[Congressional Record Volume 155, Number 49 (Monday, March 23, 2009)]
[Senate]
[Pages S3585-S3587]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              AIG BONUSES

  Mr. KYL. Mr. President, I wish to speak briefly to the issue that has 
been very much on the minds of the American public over the last 
several days, and that is the bonuses paid to folks who work with AIG, 
the insurance company that has been the recipient of taxpayer money 
under the so-called TARP legislation.
  A lot of times when Congress acts in haste, it makes mistakes, and 
one of the concerns I have about the bill we will be taking up is the 
question of whether we have adequately thought through the exact remedy 
we want to impose here in order to get the bonus money back. The House 
of Representatives acted very quickly and passed a very onerous tax 
bill that would claw this money back. The Senate has a bill that has 
been written by the chairman and ranking member of the Finance 
Committee that would be even broader in the sense that it would both 
tax the company itself as well as the individuals who receive the 
bonuses. There are a lot of concerns that have been raised over the 
weekend about both of these approaches. I have urged a little bit of 
caution here so we don't do the wrong thing again.
  One of the reasons we are in the position we are in is because 
Congress acted in haste. In fact, when the bill was passed that allowed 
these bonuses, I don't think very many--if any--of our colleagues knew 
it was in the legislation. After the fact, we learned that the 
authorization for the bonuses was in the legislation. But when we act 
quickly and we don't really know what we are doing, we can make 
mistakes.
  I have suggested there be a hearing in the Senate to answer a lot of 
the questions the public has been asking. Now, the first question is, 
Exactly who are these bonuses paid to and why? Is it necessary that 
these people receive the bonuses in order for the Government to protect 
its interests in the company it now owns a substantial part of--AIG? 
Has some of the money been given back? Will more of the money be given 
back? Is it fair to impose a tax retroactively? In other words, after 
people have earned the money based upon an expectation that the money 
will be taxed at regular rates, is there now going to be an extra tax 
imposed on top of that simply because we don't like what was done? Will 
it withstand constitutional muster? And perhaps most importantly, how 
about the Secretary of the Treasury engaging in the authority, which I 
understand he possesses under the stimulus bill that we passed earlier, 
to act in the public interest to claw that money back? In other words, 
is it even necessary for Congress to amend the IRS Code in order for 
the Secretary of the Treasury to be able to get that money back?
  Clearly, this could have all been avoided had the Government asked 
AIG to renegotiate the contracts when it gave AIG about $30 billion 3 
weeks ago. The Government was in a position to say: One of the 
conditions for receiving this so-called TARP money is that you will 
renegotiate the contracts that provide bonuses for your employees. We 
could have done that at that time. But it wasn't done, so now we have 
to figure out the right way to deal with this.
  The other reason I am urging caution was expressed by the President 
in a ``60 Minutes'' interview that was on television last night. Here 
is how he answered a question about the constitutionality of this 
proposed tax law. I am now quoting the President:

       Well, I think that as a general proposition you don't want 
     to be passing laws that are just targeting a handful of 
     individuals. You want to pass laws that have some broad 
     applicability. And as a general proposition, I think you 
     certainly don't want to use the Tax Code to punish people.

  I think the President is right about exactly what he said there, and 
that is one of the reasons there is some doubt about whether this law's 
constitutionality would be upheld and another reason I think we would 
be wise to hold hearings. But there is yet another reason, and that has 
to do with whether the private businesses that have been helped by the 
so-called TARP legislation will want to continue to receive this money 
or continue to participate in the public-private partnerships that

