Category: Connecticut
Himes’ Bill to Curb Bonus Payments Passes House
HIMES
Norwalk Hour
Tait Militana
Boston University Washington News Service
04/01/09
WASHINGTON—The House took major steps Wednesday to curb bonus payments to employees of companies such as American International Group, granting expanded powers to the Treasury Department to prohibit employee compensation it deems “unreasonable or excessive.”
The bill, which applies to recipients of federal money from the Troubled Asset Relief Program, would allow Treasury Secretary Timothy Geithner to establish performance-based guidelines that any future bonus payments would have to adhere to.
Rep. Jim Himes, D-4, who drafted the bill with Rep. Alan Grayson, D-Fla., said the legislation is necessary to protect taxpayer money.
TARP recipients, Himes said, “have a fiduciary responsibility to their shareholders. Like it or not, American taxpayers are now shareholders.”
The bill, which is the first Himes has authored, comes after outrage over $165 million in bonuses doled out to some AIG employees. In response last week, House lawmakers tried to implement a 90 percent tax on those bonuses, but the movement fizzled as the White House distanced itself from the legislation, asking Americans not to demonize all businesses.
The Himes bill would differ from the tax bill because it would not reclaim bonuses already paid to AIG employees. Instead, it would establish standards that could block future bonuses.
According to AIG CEO Edward Liddy, who testified before Congress last month, several employees have voluntarily given back their bonuses.
Himes, who voted for the bonus tax, said reclaiming the AIG bonuses is a separate issue. He said his bill is better than the tax because it would establish a single set of limits on bonuses.
“Someone within the government, which is now a major shareholder in many financial institutions, has to opine,” Himes said. “I’d rather it be the Treasury with its knowledge and expertise in the industry than 435 congressmen.”
Nonetheless, the bill received cold responses from Republican lawmakers, who had voted narrowly against last month’s House-passed bill. Republicans warned that the Himes proposal would grant too much power to the Treasury.
The House approved Himes’ legislation, 247-171, with Republicans dividing, 163 to 10 against the bill.
Rep. Virginia Foxx, R-N.C., said the bill was a veiled attempt to allow the government to control the salaries of employees at TARP recipient firms.
“The deception is that this is only for executives,” Foxx said. “It is not. It allows the Treasury to set salaries for all employees.”
Rep. Roy Blunt, R-Mo., said the bill would grant government influence in places it should not be.
“To try to tell these companies how to pay the people that work for them is not the right thing to do,” Blunt said.
Himes expressed disappointment that the bill was divided along party lines, but said protecting taxpayer dollars should be a goal of all lawmakers.
“The notion that compensation should be wired to performance should not be a partisan issue,” Himes said.
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Congress Considers Effects of Supreme Court Decision on Tribal Land Annexation
TRIBES
The Day
Katie Koch
Boston University Washington News Service
4/1/09
WASHINGTON—A recent U.S. Supreme Court decision that could have major implications for Southeastern Connecticut’s Indian tribes has prompted Congress to launch an investigation into the annexation of tribal lands—and could result in a law overturning the decision.
In a Feb. 24 ruling, the court determined that the U.S. Department of Interior cannot annex land for Indian tribes that were federally recognized after 1934. While the original decision applied only to Rhode Island’s Narragansett Tribe, it also would prevent tribes such as the Mashantucket Pequots, recognized in 1983, and the Mohegans, recognized in 1994, from annexing more land in the future.
The House Natural Resources Committee held a hearing Wednesday to consider whether Congress should modify the existing law and effectively overturn the high court’s decision.
The effects of the court’s decision are still unclear, according to committee chairman. Nick Rahall, D-W.Va.
Despite the confusion still surrounding the decision, Rahall said, “there is one thing that we are certain of: This decision may result in many frivolous lawsuits being filed to challenge the status of virtually every tribe.”
At the oversight hearing on the ruling, a panel of experts warned the committee—and a packed house of tribal representatives from around the country—that a change in the status of tribal land could affect money for schools, hospitals and businesses on tribal lands.
