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New York (HedgeCo.Net) – As the national outrage over bonuses paid to AIG execs reaches epic proportions, U.S. Treasury Secretary Timothy Geithner promised the government will recoup the $165 million that was shelled out using bailout money.
“We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of retention rewards just paid,” Geithner wrote, after claiming it would be difficult to physically take back the bonuses. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.”
Arguing that the U.S. government essentially owns a majority of the failed insurance giant, Chairman of the House Financial Services Committee Barney Frank said, “I think the time has to exercise our ownership rights, and then say, as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’”
House Speaker Nancy Pelosi agreed, saying she would urge members to draft legislation this week that could recoup frivolous spending from taxpayer-funded aid.
“Most appallingly, while millions of Americans struggle through this economy, those who have received the largest measure of taxpayer assistance from the Treasury Department have shown no restraint,” Pelosi said.
New York Senator Charles Schumer warned that if those bonuses were not returned to their “rightful owners,” then Congress would pass laws to tax those bonuses “at a very high rate.” Senate Finance Committee members agreed, proposing taxes as high as 70 percent on those payments.
While disdain over the issue may have caused Barack Obama to act swiftly, the nearly decimated public opinion on bailouts may pose a problem for institutions seeking government funds going forward. AIG has so far received $173 billion of taxpayer-funded federal assistance.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Boston Globe – TODAY American International Group releases third-quarter results. The insurance giant is expected to post a loss of 90 cents a share, compared with a $1.35-a-share profit last year.
Starbucks Corp. releases fourth-quarter financial results and is expected to earn 13 cents a share, down from 31 cents last year.
TOMORROW TJX Cos. reports third-quarter results. Last year, the Framingham retailer posted net income of 54 cents a share.
WEDNESDAY The House Financial Services Committee holds a hearing on mortgages.
Macy’s Inc. is expected to report a third-quarter loss of 19 cents a share, compared with year-ago net income of 10 cents a share.
THURSDAY The House Oversight and Government Reform Committee holds a hearing on regulation of hedge funds.
Boston Globe – US Representative Barney Frank yesterday staked out the next battlefront in the economic crisis gripping the world: more regulation of hedge funds, investment banks, and other financial institutions.
Frank, who heads the House Financial Services Committee, blamed a lack of strict oversight for the failures of Wall Street investment banks such as Bear Stearns Cos. and Lehman Brothers Holdings Inc., as well as dozens of subprime mortgage companies. He said hedge fund investments in arcane securities based on those mortgages deepened the crisis, which has spread worldwide. In contrast, heavily regulated commercial banks escaped the crisis largely unscathed, Frank said.
"The cause of this problem was a lack of financial regulation in the industry," the Massachusetts Democrat said at a Newton City Hall press conference, one of two events he held in the Boston area yesterday. "If the regulated institutions had made loans, we would not be in the crisis we’re in."
Reuters – Blaming lax regulation for what turn into the worst U.S. financial crisis since the Great Depression, Rep. Barney Frank vowed on Monday to police banks and hedge funds more actively to avoid future financial meltdowns.
Frank, the powerful chairman of the House Financial Services Committee who has been credited with largely shaping the $700 billion bailout plan, also said he expects the cost of to be much less.
Frank said next year’s agenda will include capping runaway executive compensation, imposing restrictions on certain financial instruments and regulating certain areas of the market that are current not restricted.
"It was the lack of regulation that led to this crisis … We have to step in and impose regulations that will not allow this to happen again," Frank, a Massachusetts Democrat, said at a news conference in Newton, Massachusetts.
