[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                AIG BONUSES: AUDIT REPORT OF THE SIGTARP

=======================================================================


                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 14, 2009

                               __________

                           Serial No. 111-42

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri              MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California          LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts      PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee                BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio                   JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island     BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 14, 2009.................................     1
Statement of:
    Barofsky, Neil M., special inspector general for the Troubled 
      Asset Relief Program, Office of the Special Inspector 
      General....................................................    19
Letters, statements, etc., submitted for the record by:
    Barofsky, Neil M., special inspector general for the Troubled 
      Asset Relief Program, Office of the Special Inspector 
      General, prepared statement of.............................    22
    Cao, Hon. Anh ``Joseph'', a Representative in Congress from 
      the State of Louisisana, prepared statement of.............   147
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, followup question and response..........    85
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............   149
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................    10
    Towns, Chairman Edolphus, a Representative in Congress from 
      the State of New York:
        Binder of documents relating to hearing..................    96
        Prepared statement of....................................     4


                AIG BONUSES: AUDIT REPORT OF THE SIGTARP

                              ----------                              


                      WEDNESDAY, OCTOBER 14, 2009

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Edolphus Towns 
(chairman of the committee) presiding.
    Present: Representatives Towns, Issa, Cummings, Kucinich, 
Tierney, Clay, Watson, Connolly, Quigley, Kaptur, Norton, 
Kennedy, Van Hollen, Cuellar, Murphy, Welch, Foster, Speier, 
Driehaus, Burton, Mica, Duncan, McHenry, Bilbray, Jordan, 
Flake, Fortenberry, Chaffetz, Schock, Luetkemeyer, and Cao.
    Staff present: John Arlington, chief counsel--
investigations; Lisa Cody, investigator; Brian Eiler and Neema 
Guliani, investigative counsels; Linda Good, deputy chief 
clerk; Jean Gosa, clerk; Adam Hodge, deputy press secretary; 
Carla Hultberg, chief clerk; Marc Johnson, assistant clerk; 
Mike McCarthy, deputy staff director; Leah Perry, senior 
counsel; Jason Powell, counsel and special policy advisor; 
Jenny Rosenberg, director of communications; Joanne Royce, 
senior investigative counsel; Mark Stephenson, senior policy 
advisor; Alex Wolf, professional staff member; Lawrence Brady, 
minority staff director; John Cuaderes, minority deputy staff 
director; Rob Borden, minority general counsel; Jennifer 
Safavian, minority chief counsel for oversight and 
investigations; Frederick Hill, minority director of 
communications; Adam Fromm, minority chief clerk and Member 
liaison; Kurt Bardella, minority press secretary; Seamus Kraft, 
minority deputy press secretary; Christopher Hixon, minority 
senior counsel; Brien Beattie and Mark Marin, minority 
professional staff members.
    Chairman Towns. Good morning.
    I would like to welcome a new member to the committee, on 
the minority side, Representative Joseph Cao represents the 
Second District of Louisiana. How do you pronounce that?
    Mr. Cao. It is like cow with a G.
    Chairman Towns. After consultation with the ranking member 
and pursuant to committee rule 8, I am assigning him to the 
Federal Workforce Committee. I welcome the gentleman and look 
forward to his contribution.
    I yield to the ranking member of the committee, the 
gentleman from California, Congressman Issa.
    Mr. Issa. Thank you, Mr. Chairman. Before we start this 
important hearing, I think it is important to have our newest 
Member seated.
    Representative Cao asked for this committee, competed for 
this committee, made the case for why the things that happen in 
his home parishes in Louisiana are so critically related to 
this committee, and I agree with him. This committee, of 
course, after Hurricane Katrina, certainly has been down to his 
District a lot. But, more importantly, this is a Member who has 
requested it because he believes that this committee has an 
important part in routing out waste, fraud, and abuse in 
Government.
    Mr. Chairman, I would ask unanimous consent after the vote 
that he have a moment just to speak.
    Chairman Towns. I will yield to him 2 minutes at this time.
    Mr. Cao. Thank you, Mr. Chairman.
    I would like to thank the ranking member for the 