Challenges to the status of a tribe’s land could also make it hard for tribes to secure their current or future loans, according to the testimony of Michael J. Anderson, former deputy assistant Interior secretary for Indian affairs and now a lawyer representing several tribes.
That predicament has already arisen for the Mohegans, who are in talks to build a gambling casino near La Center, Wash., with Washington’s Cowlitz Tribe, whose application to create a 152-acre land trust has not yet been approved by the Bureau of Indian Affairs.
But many congressmen and speakers at the hearing emphasized that the annexation issue was about more than gaming.
Allowing the Supreme Court decision to stand would effectively create two classes of tribes, said Colette Routel, a visiting professor at the University of Michigan Law School and former tribal-issues attorney. She told the committee that newly recognized and still-unrecognized tribes would be even further disadvantaged.
“Often these tribes are the hardest hit,” Routel said. “There’s no reason to further that injustice by now deciding that they’re going to be permanent second-class citizens.”
Since the decision was announced, tribes in Connecticut have stressed that although they will not be affected by the ruling, they were discouraged by the potential setbacks it could create for other tribes seeking federal recognition or annexation.
“We support congressional action to reverse this decision and recommend an amendment to the Indian Reorganization Act to clarify that the benefits of the [act] are available to all federally recognized tribes,” Lori Potter, a spokeswoman for the Mashantucket Pequot Tribal Nation, said in an interview.
One potential complication of the decision, Anderson said, is that prisoners who had committed crimes on tribal land could appeal their convictions if the status of the land changed.
“Clever criminal attorneys around the country would look at this and mount challenges,” Anderson said.
Underscoring the confusing and sometimes arbitrary nature of tribal recognition, much of the debate Wednesday focused on the Supreme Court’s interpretation of the meaning of a single word in the Indian Reorganization Act of 1934. The court decided that in the law’s language—“any recognized Indian tribe now under federal jurisdiction”—the word “now” indicated that only tribes recognized by 1934 would be eligible to have land placed in trust by the federal government.
“When Congress uses undefined terms in a statute, Congress intends to mean the common dictionary meaning,” said Donald Mitchell, a Native American legal affairs expert, who testified.
“One little word, a three-letter word—now—has upset the whole basis of 75 years of all that has been done. You’re saying that isn’t just a bunch of baloney?” asked Del. Eni Faleomavaega, D-American Samoa.
“I’m saying, as a lawyer, that words have consequences,” Mitchell responded.
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Treasury Secretary Unveils Proposed Financial Rules
OVERHAUL
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/26/09
WASHINGTON – Treasury Secretary Timothy Geithner unveiled a wide-ranging overhaul for regulating the country’s financial system Thursday that could give the government control over financial giants like the American International Group.
The proposals are in reaction to the banking crisis which has threatened the survival of financial institutions and wiped out trillions of dollars in investor wealth.
Geithner said the United States came into the financial crisis without adequate tools to handle it and vast regulatory changes are needed.
“To address this will require comprehensive reform,” Geithner said. “Not modest repairs at the margin, but new rules of the game.”
According to Rep. Jim Himes, D-4, the government must create a new government regulating body to make sure such a crisis never occurs again.
“If there is one thing we’ve learned, it’s that there are plenty of players that are capable of crashing the system,” said Himes of the banking system. “When an activity can crash the system we have a right to monitor it.”
Speaking in front of the House Committee on Financial Services, of which Himes is a member, Geithner outlined broad areas that the regulatory framework will cover. Included in the plan is the establishment of a single federal agency with responsibility for maintaining the stability of large institutions.
The proposed changes would also give the government the power to take over financial companies like AIG as it now has the power to do with insolvent banks.
Designed to weed out unnecessary risks to the country’s financial system, the agency would subject firms deemed to be too large to controls such as tougher capital requirements and greater oversight on borrowing.
Geithner said a single comprehensive regulator also would prevent companies from “cherry picking among competing regulators” as they do under the current system.
“The new rules must be simpler and more effectively enforced,” he said.
The plan, which requires congressional approval, would grant never-before-seen powers to the government, allowing it to more easily influence the financial system.
