By Sally Greenberg, National Consumers League
While the financial markets’ implosion takes its toll on working Americans in the form of job cuts and lost wages and benefits, a series of events over the past two weeks has me shaking my head in disbelief. In September, the Federal Reserve Board extended an $85 million “bridge loan” to American International Group or AIG, the insurance behemoth, because it was considered “too big to fail.” This week, at a House of Representatives hearing, we learned that AIG’s 70 “top performers” (hard to imagine how you can have “top performers” in a company that needs an $85 billion bail-out, followed by a $37.8 billion infusion) – yes, a week after the bail-out – were sent on a junket to a California resort, where they managed to ring up $440,000 for rooms, meals, and spa fees. (Even White House press secretary Dana Perino described the AIG junket as “pretty despicable.”)
AIG also disclosed at the Congressional hearing that its financial products manager, whose reckless investments contributed to the company’s collapse, is receiving $1 million a month in consulting fees. And the AIG former chief executive who ran the company for the three years leading up to its demise is receiving a $5 million performance bonus! You can’t make this stuff up. A performance bonus to a man whose company now needs multibillions in federal assistance? How did we get to this place where $40 million dollars to one person in salary and benefits is no long considered outrageous? Why does one person need $40 million?
After AIG’s revelations about junkets and outsize pay packages for executives who failed miserably at their jobs, the New York Times last week reported that the Federal Reserve Board will provide an additional $37.8 billion to AIG to help it deal with a rapidly dwindling supply of cash. It wasn't until this morning's news that New York Attorney General Andrew Cuomo demanded that AIG reign in corporate excesses (like multimillion severance packages to outgoing execs and junkets for top brass) that any official has put his or her foot down in the midst of the AIG bailout. AIG says it will comply with Cuomo's demands – at last!
Where is the accountability? Where’s the outrage? It is no wonder that the hubris and arrogance of these corporate executives – whose incompetence led us to this situation – goes unchecked. Our regulatory authorities appear to be providing loans and other assistance with no strings attached.
You or I might expect AIG executives to be contrite, coming hat in hand to the House of Representatives, asking for forgiveness for their profligacy. Wrong. Robert Willumstad, CEO of AIG from 2005-8, said this: “Looking back on my time as CEO, I don’t believe AIG could have done anything different.”
My question is if the average working American’s dollars are being used to bail out poorly managed companies whose top execs grabbed millions, shouldn’t we expect some accountability? A system that bails out companies like AIG – whose CEO earns $40 million in one year and pays $1 million a month to a consultant who helped drive the company into the ground – is rotten to the core and badly in need of reform.
The National Consumers League believes in regulation and legislation that will contain such outsize executive pay packages. Our friends abroad – in Europe and Australia – are generous with their corporate leadership but don’t begin to approach the absurd and indefensible salaries American companies pay ours – regardless of whether they succeed.
With unemployment rates higher than they have been in many years, it's unconscionable to pay someone who has nearly destroyed a company a $1 million retainer. With more than 2 million homeowners likely facing disclosure, and states and cities across the country cutting benefits to our neediest citizens, if American consumers are going to bail out banks and insurance companies, we have a right to expect accountability, including an end to the excesses of the past.