opportunity and the honor to serve. I am very honored to be on 
this committee in order to serve to make sure that we, as a 
body, as the Government, work and function in a very effective 
and efficient manner.
    I know that after Hurricane Katrina we experienced a 
tremendous amount of fraud and waste down there at the 
District. One of the messages that I campaigned on when I was 
running for U.S. Congress was to make sure that we operate at 
the Governmental level in a very ethical fashion, so I am glad 
to be able to serve on this committee to make sure that 
everything that we do here as a Body to be transparent and to 
be more and ethical.
    So with that I yield back my time, Mr. Chairman. Thank you 
very much.
    Chairman Towns. I thank the gentleman. We are delighted to 
have you on the committee and look forward to working with you. 
This is a very active committee. Of course, we are certain that 
you will fit in well.
    Just over a year ago the U.S. economy lurched toward near 
ruin. Venerable financial institutions staggered toward 
collapse and the market was in free-fall. Americans were 
stunned as their savings disappeared overnight, the value of 
their homes plummeted, and their jobs disappeared. To save the 
economy from going from recession to depression, the Federal 
Government launched the largest bailout of private companies in 
history. America's leading financial firms were on life support 
when the Treasury Department injected them with hundreds of 
billions of dollars of taxpayers' money.
    AIG, once the largest insurance company in America, became 
the single largest recipient of bailout dollars. AIG was the 
victim of one of its own divisions, AIG's Financial Products, 
which engaged in the risky and unregulated trading that many 
blamed for the company's collapse.
    The American taxpayers came to the rescue with an $85 
billion bailout of AIG last September. That was followed by 
more money in October. More again in November. And still more 
in March of this year. In the end, the Federal Government had 
committed $180 billion to save AIG.
    Americans were justifiably outraged when they learned 
shortly thereafter that AIG was paying $165 million in bonuses 
to executives at the very division that caused the collapse of 
the company. But even that figure pales before what the Special 
Inspector General learned in the course of his audit, which he 
is releasing at our hearing today.
    Not long after the last administration had shoveled $85 
billion into the failing giant, Federal Reserve officials 
learned that AIG's units planned to distribute a combined total 
of $1.7 billion in bonuses and other extraordinary 
compensation. That is the justification for giving bonuses to 
people who drove their firm off a cliff and very nearly crashed 
the U.S. economy. Wasn't there something seriously out of whack 
here? This does not make a lot of sense to me.
    It turns out it wasn't always that way at AIG. The SIGTARP 
audit found that AIG's compensation used to be weighted toward 
long-term incentives that were payable only at retirement. In 
other words, they used the classic golden handcuffs. But in 
2007, when losses began to mount, AIG new management decided to 
update their compensation plans. The golden handcuffs were 
replaced by golden envelopes. The era of instant gratification 
had arrived at AIG. Long-term incentives were rejected in favor 
of short-term gains.
    Don't get me wrong: Americans don't resent people who make 
a lot of money. We all want to make a lot of money. But what 
infuriates people is when bosses at bailout companies, virtual 
wards of the State, continue to rake in millions, in effect, 
our millions. That is the problem.
    It just doesn't seem right that people who caused this 
tragedy should be so richly rewarded. You know, this is sort of 
unusual. Generally, when people are rewarded, it is the fact 
that they have done a fantastic job and they receive extra 
benefits for doing a great job. You are not generally rewarded 
when you are taking the company down the wrong road.
    Unfortunately, this is still very much an issue. AIG's 
current bonus proposal is under review by the Treasury 
Department's Special Master, Ken Feinberg. We will be hearing 
from Mr. Feinberg 2 weeks from now at our second hearing on 
executive compensation.
    Today we welcome back Special Inspector General Neil 
Barofsky, who just completed his audit of AIG's compensation. 
Perhaps today we will shed additional light on what many 
American taxpayers are asking: why didn't the Federal 
Government impose pay concessions on bailout companies? Why 
were huge bonuses paid to executives of firms that would now be 
bankrupt but for a taxpayer bailout? How much more in lavish 
bonuses will the American taxpayer be required to foot? What 
have we learned about executive compensation and corporate 
performance from our experience with AIG?
    Again, I want to thank Mr. Barofsky for appearing here 
today and for the outstanding work that he has done.
    [The prepared statement of Chairman Edolphus Towns 
follows:]
[GRAPHIC] [TIFF OMITTED] 55101.001