The administration’s goal with the new authority is to be able to prevent a repeat of the financial crisis surrounding AIG. The furor over the government bail-out of AIG peaked last week after a report that top executives had received $165 million in bonuses. The government plan also would for the first time place regulations on the derivatives market including credit default swaps, which AIG heavily traded driving the firm to near ruin.
Geithner did not specify where these powers would lie, but said the regulations would build on the model set by the Federal Deposit Insurance Corporation.
Several Republican members of the committee had cool responses to Geithner’s proposals. Rep. Scott Garrett of New Jersey said he worried the plan would give the government too much power without achieving its goals.
“The Federal Reserve itself was created to ensure that asset bubbles and panics sort of like we have right now don’t happen,” Garrett said. “But they do. Forgive me if I’m still a skeptic.”
Tuesday Sen. Chris Dodd, D-Conn., suggested the new authority be granted to a regulatory council made up of representatives from the FDIC, Federal Reserve and Treasury. He said such a system would provide the proper checks and balances.
“Overall the plan is consistent with the principles I've laid out,” Dodd said in a statement.
Himes said what department will be granted the regulatory powers is still an open discussion, but he is more concerned how the regulation will be shaped.
“I care more about what it looks like than where it lives,” Himes said.
At the G-20 summit meeting of industrialized nations to take place next week in London, Geithner pledged to build upon reforms in the United States with European partners, saying the country cannot move on by itself.
“We need to recognize that risk does not respect national borders,” he said.
According to Himes, the most important thing is that the new regulator be able to adapt and eliminate unnecessary risks.
“It is critical that the thing be flexible and adaptable, which are not words usually used to describe a regulator,” said Himes.
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Conservatives Rethink Defense Spending Reform as Budget Debate Looms
HERITAGE
The Day
Katie Koch
Boston University Washington News Service
3/26/09
WASHINGTON—The Defense Department must reform how it acquires its weapons and other military goods, a leading conservative group said Thursday. But these reforms, the Heritage Foundation said, should give the military more freedom to pursue new projects, not less.
“The defense acquisition process is probably overregulated, not underregulated,” said Baker Spring, a research fellow at the foundation.
Speaking at a Heritage panel on procurement reform, Spring criticized Congress for its “excessive micromanagement” of the defense budget. He also targeted the military for its “risk-averse mentality,” a result of the “layers of bureaucracy” governing the acquisition process.
Spring said Congress must abandon its “illusory goal of a one-size-fits-all, rules-based acquisition process” and allow the Pentagon more leeway in acquiring and developing new technologies.
“Congress needs to restrain itself and do what is really best for the country instead of balkanizing this issue,” he said.
In the fight to preserve costly defense projects—and in many cases, to shield such projects from extensive oversight—conservatives have often been the military’s closest allies. They have been more inclined to support long-term, expensive defense projects such as the Navy’s Virginia-class submarines, which are contracted through Groton’s Electric Boat Division of General Dynamics Corp.
Yet as defense spending has come under harsher scrutiny in recent months, conservative institutions like Heritage and their Republican counterparts in Congress may be readjusting to the new debate. In the current economic climate, military supporters say, all spending must be justified.
During the Cold War, “it was a dangerous world, but it was pretty easy” to secure funds for defense projects, said Gen. Dennis Reimer, former Army chief of staff, who spoke at the Heritage panel.
“Now we’re in a capabilities-based world, and we’re in an economic crisis,” he said. “We can’t afford to have as inefficient a system as we have today and still get the best bang for our buck.”
In his press conference on Tuesday, President Barack Obama called for a “more disciplined” defense budget. His proposed budget would leave defense spending roughly equivalent to what it was under President George W. Bush after adjusting for inflation.
“Where the savings should come in,” Obama said, “is how do we reform our procurement system so that it keeps America safe and we’re not wasting taxpayer dollars?”
Conservatives, however, worry that the President will ask Congress for less supplemental spending for the wars in Iraq and Afghanistan, which they say will drain the defense budget and cause long-term military projects to suffer.
