Media ignore Bush Treasury Department role in last year's AIG bailouts, notwithstanding bonus packages
Research ››› ››› SARAH PAVLUS
In numerous instances, media reporting on AIG's employee retention bonus packages did not point out that it was the Bush Treasury Department that worked with the Federal Reserve in carrying out last year's bailouts and bought AIG stocks notwithstanding the existence of these bonus contracts.
In numerous instances on March 17, media reporting on American International Group's (AIG) employee retention bonus packages highlighted the situation currently faced by the Obama administration but did not point out that it was the Bush Treasury Department that worked with the Federal Reserve in carrying out last year's bailouts and bought AIG stocks notwithstanding the existence of these bonus contracts. For example, a March 17 Los Angeles Times article cited two labor law experts who "said it would be relatively easy for the [Obama] administration or Congress to demand limits on bonus payments as part of future federal bailouts." The Times then credited the Bush administration's handling of the auto bailout, reporting: "The Bush administration did that when it provided bailout money to General Motors Corp. and Chrysler in December, requiring the companies to renegotiate labor contracts and bondholder agreements or face repayment of federal money." But at no point did the Times note that in working with the Federal Reserve in carrying out last year's bailouts and buying AIG stock, the Bush Treasury Department did not "demand limits on bonus payments as part of future federal bailouts."
As Media Matters for America previously documented, in a March 17 article about the Obama administration's "effort to undo bonuses at A.I.G.," The New York Times reported, "The Treasury and Federal Reserve officials said they had known about the bonus program as far back as last fall." But at no point in the article did reporters Edmund L. Andrews and Jackie Calmes note that the Treasury Department at the time was then-President Bush's Treasury Department. Indeed, the article did not mention Bush or his Treasury Secretary Hank Paulson at all, much less report that the Bush Treasury Department worked with the Federal Reserve in carrying out last year's bailouts and buying AIG stock despite the existence of these bonus contracts.
Similarly, a March 17 Washington Post article reported:
Attorneys working for the Fed had been examining the matter for months and determined that the retention payments couldn't be touched because AIG would face costly lawsuits and be subject to penalties from states and foreign governments. Administration officials said over the weekend that they agreed with that assessment.
AIG disclosed its retention-payment program more than a year ago, and the amount of the bonuses -- more than $400 million for Financial Products alone -- had been widely reported. But as the payments were coming due in recent days, the White House began to express its indignation.
But despite reporting that "[a]ttorneys working for the Fed had been examining the matter for months" and that AIG "disclosed" the program "more than a year ago," the Post ignored the role of the Bush Treasury Department in working with the Federal Reserve to carry out last year's bailouts and purchase AIG stock notwithstanding the existence of these bonus contracts.
In addition, on March 17, USA Today reported, "In an explanation of the bonus plan delivered to [Treasury Secretary Timothy] Geithner on Saturday, AIG said the bonus contracts were struck for 400 workers a year ago when the division they worked for was 'expected to have a significant, ongoing role at AIG.' " USA Today further reported:
In a letter to Geithner sent with the explanation of the bonuses, AIG's [CEO Edward] Liddy said that he, too, had found the bonuses "distasteful." But he said contracts for them were negotiated long before he was asked by the government to take over the troubled insurer in September.
Since that time, the Treasury Department and the Federal Reserve have pledged up to $180 billion in aid to AIG, giving the government a nearly 80% stake in the company. That aid includes loans from the Fed and $40 billion in purchases of the company's stock out of the $700 billion financial rescue plan passed by Congress last year.
Company executives who receive money from the financial rescue plan are subject to compensation limits after legislation was signed into law in February.
Liddy told Geithner the bonuses were negotiated in early 2008 and "outside counsel has advised that these are legal, binding obligations of AIG, and there are serious legal, as well as business, consequences for not paying."
However, despite reporting that the contracts for the bonuses "were negotiated in early 2008," USA Today did not mention that the Bush Treasury Department worked with the Federal Reserve in carrying out last year's bailouts and bought AIG stock notwithstanding the existence of these bonus contracts.