[GRAPHIC] [TIFF OMITTED] 55101.002

[GRAPHIC] [TIFF OMITTED] 55101.003

[GRAPHIC] [TIFF OMITTED] 55101.004

    Chairman Towns. At this point I would like to yield 5 
minutes to the committee's ranking member, Mr. Issa of San 
Diego, CA.
    Mr. Issa. Thank you, Mr. Chairman. And thank you for 
holding this hearing on SIGTARP's audit today. I look forward 
to the Special IG's testimony and his report.
    Mr. Chairman, I believe examining the Federal Government's 
role in AIG bonus is important and it must be done by this 
committee. It is clear that this committee, having broad 
jurisdiction and the willingness to do oversight, cannot be 
discounted.
    As you might imagine, I would say that financial services 
should have helped prevent this and overseen it every step of 
the way, as should the New York Fed. But you also find that 
today I am concerned that the era of political bankruptcies is 
just beginning.
    We certainly as a committee cannot continue to ignore vital 
issues--and I will ask about these--related to the role of 
Fannie Mae and Freddie Mac, the bailouts of General Motors and 
Chrysler, and the future of FHA. I know this committee will not 
shrink from its duty.
    Last March the American people learned that employees of 
AIG Financial Products [FP], the very division responsible for 
making the bets that sank the company, were getting hundreds of 
millions of dollars in retention payments for what ultimately 
had been their failure. AIG's CEO told us that the company 
needed to retain AIGFP employees because they had technical 
skills to unwind the company's risky investments in order to 
pay back the taxpayers; however, it is clear that it was not 
about paying back the taxpayers. In fact, during the so-called 
unwinding, that $180 billion, much of it went to paying 100 
percent on the dollar for, in fact, credit defaults or 
insurance programs which would not have ordinarily in 
bankruptcy been paid full. And, more important, the Treasury 
made a decision, at the very time in which mark to market was 
on everyone's lips, not to, in fact, purchase these credit 
defaults at their market. You had pieces of paper which were 
floating around at a market rate of 20 or 30 cents on the 
dollar or more, and, in fact, we paid 100 cents on the dollar.
    Many people during this hearing will probably not have 
realized that AIG was a conduit for paying Goldman Sachs and 
others billions of dollars at 100 cents on the dollar when, in 
fact, that paper would ordinarily have been discounted 
considerably; meaning permanently these people who got $168 
million in retention bonuses were part of a larger political 
bankruptcy that led to the higher price being paid, in fact, 
100 cents on the dollar when, in fact, the market rate was a 
fraction of that.
    Mr. Chairman, I might point out this went on under the Bush 
administration. This is not something that this President did 
anything but inherit. I hope that we will recognize that what 
we are doing here today is talking about a pattern of mistakes 
that I will characterize mostly as political bankruptcies being 
run by the Government.
    The pattern of rewarding failure during the Bush 
administration, unfortunately, appears to continue during the 
current administration. Rather than learning from the mistakes 
of his predecessor, President Obama has entangled the Federal 
bureaucracy across the private sector. Rather than letting 
failed companies fail through a bankruptcy system, we 
constantly are putting money in and then political influence.
    Mr. Chairman, General Motors was a political bankruptcy. 
Chrysler was a political bankruptcy. The American people and 
their kids and grandkids will pay the price.
    The lesson we ought to take from the story of AIG retention 
bonus today is: rewarding failure through a policy of bailouts 
and circumventing the rule of law and ordinary procedures 
within bankruptcy cost the taxpayers far more than if, in fact, 
we had back-stopped what we were obligated to back-stop; if we 
had said to the bankruptcy court, you determine what portion 
the Federal Government should pay and the American people will 
step up to the plate. However, no one, no one on either side of 
this dias, for a moment believes that 100 cents on the dollar 
would have been what the American people would have paid. Tens 
of billions of dollars were paid out because this was a 
political bankruptcy and not handled by a Federal judge, as our 
law requires.
    Mr. Chairman, I thank you for your indulgence and yield 
back.
    [The prepared statement of Hon. Darrell E. Issa follows:]
    [GRAPHIC] [TIFF OMITTED] 55101.005
    