“It’s really a peacetime budget,” said Mackenzie Eaglen, a senior national security policy analyst at Heritage. “The notion that cuts can be made without a subsequent change in our defense strategy is unwise and risky.”
On Wednesday, Sen. John Cornyn, R-Texas, and 13 other Republican senators sent a letter to the President criticizing his proposed defense budget. The senators warned against allowing the military to go on a weapons “procurement holiday,” which they said happened during the Clinton administration.
“Obama’s budget will decrease the overall defense spending, with cuts likely coming from defense acquisition,” a spokeswoman for Cornyn said.
Secretary of Defense Robert M. Gates, who also served under President George W. Bush, has echoed Obama’s call for defense spending reform.
“Secretary Gates has a much larger mandate [under this administration], and will be tackling these issues,” Eaglen said.
Michael E. O’Hanlon, a senior fellow in policy at the Brookings Institution, said in an interview Thursday afternoon he does not believe that Congress is causing unnecessary problems for military programs.
“The problem is not that good programs get canceled [by Congress], it’s that there may be inefficiencies in the way bureaucracies work that drive up costs,” O’Hanlon said.
He also said that talk of another “procurement holiday” is overblown.
“We can’t afford it in terms of [the military’s] equipment stocks,” he said. “But there may be selective cuts to certain programs.”
At Thursday’s panel, speakers outlined various ways to reform the military’s acquisition programs.
“Congress has a tendency to second guess…and intervene in the acquisition process,” Michael Wynne, former secretary of the Air Force, said.
Therefore, “we need to keep the acquisition criteria simple,” he said. “We need to minimize the kind of criteria that have been fertile ground for protest.”
Spring argued that no reform would be possible without a higher budget to provide for the military’s needs in Iraq and Afghanistan and at home.
“If you don’t have an adequate defense budget, no amount of reform is going to get you the force that you want,” Spring said.
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Dodd Calls for Regulatory Council to Prevent Another AIG
REFORM
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/24/09
WASHINGTON – As fury over American International Group bonus payments continued to boil around him, Sen. Chris Dodd, D-Conn., tried to push forward Tuesday on plans to overhaul the nation’s banking system, calling on lawmakers to consider a council of federal regulators that would oversee risk and end the concept of “too big to fail.”
Departing from his suggestion last week that the Federal Deposit Insurance Corp. should regulate systemic risk, Dodd said Tuesday that a council representing the Federal Reserve, the Treasury Department and the FDIC, among others, would provide the needed financial oversight without burdening one department with all of the responsibilities.
Sen. Susan Collins, R-Maine, introduced a bill last week that also proposed a federal regulatory council.
Dodd said placing a risk regulator within a single government agency might consolidate too much power in one place.
“I just don’t like the idea of the systemic risk regulator sort of talking to itself,” he said.
In a hearing at the Capitol, the Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, continued its discussion with bankers on how to regulate financial giants whose failure would threaten the stability of the entire financial system. The panel met with insurance industry leaders on similar topics last week.
Dodd said any new regulator should look to community banks when creating policy because many of them have been able to weather the economic crisis.
“We must recognize that not all banks are responsible for this crisis,” he said. “Small-bank lending might well help lead the way out of it.”
William Attridge, president of the Connecticut River Community Bank of Wethersfield, said it was important to have several agencies checking each other on financial regulation.
“Congress should not establish a single, monolithic regulator for the financial system,” he said.
But not every witness agreed that additional federal regulation was a good idea. Christopher Whalen, managing director of Los Angeles-based Institutional Risk Analytics, said regulation should include state as well as federal agencies.
There is no good way for the federal government to oversee all aspects of financial risk, Whalen said. “There is no God’s-eye view.”
Throughout the hearing, AIG never strayed far from the conversation.
Whalen said an important part of eliminating excessive risk is eliminating the credit default swaps that led to AIG’s near collapse. He took issue with the argument that AIG and other financial giants were too big to let them fail, saying that letting AIG fail would not have ended the world but it would have eliminated the credit default swaps.
