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Bailout's watchdog says Geithner should have reined in AIG bonuses

WASHINGTON — Treasury Secretary Timothy Geithner is "ultimately responsible" for regulators' failure to rein in massive bonus payments at American International Group because he led the agencies that provided the insurance and financial services conglomerate with lifelines, according to a bailout watchdog.

Geithner was president of the Federal Reserve Bank of New York before taking over at Treasury in January. He has said he did not learn until March about the $1.75 billion in bonuses and other compensation promised to AIG employees. But Geithner's subordinates at the New York Fed learned of the payments in November, according to Neil Barofsky, the special inspector general for the $700 billion financial bailout.

Even if no one told Geithner about the payments, "this is a failure of communication and a failure of management," Barofsky told the House Committee on Oversight and Government Reform on Wednesday. Geithner has been "the head of an organization that was involved in the bailout of AIG" since September 2008, he added.

A Treasury spokeswoman would not address the comments about Geithner's leadership. She said in a statement that the Obama administration's pay czar, Kenneth Feinberg, continues to develop compensation plans for AIG and the other companies that received the costliest bailouts.

Geithner helped lead Fed efforts starting last fall to prop up AIG with billions in emergency financing. After he became Treasury secretary, his department and the Fed continued unveiling new aid packages for AIG.

The government has committed more than $180 billion to wind down New York-based AIG, and the Treasury now owns about 80 percent of the company.

In a report released Tuesday, Barofsky wrote that Treasury did not understand AIG's pay structures when it gave the firm billions in aid last fall.

He said Wednesday that officials at the New York Fed "still did not have their arms wrapped around" AIG's compensation structure when he finished his audit last month.

Officials discovered 620 bonus programs totaling $455 million, and 13 retention plans allocating $1 billion, according to the report.

AIG has asked employees to return some of the money voluntarily.

Lawmakers questioned Geithner's leadership on AIG and whether he was truthful in saying he learned about the bonuses in March. Several said Geithner should have known, and that the Treasury should have done more after the March news to recover the bonus money.

Geithner "failed to know what he should have known, failed to do what he should have done, and failed to give us transparency" by cooperating fully with Barofsky, said Rep. Darrell Issa of California, the committee's top Republican.

Pay czar Feinberg is locked in negotiations with the seven companies that received the most expensive taxpayer bailouts. AIG's was by far the largest.

To secure its bailouts, AIG argued to Treasury that its failure would doom the broader financial system.

Barofsky's report recommends that Treasury work closely with officials from the New York Fed, which is funding parts of the AIG bailout.

It also suggests that the Treasury improve oversight of companies that it owns, including reviewing compensation programs before buying major ownership stakes in companies.

Bailout's watchdog says Geithner should have reined in AIG bonuses 10/14/09 [Last modified: Wednesday, October 14, 2009 11:31pm]
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