From Face the Nation March 22, 2009.
Congressman Barney Frank (D-Mass.) told CBS News’ Harry Smith on Face The Nation Sunday that the executive branch ought to use its leverage as a majority shareholder in AIG to sue the company for its wrongful use of retention bonuses.
Retention bonuses are to a great extent extortion, Frank argued. “I think there was an element, frankly, with some — not all of them — of almost extortion, where they said, 'We know what you need to know and we will quit if you don’t bribe us,'” Frank said.
He argued that there is a large pool of very talented people who have lost their jobs in the financial crisis and that AIG could replace the bonus recipients (some of whom are responsible for creating the firm's now-toxic assets) rather than bribe them with retention bonuses.
Rough transcript to follow.
Smith: Congressman Frank, I want to start with you. You helped push this tax idea through with... to tax these bonuses on AIG. Do you have any you have any support from the White House on this?
Frank: I believe so, but I should say Harry that the committee I chair does not have jurisdiction over taxes and I've been busy with other aspects of it. I voted for the bill. I was not a major advocate. I will say that there were a number of routes we ought to take. I have actually been engaged with the Executive branch trying to push them to do what I think is the best way to deal with this which is to assert our rights, the United States government as the owner of that company. We own about 80% of the company.
People are worried about taxation being used in this way. People are worried about interfering with contracts. I think the... one of the things we ought to be doing is suing as a shareholder. saying, look, these are people who were paid bonuses that they weren't entitled to. If you look at their actual performance, I think there was an element frankly with some not all of them of almost extortion where they saif we know what you need to know and we'll quit if you don't bribe us. So I would like to do that. Also it's important for us and I've been trying to do this frankly since 2006, address the whole question of executive compensation and the perverse incentives you get from the way it's structured.
Smith: we'll talk about that in a second because that's part of President Obama's idea that will apparently be unveiled later this week putting government controls on that. Let's, I want to talk to Senator Grassley. You go home every week. What is the sense you get from folks out in Iowa about what's going on with these bonuses to folks at AIG?
Grassley: Outrage on the part of Iowans. They just don't understand how people that make $20 million a year can drive a corporation into the ground, go suck off the tax payers for bailouts, and then give out millions of dollars of bonuses. We believe people ought to be compensated right. But there's a whole different ethic when you have the tax payers bail you out. There ought to be respect for middle class tax payers. There ought to be respect for the fact that you made a mistake. We ought to hear some apology. We ought to hear remorse. We ought to hear contrition. I haven't heard any of that. Not only with AIG, but any other corporation that's got bailed out. we have small business being helped by banks here. We put billions of dollars into wall street and they loan money, $8 billion Dubai, you know, the people of the Midwest just don't understand how you can run a business that way and expect the tax payers to keep you going.
Smith: Senator, is the best way to get this money back with a tax? Is there some better way?
Grassley: wWell, right now I have to do what I can do. It looks to me like Congress' best leverage is taxes. It's like other things need to be done to make sure that people that are on the dole from the tax payers can't do these sorts of things in the first place, but in the meantime, tax-- and that's what we're going to do-- i hope leader Reid will schedule it. I'm a little cynical about whether he wants to schedule it for the reason he put another bill up coming Monday that's not quite as significant as getting back the $168 million of the tax payer's money into the federal treasury.
Smith: It's more like $200 million if the attorney general in Connecticut is correct. Listen to this though. this is part of the blow back from the financial community. Kenneth Lewis who is the CEO of Bank of America says the clamp-down on bonuses will have the potential to damage the ability of the government to engineer the economic recovery. Folks in this world say the people inside who are getting these bonuses are the only ones who can untangle this mess. Do you believe that to be true, Congressman?
Frank: No, not at all. And I think you do want to distinguish between bonuses. Some of the people at AIG apparently and we they weren't all getting a million dollars at the working level selling insurance not the one who caused the problem, some of them apparently were getting bonuss in lieu of salary. They shouldn't have bep forced to work for nothing. On the other hand you had some people who were not in the insurance part but in the razzle-dazzle financial part that caused the problems. I reject the argument that they're the only ones who know it and I want to distinguish a bonus that is paid if you do well as long as you also for fit money if you do badly, a legitimate two-way bonus which is unknown in mos of these areas I wouldn't object to.
But retention bonuses are to a great extent extortion. It is people saying as you suggested in the question, Harry, I've got the combination to the safe and if you don't bribe me i'm going to leave and you'll never be able to open the safe. I think it is wrong and let's point out a lot of very talented people have lost their jobs in this financial crisis. It's not that they wouldn't be able to hire good people to do this. So I really resent the extortionist element of this and I think that's one of the things we have to deal with, not just with AIG but going forward to restrict that.