The House yesterday overwhelmingly passed a measure to tax bonuses at companies receiving federal aid at 90 percent. There's some debate about whether this bill, which is almost certain to become law, is constitutional -- either an invalid ex post facto law or an illegal bill of attainder. Let's set that aside for a moment and look at the surrounding issues.
First, I'm not sure if Treasury Secretary Timothy Geithner is overworked (because President Obama can't seem to be bothered to fill the top jobs at Treasury and instead spends his time making lame jokes about Special Olympians on Jay Leno's show) or incompetent -- both may be true. Despite claims made earlier in the week, it's clear that many in the Treasury Department knew of the bonuses weeks ago -- long before the most recent cash infusion from the government.
Connecticut Sen. Chris "Friend of Angelo" Dodd at first denied knowing about a provision he inserted in the gotta-pass-it-yesterday stimulus bill that no one read specifically allowing the bonuses to be paid. A day later he confessed that he did know about the clause, but the unnamed aides in the Obama administration made him do it. Watching Dodd attempting to explain this convoluted story is cringe-inducing.
Although we have wound down more than $1 trillion in the portfolio of the AIG Financial Products unit that is at the root of the company's troubles, there remains substantial risk in that portfolio. The financial downside for taxpayers is potentially very large, and that's why we're winding down this business.
To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.
We may never be able to determine if the U.S. Treasury eventually receives a better return because of these retention bonuses, but at least there is some logic behind the move -- more logic than the contrived outrage of Congress.