This Week" that other companies might use AIG as a template for improper bonuses of their own.

"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,' " McConnell said. "This is an outrage."

Readers were angry after reading a Times story Sunday on the bonuses and the administration's grudging acknowledgment that most of them must be paid.

"Paying the creeps, I don't care on what level they are on, is nuts!" Rola Cook of Molalla, Ore., wrote in an e-mail. "Let 'em go to court. Let 'em sue. Let 'em go to hell!"

During CBS' "60 Minutes" program in which Federal Reserve Chairman Ben S. Bernanke was interviewed, Michael Shields of Minneapolis tried to stir up an e-mail campaign to let Bernanke know that Americans "have incurred enough pain and suffering" and want the payments stopped.

Referring to the government owning 80% of AIG's stock, he said in an e-mail to Bernanke: "As a shareholder of AIG, I am casting my vote to cease further bonus payments until such a time as AIG has paid back all existing shareholders (a.k.a. taxpayers)."

Bernanke, meanwhile, again expressed his ire over the AIG bailout, saying it had angered him the most over the last 18 months, as economic disaster followed upon economic disaster. He recalled "slamming the phone more than a few times on discussing AIG."

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