WASHINGTON — The government will deduct $165 million in proposed aid to bailed-out American International Group Inc. to recoup the cost of bonuses paid to employees of the giant insurer last week, Treasury Secretary Timothy F. Geithner said Tuesday.
In a letter sent to congressional leaders, Geithner said he persuaded AIG Chief Executive Edward M. Liddy last week to scrap or cut hundreds of millions of dollars in future salaries and other compensation after determining that the bonuses already granted would be "legally difficult to prevent."
Geithner said the company would be required to pay the $165 million from corporate operating funds as part of the final terms for a previously announced $30-billion line of credit from the government. In addition, the credit line will be reduced by the same amount.
The action came amid growing public outrage over the bonus payments made last week to employees who created and sold the risky financial instruments that were largely responsible for bringing the New York conglomerate to its knees and helping wreak havoc in world financial markets.
"There is ire that almost verges . . . on hate," said Sen. Dianne Feinstein (D-Calif.).
The outrage was fueled Tuesday as additional details of the bonuses emerged. The top seven bonus recipients were awarded more than $4 million each, with the largest totaling more than $6.4 million, New York Atty. Gen. Andrew Cuomo said.
Twenty-two people received more than $2 million, and 73 received more than $1 million. And even though the bonuses were aimed at retaining key employees, at least 11 are no longer with the company.
Seeking to undo those payments and other AIG retention bonuses, Congress is stepping in with proposals that would, in effect, tax the extra income so that recipients would be left with little or none of it.
At least three bills have been introduced in the House this week seeking to place an excise tax of 95% to 100% on the $165 million in bonuses paid to about 400 employees of AIG's Financial Products division. House Speaker Nancy Pelosi (D-San Francisco) said legislation could be considered by the end of the week.
Senate Finance Committee Chairman Max Baucus (D-Mont.) and Sen. Charles E. Grassley (R-Iowa) were drafting similar legislation slapping large excise taxes on companies and employees when bonuses are paid by any firm receiving government bailout funds. Senate Majority Leader Harry Reid (D-Nev.) predicted it would pass overwhelmingly within days if the AIG bonuses were not returned.
"When a child breaks his curfew, he should get grounded. When someone commits a crime, he should be punished," Reid said. "And when an employee brings his company and our economy to the brink, he's not rewarded with multimillion-dollar bonuses paid by the taxpayers."
Grassley, the senior Republican on the Senate Finance Committee, asked Treasury Inspector General Eric Thorson to open an inquiry into the AIG bonus payments and determine whether top Treasury officials had some role in approving the payments, according to Grassley's office.
The inquiry could turn the heat back on the Obama administration, which has expressed outrage over the payments and wants to challenge them.
In a letter to Thorson obtained by The Times, Grassley asked whether Treasury officials made any previous efforts to block the bonus payments or demanded that the payments be waived before releasing taxpayer bailout funds to the company. Thorson also would examine whether there are contracts that compel the payments and, if so, when those legal obligations were created.
Reid joined Feinstein and 11 other Senate Democrats in writing to AIG's Liddy on Tuesday demanding that the bonus money be repaid. Lawmakers used the threat of tax legislation to force the issue, something they are likely to repeat today during a scheduled appearance by Liddy at a congressional hearing.
"Mr. Liddy, I urge you to fix this mess because . . . if you don't fix it, we will," said Sen. Charles E. Schumer (D-N.Y.), who organized the writing of the letter.
Schumer also had a message for the people who received the bonuses: "If you don't return it on your own, we will do it for you."
There was broad agreement in Congress that the issue had to be addressed at a time when many Americans are struggling to hold on to their homes and jobs because of a financial crisis that AIG and other huge financial institutions helped precipitate.
"A lot of these bonuses are more than my constituents make in a lifetime," said Sen. Amy Klobuchar (D-Minn.). "We are at risk of losing their trust."
Rep. Gary Peters (D-Mich.) said he was particularly angry to hear that the bonuses had to be paid because they were required under a contract. The government is forcing General Motors Corp. and Chrysler to rework their contracts with employees as a condition for getting federal bailout money.