“I pray to God we find the courage to put that company out of its misery and into bankruptcy. where it should have been six months ago,” Whalen said.
According to Dodd, part of what led to the near failure of AIG and the economic crisis in general was a perception that protecting the consumer stifled business. He said future regulation must reverse that trend.
“We cannot afford to consider a so-called systemic risk regulator without also considering how we can better protect the consumer,” Dodd said.
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Financial Overhaul Moves Forward as AID Anger Continues
AIG
Norwalk Hour
Tait Militana
Boston University Washington News Service
3/19/09
WASHINGTON – In the face of outrage surrounding his role in legislation that allowed AIG to dole out millions of dollars in executive bonuses last weekend, Sen. Chris Dodd, D-Conn., moved forward Thursday on reforms to the country’s banking system, calling for federal oversight so never again will an institution be “too big to fail.”
Dodd said the Federal Reserve may have too many regulatory responsibilities to handle the addition of a systemic regulator to weed out institutions whose failure could cause larger damages to the financial system. Instead, he suggested the authority lie with the Federal Deposit Insurance Company, a government institution that backs deposits in member banks.
“If the events of this week have taught us anything, it is that the unwinding of these institutions can sap both public dollars and public confidence,” said Dodd.
In a hearing at the Capitol, the Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, heard testimony from industry leaders seeking to reinvent the financial regulatory system. All seven witnesses said additional oversight of the financial industry is necessary though several differed in their opinion on how it should be done.
Joseph Smith, North Carolina commissioner of banks, said rather than having a purely federal regulator the authority should be split between state and federal supervision because it will provide more checks and balances.
“An appropriately coordinated system of state and federal supervision and regulation will promote a more effective system of financial regulation and a more diverse, stable and responsive system,” Smith said.
Opponents argued this may allow too many cracks for large, diverse corporations such as AIG to slip through without adequate regulation.
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Sen. Dodd: It Wasn’t My Idea to Allow Bonuses
DODD RESPONSE
Norwalk Hour
Tait Militana
Boston University Washington News Service
3/19/09
WASHINGTON – Following days of attacks from Republican lawmakers over language that allowed bonuses to be paid to AIG employees, Sen. Chris Dodd, D-Conn., fired back Thursday evening, saying the Treasury Department requested the changes to protect bonuses and that they seemed “almost technical in nature at the time.”
“It wasn’t my idea, my proposal, my suggestion,” Dodd said in a conference call with Connecticut reporters. “It came from the administration. They gave us no indication whatsoever that these were related in anyway to AIG and I agreed to those changes.”
Dodd’s response came after days of denying he had anything to do with the legislation early in the week. He later admitted Wednesday that he had in fact authored the amendment to restrict bonuses and knowingly diluted it at the behest of the administration. According to Dodd, the mixed messages were a misunderstanding.
“I regret deeply that this matter has become confused,” Dodd said.
The language added a loophole to an amendment in the stimulus bill that would have restricted bonuses paid to employees of companies that had received funds from the Troubled Assets Relief Program. Dodd said he did not know who requested the changes, but it was someone at the staff level in the Treasury Department.
Treasury Secretary Timothy Geithner told CNN Thursday that his department requested that Dodd change the amendment out of fear that numerous lawsuits would follow because the bonuses were contractually guaranteed.
Several House Republicans jumped on the controversy, saying Democrats were irresponsible in crafting the bonus modifications and should have known the potential consequences.
U.S. Rep. Joe Wilson, R-S.C., said, “Democrats wrote the bill alone, secretly and yet they act surprised.”
Rep. John Boehner, R-Ohio, the House minority leader, said the controversy proved that Democrats moved too quickly on the stimulus bill, forcing it upon Congress without proper revision.
“It’s pretty clear not one person read [the stimulus bill],” Boehner said in his weekly legislative address.
Dodd said had he known the change would have let taxpayer money go to executive bonuses at AIG, he would not have accepted it.
“Had I known at the time that there were any AIG bonuses involved – that this was somehow going to assist in this matter – I would have rejected it completely,” Dodd said.
