American International Group (AIG) president and CEO Robert Benmosche is under heavy fire from a senior Maryland Democratic congressman because he compared the intense criticism of bonus payments made in 2009 to AIG Financial Products (AIGFP) executives to the lynching of blacks during the civil rights battles of several decades ago.
Benmosche issued a summary apology this afternoon. “It was a poor choice of words. I never meant to offend anyone by it,” Benmosche said through a spokesman in response to a call for his resignation by Rep. Elijah E. Cummings, ranking member of the House Committee on Oversight and Government Reform.
In an interview last Tuesday with the Wall Street Journal dealing with the five-year anniversary of the government bailout of AIG, Benmosche strongly criticized the intense public response to the disclosure that the government had approved the payout of $165 million in contractual retention payments to AIGFP officials.
Benmosche said the uproar “was intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that – sort of like what we did in the Deep South [decades ago]. And I think it was just as bad and just as wrong.”
In his comments, Benmosche said that there were “less than ten” AIG employees who were responsible for the bad trades that led to huge losses and a federal rescue of the company. Most of the employees who were receiving bonuses would have left the company had the bonuses been slashed, he said.
“We wouldn’t be here today had they not stayed and accepted … dramatically reduced pay,” he said in the Wall Street Journal interview. “They really contributed an enormous amount [to AIG's survival] and proved to the world they are good people. It is a shame we put them through that.”
Cummings, who lead the congressional probe into the payments, said in a statement that, “As the leading critic of AIG’s lavish spending before and after its taxpayer funded bailout — and as the son of sharecroppers who actually experienced lynchings in their communities — I find it unbelievably appalling that Mr. Benmosche equates the violent repression of the African American people with congressional efforts to prevent the waste of taxpayer dollars.”
Cummings added, “If these statements are true, I believe he has demonstrated a fundamental inability to lead this modern global company in a responsible manner — a company that exists today only because it was rescued by the American taxpayers — and that he should resign his position as CEO immediately.”
Cummings and Rep. Henry Waxman, D-Calif., another member of the Oversight panel, led the probe of the bonuses.
The AIG board agreed Sept. 16, 2008, to grant 79.9 percent of its voting stock to the Fed in exchange for $85 billion in cash. AIG ultimately received approximately $182 billion in aid from the government, but paid it back through profits and sale of securities. The government sold the last part of its stake in AIG at the end of 2012.
But the Cummings/Waxman criticism was over payment of $165 million in bonuses in the spring of 2009 to AIGFP employees. Most of the problems at AIG stemmed from purchases of speculative mortgage-backed securities collateralized by the reserves of AIG’s life subsidiaries, and through sale of credit default swaps that guaranteed at its peak $2.77 billion worth of securities backed by mortgages of various grades acquired by various banks and other institutions.
AIG’s need to provide collateral on the CDS to the counterparties was what triggered the immediate need for a federal bailout.
A newly-elected President Barack Obama asked Treasury Secretary Timothy Geithner to stop American International Group Inc. from paying $165 million in retention bonuses to financial products unit employees.
AIG management claimed at the time that it was “contractually obligated” to pay the previously negotiated bonuses. AIGFP was based in London.
AIG “is a corporation that finds itself in financial distress due to recklessness and greed,” Obama said in remarks at the White House. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. Geithner should use every legal means to try to block the bonus payments,” Obama said.
The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has heaped strong and continuing criticism of the bonuses on the government as well as AIG since they came to light.
In comments in 2009, the SIGTARP said that, “Although [New York Fed officials] learned of the size of the impending payments and their timing among other things, it is unclear whether [Federal Reserve Bank of New York] officials knew that thousands of dollars in payments would go to non-essential AIGFP support employees, such as kitchen and mailroom employees.”
The report added that, “Treasury invested $40 billion of taxpayer funds in AIG, designed AIG’s contractual executive compensation restrictions and helped manage the government’s majority stake in AIG for several months, all without having any detailed information about the scope of AIG’s very substantial and very controversial executive compensation obligations,” the report said.