Washington struggles to contain AIG firestorm

New revelations about staggering bonuses awarded to employees who brought giant US insurer AIG -- and the world economy -- to the brink of disaster fueled a political firestorm Tuesday.

The controversy engulfing bailed-out American International Group threatened to turn nasty amid reports of death threats against AIG workers, and posed a critical test of President Barack Obama's economic revival plans.

Lawmakers said they were looking at punitive tax measures to reclaim the bonuses paid largely to the same London-based financial products traders who brought ruin to AIG and helped to ignite the global financial crisis.

Senator Charles Grassley, the top Republican on the Senate Finance Committee, refused to disavow a remark that AIG executives should go the way of disgraced Japanese leaders in choosing resignation or suicide.

The Iowa lawmaker declared that "from my standpoint, it's irresponsible for corporations to give bonuses at this time, when they're sucking the tit of the taxpayer."

New York Attorney General Andrew Cuomo disclosed that last Friday, AIG had paid out more than 160 million dollars in bonuses to staff at its financial products unit.

Cuomo, who slapped subpoenas on AIG Monday as part of a probe into Wall Street excess, said 73 AIG employees each received bonuses of one million dollars or more.

"These payments were all made to individuals ... whose performance led to crushing losses and the near failure of AIG," Cuomo wrote in a letter to Congress.

"Something is deeply wrong with this outcome."

The top 10 recipients were paid a total of 42 million dollars, with one executive getting 6.4 million alone. And 11 executives quit AIG despite being paid "retention" bonuses of at least a million dollars each to stay.

News of those departures made a mockery of government-appointed AIG boss Edward Liddy's argument that the bonuses were necessary to retain "the best and brightest talent."

Liddy, who faces a grilling at a congressional hearing Wednesday, was sent a letter from Senate Democrats demanding he renegotiate the employees' bonuses or else legislation would be pushed through to tax them at more than 90 percent.

"Given the fact that it was the employees in this unit that brought your firm to the brink of bankruptcy and caused such havoc in the world, rewarding them is not only morally reprehensible, but entirely indefensible on any business grounds," the letter said.

AIG was saved from bankruptcy last September because the government deemed its intricate web of ties with banks worldwide posed an imminent risk of financial meltdown not just for the United States but globally.

With Treasury Secretary Timothy Geithner accused of bungling the controversy, White House spokesman Robert Gibbs meanwhile said Obama had "complete confidence" in his economic overseer.

Gibbs added that "everybody is offended by every aspect" of the bonuses at a time when millions of Americans have lost their jobs in the worst recession for decades.

Despite Obama's vow Monday to "pursue every single legal avenue to block these bonuses," the administration has struggled to explain how it can do that without tearing up iron-clad contracts awarded last April to the AIG staff.

"I think the time has come to exercise our ownership rights," he said, as a new poll by CNN and Opinion Research Corp. showed strong public support for the outright nationalization of distressed banks.





Conservatory & Botanical Gardens. AP Photo/Las Vegas News Bureau, Brian Jones