He also said he would return any campaign contribution from AIG employees who have received bonuses.
Dodd also addressed concerns that the controversy would hurt his chances at reelection, saying it is something that he cannot worry about. Republican Rob Simmons, who represented the 2nd District in the U.S. House until being defeated by Joe Courtney in 2006, announced this week that he would challenge Dodd in 2010.
“If I sat there everyday and worried where polls were, then you couldn’t do this,” said Dodd. “I can’t function that way.”
Dodd also said he supported a motion to implement at 90 percent tax on the AIG bonuses passed Thursday by the House 328-93. He said while his preference would be for the employees to voluntarily give back their bonuses the government must get as much back as it can
“I’m in favor of whatever surcharge we can get away with,” Dodd said.
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Himes Says Government Should Go After All AIG Bonuses
AIGSIDEBAR
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/18/09
WASHINGTON – American International Group’s request that employees voluntarily give back at least half of the $165 million in bonuses paid to them last week is not good enough, said U.S. Rep. Jim Himes, D-4, following testimony by the company’s chief executive at the Capitol Wednesday.
Edward Liddy, AIG’s embattled CEO, testified before the House Committee on Financial Services, of which Himes is a member. He said though the bonuses may have been “distasteful,” they were necessary to keep top employees onboard.
“I think he made a bad decision,” Himes said. “If AIG can’t figure out a way to get the money back, the government will.”
Himes said he recognized that the bonus contracts were developed by Liddy’s predecessors and applauded his willingness to testify. However, Himes said, government intervention, such as imposing a heavy tax on the bonus payments or deducting the amount from future bailout funds for AIG, should be a last resort. He said he would like to see the company hire lawyers to fight the contracts or persuade the employees that they have a moral obligation not to take the money.
“Given the severity of [the economic crisis], we just can’t tolerate these payments,” Himes said.
In a tense moment at the hearing, Rep. Barney Frank, D-Mass., the committee chairman, called on the panel to subpoena the names of the employees that received bonuses. Because of death threats to several AIG employees, Himes said, the request represents a security concern, though the public has a right to know.
Frank and Liddy pledged to continue negotiations.
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Military Brass Answer to Congress on Suicides
SUICIDES
The New London Day
Katie Koch
Boston University Washington News Service
3/18/09
WASHINGTON—In response to what a senator called an “alarming” increase in the number of military suicides over the past year, several top military officials gathered to defend their efforts to prevent suicides before a Senate Armed Services subcommittee Wednesday.
“The numbers in every service have increased in the past two years, and that trend must not continue,” said Sen. Ben Nelson, D-Neb., the chairman of the Personnel Subcommittee.
“We know that more is needed, and it’s needed now,” Nelson said.
The hearing included testimony from military branches’ “number twos”: Gen. Peter W. Chiarelli, vice chief of staff of the Army; Adm. Patrick M. Walsh, vice chief of naval operations; Gen. James F. Amos, Marine Corps assistant commandant; and Gen. William M. Frazer III, vice chief of staff of the Air Force.
The group was quick to stress that realistic declines in the suicide rate would not occur until external pressures on the overburdened forces are relieved. They emphasized that active-duty deployment to Iraq and Afghanistan, which has remained relatively steady over the past year, has an effect on the stress levels of all military personnel, not just soldiers stationed abroad.
“You could say it’s not entirely dependent on [combat-related] stress, because one-third of those [who committed suicide] don’t have any deployments at all; but I don’t buy that,” Chiarelli said.
“The reality is we are dealing with a tired and stretched force,” he said. “We must find some ways of relieving this stress.”
All the officers present agreed the military’s culture played a role in hindering their efforts’ success. The armed forces’ perceived attitude of “don’t ask, don’t tell” often extends to mental health problems and personal troubles, they said, preventing soldiers from seeking help.
“We must eliminate the perceived stigma and shame and dishonor of asking for help,” Walsh said.
The Army has taken the most criticism since it released its 2008 data on suicides Jan. 30. Those figures revealed that 140 active-duty soldiers committed suicide last year, an all-time high for the Army.