[[Page S3586]]

have been established by the Government if there is a possibility there 
is going to be retroactive punitive legislation imposed upon them or 
their employees.
  So one of the things I would like to do is to make sure that in 
expressing our outrage--and every one of us is outraged about this--we 
do it in a way that is constructive and not destructive to the very 
program the President has created to try to help these struggling 
companies get back on their feet so that they can lend credit to 
everybody else who needs credit in our country.
  There is a significant view that if the folks participating in this 
program come to believe that the Government--Congress--can at any time 
come in and impose a new tax on them, they are going to want to get out 
of these programs rather than participate in them. In fact, there have 
been strongly expressed views that these banks will try to repay the 
TARP funds quickly--prematurely, in effect--in order to get out from 
underneath the Government's potential further involvement in their 
businesses. Of course, by paying the money back, they reduce their 
ability to loan money to the rest of us. Obviously, the whole point in 
giving them the TARP funds in the first place was to give them more 
liquidity so that they would have the money to lend to businesses, to 
families, and others throughout America.
  Mr. President, I ask unanimous consent to have printed in the Record 
following my remarks a couple of statements that make this point very 
clearly. One is an editorial that was in the Washington Post on Friday, 
March 20, and the other is a very interesting article by Ian Bremmer 
and Sean West that was printed in the Friday Wall Street Journal.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  (See exhibits 1 and 2.)
  Mr. KYL. Mr. President, the ``Washington Gone Wild'' editorial in the 
Washington Post makes the argument I just made. They use the words 
``shortsighted,'' ``opportunistic,'' and ``irresponsible,'' and liken 
this to the actions of a mob to get even with people rather than 
stopping to think about what it is going to do to the President's TARP 
program. And that is what I wish to talk about.
  I voted for both the first and second TARP. There were only six 
Republicans in the Senate who supported that second program, and I did 
it because I believed it was important for the President and the 
Secretary of the Treasury to have the necessary funding to help these 
institutions. We are going to destroy that program if the participants 
in the program come to believe that, out of spite, Congress, reacting 
to an angry electorate, will simply come down and pass new tax 
obligations on the employees of these companies in the future. They are 
going to be very weary of participating.
  As the Washington Post editorial notes:

       Elected officials have a responsibility to lead, not just 
     to pander; to weigh what makes sense for the country, not 
     just what feels good.

  The point is, we now own a big share of this company and parts of 
some of these other companies, and we want to do what is in their best 
interest for our best interest and not simply punish them because we 
are angry that some folks got bonuses.
  So I am going to urge my colleagues to take a deep breath here and 
talk to the administration, to hold a hearing and answer the questions 
that have been asked here and see whether there isn't a better way to 
achieve the same result. I just happen to believe that if the Secretary 
of the Treasury called these folks down to his office and said: You 
know, for the good of the country, you ought to give half or two-thirds 
of whatever it is back, and if we can save your company, you will be 
able to make that money back in no time with a healthy company, and if 
we don't, it is going to be bad for America--I would appeal to their 
patriotism. He could also talk to the executives at AIG and ask them to 
sit down with the same people to renegotiate the contracts. There are 
other ways, in other words, to accomplish the same result without doing 
violence to our Tax Code, to the concept of contracts, and that do not 
raise the question about the constitutionality of this action.
  Mr. President, I urge my colleagues to hold a hearing on the bill. Do 
not bring this bill up before the Senate for a vote this week but 
discuss it with the administration and see if we can come up with a 
better solution and resolve this problem in a sensible way that will be 
good for America.

                               Exhibit 1

               [From the Washington Post, Mar. 20, 2009]

