Report: U.S. May Never Get Back its Investment in AIG

Moreover, the Special Inspector General implied that AIG, among other large recipients of aid, were dismissive of his criticisms by saying that some, like AIG, are likely to be designated systemically significant going forward, and that regulators overseeing them should keep in mind the reckless behavior that caused them to need federal bailouts.

For example, the report said that, “Only AIG, GM, and Ally remain under the Office of the Special Master for TARP Compensation’s oversight, and CEOs at AIG and GM told SIGTARP that they would not maintain OSM’s practices once their company exits TARP.”

The report said that AIG’s proposed pay for its top 25 employees was excessive, and “did not reflect the unprecedented nature of AIG’s taxpayer-funded bailout and the fact that taxpayers owned a majority of AIG.”

In 2009, the report said, AIG wanted cash salary raises ranging from 84% to 550% for one group of employees, and 20% to 129% for another group.

“AIG proposed high cash salaries even though some of the employees would also be paid significant retention payments,” the report said.

According to the report, Ken Feinberg, a New York then serving as special master and now overseeing payments to people affected by the Gulf Coast oil spill, “told SIGTARP that in his 2009 discussions with AIG, AIG believed that its common stock ‘was essentially worthless’.”

Feinberg told SIGTARP that he was reminded by Treasury officials that Treasury did not want AIG to go belly up, that stock salary would jeopardize AIG, and that the amounts at issue were relatively small compared to the Government’s exposure in AIG, the report said. “However, Feinberg said that no one trumped his decisions,” the report said.

Specifically, SIGTARP said in the report it found that OSM’s pay determinations are not likely to have long lasting impact at the seven companies that received exceptional assistance, or at other companies.

It said that Citigroup and Bank of America, which exited TARP in part to escape compensation restrictions, have boosted salaries and bonuses since exiting TARP.

“OSM has had little ability to influence compensation practices at other companies outside of the seven,” and said. Feinberg told SIGTARP that the long-term impact will likely come from regulators.

In general, SIGTARP was highly critical of the executive compensation policies at trouble troubles.

It said that, “There has been little fundamental change in the compensation structures at the largest institutions.”

The report noted that, “The integrity of our financial system remains at risk, with many former TARP recipients now designated as systemically important financial institutions (“SIFIs”) that continue with compensation structures that may encourage risk taking.”

The report said that the “implicit guarantee that came from the Government’s unprecedented intervention resulted in moral hazard, and companies continue to engage in risky behavior.”

It said that “SIFIs have a responsibility to discipline risk taking that could potentially trigger systemic consequences, including as it relates to compensation.”