    [GRAPHIC] [TIFF OMITTED] 55101.006
    
    Chairman Towns. I thank the gentleman for his opening 
statement.
    Anyone seeking recognition at this time? The gentleman from 
Maryland, Mr. Cummings, is recognized for 3 minutes for an 
opening statement.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    As I listened to Mr. Issa I could not help but remember--
and I hope we don't get amnesia--that it was a Republican 
President and a Mr. Paulson who was appointed by President 
Bush, who came to this Congress saying that the sky was 
falling. Come on. Give me a break. And what this Congress did, 
and mainly Democrats trying to help this President get us out 
of this mess, was to do something that we did not like: to hold 
our nose and to address this issue the way we did. So let's not 
get amnesia here.
    The fact still remains that we have a lot to do. I've said 
many times, starting back in December 2008, AIG has not been 
truly honest with the Congress or the United States of America. 
I have met with Mr. Liddy, after I wrote a letter to him, and 
he constantly told me, the former chairman, he constantly told 
me about bonuses, and every time he never gave us all the 
information.
    After my letter of December 1st, Mr. Liddy responded a few 
days later that it would be 168 employees receiving these 
payments in amounts between $160,000 and $4 million. Mr. Liddy 
and I then exchanged a series of letters and even sat down 
face-to-face to discuss the issue, and I explicitly asked that 
AIG be a good corporate citizen. Mr. Liddy assured me that AIG 
would be just that.
    Well, AIG cutoff all communications, and later we learned 
that it was 4,500 people, not 160 people, would be receiving 
bonuses and retention payments totaling, as the chairman has 
already said, over $1 billion. Further, around 400 employees at 
the Financial Products division, which is the very division 
that brought AIG down and brought the country down, as far as I 
am concerned, we found out that they were getting $450 million 
in so-called retention payments. The same Financial Products 
division that brought AIG to its knees would be rewarding its 
traders' reckless risk-taking with enormous corporate payouts 
to stick around and undo their handiwork.
    National unemployment was 8.5 percent when this happened. 
It stands to reason that there were very talented people out of 
work, traders on Wall Street, that might have been able to do 
this work without hundreds of millions of dollars in retention 
payments.
    Mr. Chairman, I see my time is running out, but I want to 
be very, very clear. I think we have done the best that we can 
do, and we are going to have to continue to be vigilant. Nobody 
likes what AIG did, and this report certainly does not shed a 
brilliant, wonderful light about what they did.
    I want to thank you, Mr. Barofsky, for all that you have 
done, because you have presented yourself in a very forthright 
way and we appreciate it, and we will continue to work with you 
to try to make sure we get to the bottom of these bonuses and 
these junkets and whatever.
    Mr. Chairman, thank you for your indulgence.
    Chairman Towns. I would like to thank the gentleman from 
Maryland for his statement.
    Anyone else seeking recognition? The gentleman from 
Indiana, Mr. Burton.
    Mr. Burton. Real briefly, Mr. Chairman, I am glad you are 
holding these hearings. I think it is extremely important that 
we look into this very thoroughly.
    I think this should also include other issues of great 
significance and importance. There have been allegations that 
there has been special treatment given to some Government 
officials regarding loans at Countrywide. We had a hearing on 
that at some point in the past. During that hearing, we asked 
the chairman of Countrywide a great many questions about 
preferential treatment, and it has been in the papers a lot.
    I hope--and I know the ranking member shares our position 
on this--I hope that we will have a very thorough investigation 
on not just AIG but other things where there might have been 
some corruption.
    Chairman Towns. Anyone else seeking recognition? The 
gentleman from Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, for 
holding this hearing. I think that those Members who are 
concerned about the conduct of people in the Senate or in the 
House, we understand that the purpose of this committee, 
Government Oversight, is to monitor the activities that are 
going on in the private sector and in Government, but the rules 
of the House require that the structure that has been set up by 
the House, which is the Ethics Committee, be used, and that 
this committee is not the appropriate place to start going 
after other Members of Congress. Once we start that, what else 
are we going to do in this committee?
    The American people are relying on us to be able to try to 
straighten out this economy and to make Wall Street 
accountable. Now, whatever flaws Members of Congress may have--
and all of us do--I think that the Ethics Committee is the 
appropriate venue for those. If people have complaints to 
bring, they ought to do that. But to keep trying to bring it up 
in this committee, to challenge the conduct of other Members of 
Congress, be they in the House or in the Senate, I think----
    Mr. Burton. Would the gentleman yield?
    Mr. Kucinich [continuing]. I think actually what it does is 
it slows the momentum that we need to build, bipartisan, that 
we need to build----
    Mr. Burton. Would the gentleman yield?
    Mr. Kucinich [continuing]. To be able to accomplish the 
goals of this committee.
    Mr. Burton. Would my colleague yield?
    Mr. Kucinich. I will in a minute. This committee has to 
deal with over $13 trillion in spending that has been put out 
there by the Treasury and by the Fed.
    I think my colleagues on the other side certainly know that 
I haven't pulled any punches when it has come to the 