                          Washington Gone Wild

       ``Shortsighted,'' ``opportunistic'' and ``irresponsible'' 
     aptly describe the actions of those who fueled the debacle on 
     Wall Street. They are also apt descriptors for lawmakers more 
     focused on currying favor with a public outraged at the 
     bonuses handed out by bailed-out companies than on fixing the 
     fundamental and still potentially disastrous cracks in the 
     financial system. By changing the terms of a deal months 
     after it was entered into, Congress will show the government 
     to be an unreliable partner, further draining confidence from 
     the financial system and endangering long-term recovery.
       Yesterday, the House had the feel of a mob scene, with 
     lawmaker after furious lawmaker vying for floor time to rail 
     against the $165 million in taxpayer-funded bonuses lavished 
     on employees of American International Group's disgraced 
     Financial Products division. House members rushed through a 
     bill to impose an effective tax rate of 90 percent on bonuses 
     paid to AIG employees and employees of other firms that 
     accepted at least $5 billion from the Troubled Assets Relief 
     Program--though when then-Treasury Secretary Henry M. Paulson 
     Jr. pressed many of those firms to take the funds last fall, 
     government interference in their compensation systems was not 
     part of the deal. The legislation, approved by a vote of 328 
     to 93, would affect employees who received bonuses on or 
     after Jan. 1 and whose household incomes exceed $250,000. 
     Late yesterday afternoon, lawmakers on the Senate Finance 
     Committee introduced their own, broader version of the bonus 
     clawback that would affect firms that accepted as little as 
     $100 million of government funds.
       We understand that legislators are hearing from furious 
     constituents, and we understand why those voters are angry. 
     It is unquestionably galling that some of the employees who 
     crafted and pushed risky derivatives that wreaked financial 
     havoc worldwide should line their pockets with some of the 
     $173 billion in public funds meant to prop up the too-big-to-
     fail insurance behemoth and its global business partners. The 
     bonus anger resonates, too, because of a larger sense many 
     voters have that the people who helped trigger this whole 
     economic mess are not the people paying the greatest price.
       But elected officials have a responsibility to lead, not 
     just to pander; to weigh what makes sense for the country, 
     not just what feels good. The effective confiscation of 
     legally earned and contractually promised payments may well 
     be unconstitutional. It is almost certain to be unhelpful. 
     The bonuses paid at AIG represent less than one-tenth of 1 
     percent of the bailout provided so far; recouping those funds 
     will have no discernible fiscal effect. But it will help 
     drive away the best talent at the firm, and despite all the 
     glib messages of ``good riddance,'' that is a strange action 
     for an owner--and the American public now owns AIG--to take. 
     But the real damage goes well beyond any effect on AIG. The 
     economy continues to suffer from a shortage of credit. The 
     government needs financial institutions--including relatively 
     healthy ones--to take public funds that will then be lent to 
     responsible businesses and consumers. The Obama 
     administration reportedly intends in the next week or two to 
     announce the details of a ``private-public partnership'' to 
     buy troubled assets from ailing banks. The participation of 
     private hedge funds, investment banks and other firms will be 
     key to the plan's success. But what executive in his right 
     mind will enter into a deal if he or she believes the rules 
     can be changed six months or one year down the road purely on 
     the basis of polls and politicians' fears?
       Rather than bringing reason to the debate, President Obama 
     has stoked the anger, and last night, the White House 
     commented favorably on the House action. Perhaps Mr. Obama 
     believes that only by lining up with an angry public now can 
     he persuade it, and Congress, to approve the hundreds of 
     billions more he will need to right the credit system. But he 
     might have expressed his sympathy with public anger over 
     irresponsible behavior in the financial sector while also 
     steering the government in a more constructive direction. The 
     absence of backbone on either end of Pennsylvania Avenue this 
     week could carry a steep price.

                               Exhibit 2

             [From the Wall Street Journal, Mar. 20, 2009]

                       AIG and ``Political Risk''

                     (By Ian Bremmer and Sean West)

       After quietly tolerating $170 billion in bailout money for 
     AIG, why have the public, Congress and the administration 
     suddenly blown up about a tiny fraction of that amount that 
     is being paid out in retention payments and bonuses? After 
     all, the AIG bailout channels U.S. taxpayer dollars to 
     foreign banks and even potentially covers hedge-fund profits.
       The reason is one of political expediency: The bonuses 
     represent greed in the face of dire circumstances, which 
     resonates with Joe the TARP-funder. The public now has an

[[Page S3587]]

