Congress: Give back AIG bonus or else

WASHINGTON - Talking tougher by the hour, livid Democrats confronted beleaguered insurance giant AIG with an ultimatum Tuesday: Give back $165 million in post-bailout bonuses or watch Congress tax it away with emergency legislation.

Republicans declared the Democrats were hardly blameless, accusing them of standing by while the bonus deal was cemented and suggesting that Treasury Secretary Timothy Geithner could and should have done more. While the White House expressed confidence in Geithner, it was clearly placing the responsibility for how the matter was handled on his shoulders.

White House officials, for the first time, on Tuesday night said Geithner told the White House about the bonus payments last Thursday, and senior aides told the president later that day.

Fresh details, meanwhile, pushed outrage ever higher: New York Attorney General Andrew Cuomo reported that AIG last week paid bonuses to 418 employees, including $33.6 million to 52 people who have left the failed insurance conglomerate. It paid the bonuses, including more than $1 million each to 73 people, to almost all of the employees in the financial products unit responsible for creating the exotic derivatives that caused AIG's near-collapse and started the government rescue to avoid a global financial crisis.

"AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout," Cuomo wrote. "Something is deeply wrong with this outcome."

AIG has received nearly $180 billion from taxpayers to stave off insolvency.

Cuomo subpoenaed information from AIG on Monday to determine whether the payments made over the past weekend constitute fraud under state law. AIG has refused to identify the employees on privacy grounds, including one who received $6.5 million, but Cuomo is seeking to obtain and publicize their names.

'It debunks the only plausible argument'

The employees took salaries of $1 in exchange for receiving the bonuses, which were supposed to keep them from leaving AIG, Cuomo said. That, he suggested, undercuts AIG's claims that it could not renegotiate the bonus contracts agreed to early in 2008. And he questioned whether the payments were "retention" bonuses, noting that more than 50 people who received them left anyway.

"It debunks the only plausible argument they had -- that they would die without these people," he said.

A spokeswoman for AIG, Christina Pretto, said it was common knowledge that AIG was eliminating jobs in that division as part of its revamping.

Even before Cuomo divulged the new data, the White House and Congress rushed to get out in front of the mounting public furor. From both ends of Pennsylvania Avenue, officials and lawmakers were condemning AIG, pointing fingers at each other and promising speedy action to recoup the taxpayers' money.

Speaker Nancy Pelosi, D-Calif., suggested the House might pass a measure as early as this week.

Senators, meanwhile, suggested that if the AIG executives had any integrity, they would return the $165 million in bonus money. One leading Republican, Sen. Chuck Grassley of Iowa, even made a reference to Japanese culture and said executives accepting the money should either "resign or go commit suicide," then said he didn't really mean it.

'If you don't return it on your own ...'

Whatever the process, lawmakers said the money belongs back in the government's hands.

"Recipients of these bonuses will not be able to keep all of their money," Senate Majority Leader Harry Reid said.

Sen. Amy Klobuchar, D-Minn., is one of 10 Senate Democrats who said they plan a bill that would levy a 91 percent excise tax on the bonuses. Another measure would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent excise tax on the employees receiving them. The IRS currently withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million.

However, the reaction of Rep. Charles B. Rangel, D-N.Y., of the tax-writing Ways and Means Committee, underscored the legal and political complexities facing lawmakers. Rangel objected to a confiscatory income tax, saying the tax code is not "a political weapon."

However, Frank, D-Mass., noted that the government now is an 80 percent owner of the company and suggested that was grounds to sue to recover the bonuses.

Republicans said Obama and his administration should have leaned harder on AIG executives to reject the extra pay. "I don't know if he should resign over this," Sen. Richard Shelby, R-Ala, said, referring to Geithner. "But I can tell you, this is just another example of where he seems to be out of the loop."

However, White House spokesman Robert Gibbs said Obama retains full confidence in Geithner.