administration at all, nor will I. I will not. But come on, we 
can't use this committee to snipe at each other all the time. 
We've got to focus, keep our eye on the ball. I'm glad we are 
having a hearing on AIG bonuses, but we need to go a lot 
deeper.
    Mr. Burton. Would the gentleman yield?
    Mr. Kucinich. I will yield.
    Mr. Burton. What I said in my remarks was that there have 
been allegations that some Government officials--I didn't 
mention Members of Congress--some Government officials may have 
gotten preferential treatment from places like Countrywide. 
When I was chairman, we followed it where it led for 6 years. 
So I am not talking about Congressmen, but I am talking about 
people in Government who have very high positions who may have 
preferential treatment in order to do things.
    I think we need to investigate that. I don't know that it 
is going to----
    Mr. Kucinich. Reclaiming my time.
    Mr. Burton. I don't know that it is going to mean to 
Members of Congress, but----
    Mr. Kucinich. Reclaiming my time, I want to say that there 
were some investigations that Mr. Burton had when he was 
chairman, Mr. Burton, that I supported. But the one thing I 
thought was important when you were chairman, and it is 
important when Mr. Towns is chairman, is that, look, we follow 
investigations wherever they lead, but if someone wants to 
imply expressly or otherwise that there are people that we have 
to look at within the Congress of the United States, I say that 
is what the Ethics Committee is all about.
    Mr. Burton. Would the gentleman yield?
    Mr. Kucinich. My time is expired, but I think that we are 
going to put this on the table here and either put it to rest 
or this committee is going to end up becoming an armed camp 
going against each other. I don't think we need to do that. 
Let's keep our eye on the ball. Let's challenge Wall Street. 
Let Mr. Barofsky get a chance to tell us what he has found and 
make these firms on Wall Street accountable, and if there is 
anybody in the Government holding hands with them, you know, 
let's look at them, too.
    Chairman Towns. The gentleman's time has expired.
    Mr. Mica of Florida.
    Mr. Mica. Thank you, Mr. Chairman.
    Let me just say for the record, again we hear blame it on 
Bush. I think our ranking member did indicate that some of the 
crisis did start during the Bush administration. The TARP was 
created partially under the Bush administration. At least half 
of the funds were left to the current administration.
    I believe if we just look at what we are doing here today, 
we are looking at the distribution on Friday, March 13, 2009--
that is this year, this administration--when AIG began 
distributing $165 million. That is when we had a significant 
amount of TARP money into this. We are here today to hear 
report of the Special Inspector General on that money from that 
account in this year. That is why we are here. People had their 
hands in the cookie jar during this administration, and we need 
to find out what took place and how the taxpayer once again got 
ripped off.
    This $165 million is only part of nearly two-thirds of a 
billion of bonuses that I want to hear about that were used or 
abused or misused by AIG.
    I would like to yield to our ranking member, if I may.
    Mr. Issa. I thank the gentleman.
    For my friend and colleague from Ohio, Mr. Kucinich, please 
understand that our request to continue on the Countrywide 
investigation recognizes that, first of all, the Senate Ethics 
Committee has made it clear that the recipients on the Senate 
side that are known about committed no ethical violations as 
recipients. That clearing is a clearing very narrowly of the 
recipients, not of the company that clearly was spending 
millions of dollars through a discount program to curry favor.
    I have offered the chairman and would reiterate the offer 
to the chairman that we could redact any--and I repeat any--any 
and all loans related to Members of Congress, and I would 
happily investigate the question of what did they want to do 
with Franklin Raines, what did they want to do with the 
Postmaster General, what did they want to do with a key 
Republican staffer on the Financial Services Committee to 
provide VIP loans; not what did those people do in return. What 
I am most concerned with is what did Countrywide want and, if 
possible, what did they get, but, most importantly, what did 
they want.
    For the chairman's and the subcommittee chairman's 
edification, please understand Mr. Kucinich, I have been told 
that no laws were violated under existing statutes by 
Countrywide. That begs the question for the American people 
should there have been a law, and if there is not a law don't 
we have an obligation to say do we want to have corporate 
America providing in secret millions of dollars in discounts to 
high-ranking Government officials in the future, because if we 
do nothing then the status quo is it is ethically and legally 
allowed.
    Chairman Towns. The gentleman from Florida's time has 
expired.
    Anyone else seeking recognition? The gentlewoman from 
California.
    Ms. Watson. Thank you so much, Mr. Chairman. This is a very 
important and significant hearing. I am going to take my full 5 
minutes, but I would like to yield a minute----
    Chairman Towns. It is 3 minutes, ma'am.
    Ms. Watson. Three minutes. OK. I would like to yield a 
minute to Mr. Kucinich.
    Mr. Kucinich. I want to thank the gentlelady, just to 
respond to my colleague, and that is that, look, I don't hold 
any grief for anybody who is doing anything wrong, especially 
Members of Congress, but we had better be careful about using 
our positions to promote innuendo or to inadvertently smear 
someone else's name.
    I yield back.
    Ms. Watson. At the beginning of 2008 AIG was the world's 
largest insurance company, with operations in 130 countries and 
more than $1 trillion in assets; yet, by the end of 2008 AIG 