It also marked the first time the Army’s suicide rate—20.2 per 100,000 soldiers—surpassed the public’s, according to 2005 statistics from the Centers for Disease Control and Prevention, the most recent national figures available.
While the Navy’s 2008 suicide rate of 11.6 per 100,000 sailors was much lower than the Army’s, the Navy still faces a challenge in locating the root causes of the problem.
Unlike the Army, the Navy has found no correlation between serving in Iraq and Afghanistan and increased risk for committing suicide. Since 2003, veterans of the two wars accounted for only 3 percent of Navy suicides.
Maj. Gen. David A. Rubenstein, deputy surgeon general of the Army, underscored the difficulty targeting which soldiers could be at risk for suicide. Just hours before the hearing, he said, he learned that a former soldier who suffered a traumatic brain injury more than two years ago—and who had been a model patient since, even giving motivational speeches to groups of wounded veterans—had committed suicide Tuesday.
“This solder was treated, was compliant and was supported in every way,” Rubenstein said. “And yet, he’s dead today.”
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Local Insurer: Fed Regulator No Answer to Outrage over AIG
INSURANCE
Norwalk Hour
Tait Militana
Boston University Washington News Service
3/17/09
WASHINGTON – Outrage over bonuses paid to executives at the American International Group spilled over at a Senate hearing on insurance regulation Tuesday, while industry leaders sought to install a federal regulator to prevent future systemic failures.
Following a weekend report that $165 million in bonuses had been paid from taxpayer money used to prop up the insurance giant AIG after its near collapse, Sen. Chris Dodd, D-Conn, demanded answers from the Federal Reserve about how it tracks the federal rescue funds that have already gone to AIG and other financial industry recipients.
“The American people are outraged, and so am I,” Dodd said. “We also want answers regarding where the Fed has been on conditions for these types of bonuses since this rescue effort first began.”
Sen. Jon Tester, D-Mont., said AIG’s use of taxpayer money for bonuses is unacceptable and the company would be broke if the American people had not bailed it out.
“If this is the way Wall Street and AIG and all of the others continue to do business, we can’t help them with any amount of money,” Tester said. “This is ridiculous.”
The Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, met with insurance leaders on how to modernize the insurance regulatory system.
In light of AIG’s near failure, several witnesses called for a federal regulator to oversee the insurance industry and help prevent collapses like the one AIG faced last year.
William Berkley, the CEO of W.R. Berkley Corp. in Greenwich, said the current system, in which each state independently regulates its own insurance market, lets too many companies like AIG slip through the cracks.
“The state-based insurance regulatory structure is inevitably fragmented and frequently not well-equipped to close the regulatory gaps that the current crisis has exposed,” Berkley said.
However, critics of a federal regulatory system say that AIG was an anomaly and cannot be considered for federal regulatory reform because it is too large and spans too many industries.
According to Dodd, there are nearly 4,000 insurance companies in the country. He said diverse international companies like AIG represent only a small percent of the industry.
“What happened at AIG should not, in my opinion, be confused with the industry with which it is most closely associated, the insurance industry," Dodd said.
Spencer Houldin, president of Ericson Insurance Advisors in Washington Depot, said at the hearing that insurance has been hurt less by the financial crisis than many other industries have. He said the industry is sound and major changes to the regulatory system are not needed.
“Unlike other financial services markets, the insurance market, particularly property-casualty, is stable and does not need risky indiscriminate change of its current regulatory system,” Houldin said.
According to Houldin, the problem with AIG was its overseas gambles with credit default swaps that a federal regulator would not be able to catch anyway.
“Federal regulation isn’t the panacea,” he said.
Dodd said the immediate issue is trying to get back the bonuses paid to AIG. He expressed disappointment that the restrictions on bonuses and other compensation under the Troubled Asset Relief Program do not apply to the money the Fed distributed to AIG.
“We wrote restrictions on executive compensation at the time, and the idea that this wouldn’t apply to money coming out of the Federal Reserve is a sore point, to put it mildly,” Dodd said.
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