Now that we, the taxpayers, own nearly 80% of A.I.G. and the bonuses have been paid, what should be done about the mess? As Rep. Ed Royce attends a subcommittee hearing in Washington, President Obama flies into Long Beach airport. There is enough finger pointing about who is to blame and the public is clearly outraged, but the important question now is what should be done about it. Since the Federal Government now owns nearly 80% of the failed insurance conglomerate, your Editors wanted to know what our local Congressional Representatives, Ed Royce and Dana Rohrabacher, think should be done next.

Plenty of politicians want to get into the fun and there is no shortage of moaning and groaning about the situation, but that does not provide any solutions. Since our representatives are in the minority party, your Editors believe it is even more incumbent upon them to offer solutions, rather than just complain or point fingers or make "I told you so" comments.

Based on the media coverage of this situation and the comments by public officials, it is probably safe to assume that most Americans think it was wrong for the bonuses to be paid and that the Federal Government should be reimbursed for the money.

According to a story by Jackie Calmes and Louise Story, published in the New York Times on 3/18/09 , "The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general. The company paid the bonuses, including more than $1 million each to 73 people, to almost all of the employees in the financial products unit responsible for creating the exotic derivatives that caused A.I.G.’s near collapse and started the government rescue to avoid a global financial crisis.
A.I.G. has received nearly $200 billion in federal bailout funds. "

Our Rep. Ed Royce is on a subcommittee of the House Financial Services Committee which heard on Wednesday, March 18, testimony by Edward Liddy, the A.I.G. chief executive who took over after the bailout. In Royce's opening statement he said "we should strike these bonuses." Since your Editors were a bit unsure exactly what that statement meant, we asked for a clarification, but by the time we published this article, we had not yet received a response from Royce's office.

Rep Royce is a co sponsor of a bill which would create a national regulatory schema for insurance companies which currently are regulated only at the state level. He said "Central to this discussion on AIG is what Chairman Bernanke told us. He said the 54 various state insurance regulators didn't have the capacity to deal with a global insurance company. I have been warning about this systemic gap since 2006. Congresswoman Melissa Bean and I have been pushing a bill that will close that gap and until we establish a world class regulatory alternative that is able to deal with a global insurance company like this, that gap will remain."

Your Editors also contacted Dana Rohrabacher's Washington office to get a statement from him on the issue. We specifically asked for his thoughts on what he thinks "should be done about the AIG bonus problem". We received the following statement from Tara Setmayer, his Communications Director: "Our gut instincts told us that the bailout was a rip off. The fact that hard earned tax payer dollars have been funneled to such notorious financial players like AIG should’t be a surprise. It’s just confirmation of what we already knew...the American people have been ripped off.” 

The New York Times story also included the following comments about finding a solution: "The House speaker, Nancy Pelosi, on Tuesday asked three committee chairmen to come up with legislation to recoup the bonus money, and suggested the House might pass a measure as early as this week. But the reaction of chairmen Representative Charles B. Rangel of the tax-writing Ways and Means Committee, underscored the legal and political complexities facing Democrats as they scramble for a solution. Mr. Rangel, a Democrat from New York, objected to one of the most popular ideas being floated— a confiscatory income tax on the recipients. The tax code is not 'a political weapon',” he told reporters."

The Government has indicated that they will withhold the $165 million of bonuses from the next bailout installment, but that does not really get the money back. It just means the bailout is a little less then it would other wise have been.

Despite all the public grandstanding about how terrible the bonuses are, the Federal bailout legislation, recently passed with very little Republican support, appears to clearly allow for the bonuses. According to an article by David Freddoso, published on the National Review Online, the Federal stimulus bill includes the following provision: "The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary."

Republicans are jumping all over this Democratic legislation as the underlying cause, just as Democrats are complaining that the Republicans blocked legislation to restrict executive pay under the Bush Administration.