was relying on $150 billion in Federal money for its survival 
as a result of the complex derivatives being pedaled in their 
Financial Products division. Despite the fact that it was the 
self-destructive business practices driven by short-term gain 
rather than long-term sustainability of the Financial Products 
division, which resulted in the Government owning 79.9 percent 
of the business, it was revealed in March that these same 
employees would be receiving $165 million in so-called 
retention bonuses. I don't understand, if you are doing your 
job and you do it satisfactorily, why do you have to have a 
bonus? You are being paid for doing your job.
    So this revelation has rightly stoked outrage on behalf of 
the American taxpaying public. In this recession, Americans 
outside of Wall Street have seen their jobs, their savings, and 
their sense of security diminished, while those responsible for 
the reckless business practices that led to the crisis receive 
rescue funds from the Government and bonuses completely 
unrelated to the market performance of their employer or the 
actual caliber of their work.
    I sincerely hope--and I want to thank our witness--that we 
will have the necessary information. This is the Oversight 
Committee, and we need to be watching with a close eye to how 
we handle taxpayers' money.
    I am very, very pleased that we have this opportunity, Mr. 
Chairman, to hear from our witness.
    Thank you.
    Chairman Towns. Thank you. I would like to thank the 
gentlewoman from California for her statement.
    Anyone seeking recognition? Congressman McHenry from North 
Carolina?
    Mr. McHenry. Thank you, Mr. Chairman. I would like to yield 
my time to the ranking member.
    Mr. Issa. Thank you, Mr. Chairman.
    Just for the record, if we look at AIG going into the pre-
bankruptcy period, it is commonly stated that they had over $1 
trillion in assets. Reviewing the June 2008 financials, what 
you discover is to get $1 trillion you have almost $400 billion 
worth of the value of bonds that have not been sold. So if you 
have ever had a kited value on a balance sheet, it is when you 
say you have a trillion, but then you have $400 billion worth 
of assets that are basically if somebody would buy my bonds. 
That is probably more telling of the fact that the underlying 
assets were going to go down, but that asset was already 
effectively zero unless somebody wanted to pay for it.
    Further, because there was a further comment by Mr. 
Kucinich, let's understand that if, in fact, because there was 
a Member of Congress, two Senators, actually, involved in 
receiving Countrywide loans, if that is our basis to say it is 
innuendo if we want to go after an organization that dumped 
onto the American people not billions but trillions in total 
and has cost the American people hundreds of billions of 
dollars worth of losses because of their action in coordination 
with the GSEs, then I think we miss the whole point of how can 
we say we can't go there. This side of the aisle certainly 
would be more than happy to do any and all limitations in the 
documents so that we were not looking at Members of Congress 
but looking only at Countrywide.
    But today there are boxes of documents sitting at Bank of 
America which Bank of America said they would like to give us 
but for reasons of not being sued by individuals involved in 
that whose names would be on it they wanted to have a subpoena, 
and yet we won't give one.
    I might mention that this committee asked and received the 
same company, Bank of America, a waiver on attorney-client 
privilege in order to get the full facts related to Merrill 
Lynch. If we can not only subpoena but demand and negotiate a 
waiver of attorney-client privilege, how could we not at least 
look at the documents related to what did now B of A but then 
Countrywide individuals attempt to do to influence Government 
actions that led to hundreds of billions of dollars of loss to 
the American people.
    I yield back.
    Chairman Towns. The gentleman from North Carolina. Anyone 
else seeking recognition?
    [No response.]
    Chairman Towns. Let me just say, before we move forward, to 
the gentleman from California, that this is not a super Ethics 
Committee. The Ethics Committee has its role and its function 
and I think they will do a good job, but I don't see, in terms 
of this committee--and I must say to the gentleman who served 
here as the Chair of this committee, and I must admit I enjoyed 
working with him, he may have probably set a record in terms of 
the amount of subpoenas that he issued, but he did not subpoena 
anybody from the Congress. I think we need to just think about 
it. And let's put it all in the proper perspective so we can 
move forward, and let's not lose sight of the bigger picture. 
We are talking about companies that received TARP money, 
Government money, and then just sort of, like, gave it to 
people who really didn't perform well. And then when questioned 
they said it is retention. Why would you keep somebody that is 
not performing well? You wouldn't do it on your staff.
    On that note I yield back.
    The gentleman from Massachusetts.
    Mr. Tierney. I will yield my time.
    Chairman Towns. Yes.
    Mr. Kucinich. Mr. Chairman, I came here today to talk about 
AIG, and I assume that we will listen to Mr. Barofsky in a 
minute to hear about AIG. I appreciate the work that he has 
done. But I also think that this committee ought to be cautious 
about using this committee as a platform to go after other 
Members. That is what the Ethics Committee is about if there is 
a question about the conduct of other Members. Sometimes we on 
this side are in the majority, sometimes you on the other side 
are in the majority, so we have to be careful from our 
respective positions about setting a precedent here that would 
inevitably lead to calls in the future to issue subpoenas for 