     Enron-like target on which to unload its collective 
     frustration about the financial meltdown. While public 
     outrage is understandable, pandering to it jeopardizes the 
     administration's credentials in a sloppy attempt to score 
     populist points. This raises the political risk for all 
     investors in the U.S. (both domestic and foreign) 
     significantly.
       The financial-sector rescue necessitates unpopular actions 
     that will only be politically worth it if the administration 
     actually solves the crisis. Until recently, the Obama 
     administration had taken pragmatic is slow actions that it 
     deemed necessary to fend off disaster, as opposed to pursuing 
     an ideological agenda in how it implements the bailout.
       But this week, under pressure to show a strong hand and 
     positive results, the administration latched onto the AIG 
     bonus flap as an angle for curring populist favor. When it 
     became clear that the bonuses were going to be big news, 
     President Obama led the anti-AIG charge with instructions to 
     ``pursue every legal avenue'' to get the money back. Never 
     mind that the administration was responsible for the TARP 
     provision that (sensibly, from a legal standpoint) exempted 
     pre-existing legal agreements from the bill's limits on 
     compensation. Mr. Obama now says he'd like to create a new 
     ``resolution authority'' to deal with ``contracts that may be 
     inappropriate.'' Meanwhile, Congress seems poised to undo the 
     bonuses through special taxes--a move that in other 
     circumstances would clearly be labeled retroactive and 
     unfair.
       It was not long ago that Mr. Obama assailed the Bush 
     administration for its dangerous expansion of executive power 
     during a complex crisis. The Obama administration's antics 
     around the AIG bonuses suggest a similar effort to use 
     political power to contort the law. But rather than doing so 
     for reasons of national security, this administration is 
     doing so to pander to an angry public. When the Obama 
     administration and Congress flex this kind of muscle, they 
     attach a new political-risk component to all contracts 
     negotiated in the shadow of the bailout.
       That risk may scare potential investors away from bailout 
     recipients because they cannot trust our government's will in 
     the face of public outrage. It destroys our moral high ground 
     the next time Mr. Obama wants to criticize a foreign country 
     for ignoring the rule of law by nationalizing private assets 
     or repudiating international debt. It will certainly make Mr. 
     Obama's task much more difficult when he tries to sell the 
     public on his administration's ability to manage the rest of 
     the bailout, and when he tries to sell private firms on the 
     public-private partnership that will be needed to make the 
     recovery work.
       The administration could have let Congress have its week of 
     grandstanding over bonuses, while issuing a public statement 
     acknowledging the bonuses as deplorable, but not important 
     enough to detract from the real work that lies ahead. The 
     tragedy here is the extraordinary amount of time that is 
     being wasted on this issue when the Treasury Department 
     remains understaffed, a detailed toxic-asset plan remains 
     perpetually forthcoming, and the economy continues to shed 
     jobs.
       It's predictable that the administration and Congress would 
     rather abuse an easy target over something every voter can 
     get mad about than actually confront the hard issues of 
     managing the financial crisis, including progress on the 
     ``stress test'' of banks and the restoration of normal credit 
     operations, establishing genuine oversight of the use of 
     bailout funds, and coordinating international efforts on 
     global economic stimulus and changes to financial-industry 
     regulations. That type of governing is far more troublesome, 
     as it involves making difficult decisions on complex topics 
     and communicating unpopular news to constituents.
       This is a hallmark moment for the administration. 
     Congressional anger over AIG's bonuses foreshadows the battle 
     looming if and when the administration asks for more 
     financial-sector rescue funds. The administration may rightly 
     sense that failing to join hands with Congress and the public 
     in outrage over the bonuses would complicate release of those 
     funds. But Mr. Obama does not need to show solidarity by 
     diminishing confidence in the rule of law. That bit of 
     populism will cost the president far more in future 
     credibility than he stands to gain in present popularity.

  Mr. KYL. Mr. President, I yield the floor, and I suggest the absence 
of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BROWN. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

                          ____________________