Reporting on the September 16, 2008, bailout of AIG, The New York Times stated in a September 17, 2008, article: "Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group." The Times continued:
The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank's history.
With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.
A September 18, 2008, New York Times article further reported on the Bush administration's role in bailing out AIG:
The first call from the Treasury Secretary Henry M. Paulson Jr. came at 3:30 p.m. Tuesday, and the message was innocuous, to avoid setting off alarms. And when he finally got through to the Senate majority leader, Harry Reid of Nevada, Mr. Paulson simply said he wanted to brief Congressional leaders ''about recent developments on the economy.''
In fact, Mr. Paulson -- along with the Federal Reserve chairman, Ben S. Bernanke -- would deliver stunning news that would reverberate throughout markets worldwide and leave top lawmakers ''petrified,'' in the words of a senior aide.
A frenzied effort to prop up the American International Group, the ailing insurance giant, had failed. The Fed had decided it had no choice but to do the unthinkable: bail out A.I.G. with an $85 billion loan or risk a potential financial catastrophe of unknown proportions.
Over the preceding five days, A.I.G., the world's largest insurance company, had exhausted every other option. The company had sought a lifeline from some of the nation's largest banks, as well as from big private investment funds on Wall Street, but no one dared come to the rescue. As potential saviors pored over A.I.G.'s books, the holes they discovered kept growing -- first from $20 billion, then to $40 billion, then to $80 billion, then even more. The sharpest minds on Wall Street could not fathom where the bottom was.
Further, in a November 10, 2008, article, the Times reported that the Bush Treasury Department and Federal Reserve announced a "revised bailout" of AIG, under which "the Treasury Department will use the Troubled Asset Relief Program, the $700 billion financial system rescue plan, to buy $40 billion of newly issued A.I.G. preferred shares." From the November 10 article:
The federal government announced on Monday an overhaul of its bailout of the insurance giant American International Group, saying it would purchase $40 billion of the company's stock, after signs that the initial bailout was putting too much strain on the company.
In a joint statement, the Federal Reserve and the Treasury said the move was necessary "to keep the company strong and facilitate its ability to complete its restructuring process successfully." The new measures, they said, would help the company and promote market stability while protecting the interests of the federal government and taxpayers.
A.I.G. reported a loss on Monday of $24.47 billion, or $9.05 a share, in the third quarter, after a profit of $3.09 billion, or $1.19 a share, a year ago. The results included pretax losses of $18.31 billion from the declining value of A.I.G.'s investments.
Neel T. Kashkari, the assistant secretary of the Treasury who heads the Office of Financial Stability, said in a speech Monday morning that the new A.I.G. plan "was necessary to maintain the stability of our financial system."
A.I.G. shares were 8 percent higher, to $2.28 near the close of trading Monday. In the revised bailout, the Treasury Department will use the Troubled Asset Relief Program, the $700 billion financial system rescue plan, to buy $40 billion of newly issued A.I.G. preferred shares.
The government created an $85 billion emergency credit line in September to keep A.I.G. from toppling and added $38 billion more in early October when it became clear that the original amount was not enough. As part of the revision, the Federal Reserve said it would reduce that credit line to $60 billion.
From the March 17 Los Angeles Times article:
[Richard A.] Paul ["a labor and employment law expert at the University of San Diego Law School"] and labor law professor Stephen Diamond of Santa Clara University School of Law said it would be relatively easy for the administration or Congress to demand limits on bonus payments as part of future federal bailouts.
The Bush administration did that when it provided bailout money to General Motors Corp. and Chrysler in December, requiring the companies to renegotiate labor contracts and bondholder agreements or face repayment of federal money.
But the public backlash now is over money that already has gone to AIG employees at a time when lawmakers are becoming increasingly angry over the growing price tag for bailing out financial institutions.
News of the bonuses sparked anger from the public and from lawmakers. Not only is AIG by far the largest recipient of federal bailout money, but the Financial Products division also designed and sold the complex credit-default swaps that guaranteed the mortgage-backed securities and other risky investments that soured.