other House Members that are involved in similar controversies.
    We have to realize we are setting a precedent with what we 
do here, and I just ask my friends--and you are my friends--on 
both sides of the aisle to be cautious about what you are 
advocating here, because if we want to start subpoenaing 
mortgage records in an investigation that deals with improper 
influence, we want to start subpoenaing mortgage records of 
Members of Congress, this committee does that and doesn't leave 
that up to Ethics, than what is to stop us from subpoenaing 
financial contributions and to start asking people to give 
testimony under oath about the financial contributions that 
they got from certain interests? This is why. This is not the 
work that this committee ought to be doing. If we start 
investigating each other--and I assume there would be a lot of 
opportunities that we can all have doing that--we wouldn't be 
doing anything else. It would just be a partisan morass.
    So let's lift our eyes a little bit higher than that. That 
is not in any way to dismiss the gravity of any improper 
conduct anywhere by anyone, but it is to say that we create a 
structure in our system here to deal with questions about the 
conduct of Members of Congress.
    If there is a problem and that structure is not working 
properly, then Members of Congress have to account for that and 
we have to make it work. But we can't be using this committee 
for the purposes of trying to bring down each other. It is just 
not right.
    So, Mr. Barofsky, today we are going to talk about AIG I 
assume and we are going to talk about the bonuses and what we 
can do to stop a practice from, when the American people gave 
all this money out, to make sure that their money is not being 
mis-spent, so I thank you for being here and just want to say 
welcome.
    Chairman Towns. Thank you very much.
    Mr. Fortenberry of Nebraska, yield 3 minutes.
    Mr. Fortenberry. Thank you, Mr. Chairman. I would like to 
yield as much time as he would like to consume to Mr. Issa.
    Mr. Issa. I thank the gentleman.
    Mr. Kucinich, you are my friend and fellow Clevelander and 
I would hope that what I say now you hear so that you don't 
have to give an answer that is completely off what I said 
previously again.
    I am perfectly willing to have the subpoena include no 
Members of Congress, none, none of their records, none of their 
mortgages. This is not about Members of Congress, the House or 
the Senate. The Senate Ethics Committee has already spoken that 
there was no violation for receiving these by two Senators. We 
don't need to look further. That has been done. However, I hope 
the gentleman will realize that Countrywide did this for a 
reason. Countrywide individuals, including a whistleblower, 
have already told us that they intended to influence for the 
benefit of Countrywide and its ability to, now we know, put 
toxic loans onto the books of the GSEs. That is, in fact, what 
happened.
    So, Mr. Barofsky, I appreciate your indulgence. It is very 
clear that is not what this hearing is about today, but on 
Thursday when I request a subpoena, which I notice the 
chairman, I would hope that everybody would allow for a 
straight up or down vote on the merits of the request for 
subpoena. That request will be narrow. We do not want to 
investigate Members of Congress. Other committees may do that. 
What we want to do is we want to know what was it that internal 
memos and documents related to other people in and out of 
Government, what were they trying to achieve, why did they give 
tens of millions or hundreds of millions of dollars of discount 
to a broad array of people.
    We are not interested in the people they didn't want 
influence from and we are not interested in Members of 
Congress. I might say, when we are saying on this side of the 
aisle we don't want anything to do with the Members of 
Congress, we are more than happy to look toward Countrywide, 
because Countrywide is the organization that has led, more than 
any other single organization, to the loss of billions of 
dollars of American taxpayer money.
    So although Mr. Barofsky can do a good job cleaning up 
after the flood and trying to deal with the liquidity of the 
market and so on, we have an obligation to make sure this never 
happens again. And this will happen again if corporate America 
is allowed to bribe people around Government in order to get 
them either to do things for them or, in this case, turn a 
blind eye to billions of dollars, tens and hundreds of billions 
of dollars, of toxic loans being put onto the backs of the 
American people through these GSEs which had the full faith and 
credit of the American people. That is what it is about, and it 
is more important that we make sure it doesn't happen again 
than, in fact, whether $165 million went to a group of people 
who are now unemployed.
    That is what we are here talking about. Mr. Kucinich, you 
are my friend. I hope you hear this time: I do not want in this 
subpoena to ask for anything related to Members of Congress, 
but I cannot allow this to continue, us seeing no evil when, in 
fact, we know there was evil.
    I yield back.
    Chairman Towns. Moving forward, we will turn now to the 
sole witness, Mr. Neil Barofsky, the Special Inspector General 
for the troubled asset relief program, whose office has just 
completed an audit of the hundreds of millions of dollars of 
retention bonuses AIG has already paid and the millions more it 
expects to pay.
    It is committee policy that we swear in all of our 
witnesses, please stand and raise your right hand.
    [Witness sworn.]
    Chairman Towns. Let the record reflect that he answered in 
the affirmative.
    Let me just say that you know the rules. We generally give 
you 5 minutes, but we are going to give you 10, and then of 
course go into questions and answers, because we think your 
report is just so valuable that you need additional time, so 10 
minutes.

 STATEMENT OF NEIL M. BAROFSKY, SPECIAL INSPECTOR GENERAL FOR 
   THE TROUBLED ASSET RELIEF PROGRAM, OFFICE OF THE SPECIAL 
                       INSPECTOR GENERAL

    Mr. Barofsky. Thank you, Mr. Chairman. I will try to stay 
under that.
    Mr. Chairman, Ranking Member Issa, members of the 
committee, it is a privilege and honor to return to testify 
before this committee and discuss with you today the audit that 
we released this morning into the circumstances surrounding AIG 
Financial Products payment of approximately $168 million in 
retention bonuses to more than 400 employees earlier this year.
    Last fall policy decisions were made by the policymakers at 
Treasury and the Federal Reserve that a failure of AIG would 
have such a high systemic cost that it was worth the 
unprecedented bailout and use of taxpayer dollars to save that 
company. The Federal Reserve went first.
    In September it gave a line of credit of $85 billion to AIG 
and followed that by sending teams in to take a close, long, 
hard look at AIG's executive compensation structure. What they 
found was a mess. More than 600 different programs, some 
entitled bonuses, some deferred compensation, some retention 
plans affecting more than 50,000 employees, programs so diverse 
and decentralized that AIG senior executives, themselves, 
weren't involved in the approval of many of these plans and 
didn't have a full sense of what they were. A mess so sprawling 
that even as we concluded our audit late this summer executives 
at the Federal Reserve Bank of New York, at AIG, and the Fed's 
consultants still did not have their arms wrapped around the 
entire AIG executive compensation structure.
    The Fed--and by the Fed I am referring to the Federal 
Reserve Bank of New York--looked at executive compensation from 
its unique perspective. It looked at the amount of money 
involved and concerned whether bleeding of cash would impact 
AIG's ability to repay its loan. They looked to see whether the 
structure had perverse incentives that would encourage 
executives to make decisions that would be not in the best 
interest of the company and, most importantly from the Fed's 
perspective, inhibit the ability to repay the loan.
    Treasury, on the other hand, paid scant attention to the 
executive compensation structure. Other than discovering and 
figuring out who the 50 or so employees that would be subject 
to its executive compensation restrictions that were included 
in the November $40 billion TARP bailout, Treasury did little 
more. As a result, when the March 2009, earlier this year, AIG 
Financial Products retention payments came through, Treasury 
didn't know about them until 2 weeks beforehand, and they 
didn't know the scope of those payments, that they were going 
to apply not just to essential personnel, but also to non-
essential, people who worked in the mail room, in the kitchen, 
in the file room.
    Our audit concludes that this was a failure. It was a 
failure of oversight by Treasury, which essentially abdicated 
its role in favor of allowing the Federal Reserve, 
notwithstanding the fact that the Fed had different interests 
and different concerns than Treasury, as reflected perhaps most 
clearly by the fact that its agreement with AIG included no 
provisions relating to executive compensation.
    Our audit also concludes that Secretary Geithner did not 
find out, did not learn of these bonus payments until just days 
before they were made, but this, too, is a failure. It is a 
failure of communications and it was a failure of management.
    Executives and senior officials at FRBNY knew about these 
bonus payments back in the fall of 2008 when Secretary Geithner 
was then president of FRBNY, but none of them alerted him or 
elevated this issue, according to our audit's findings, 
notwithstanding the explosive nature and controversial nature 
of the payments.
    At Treasury, they didn't find out until 2 weeks before, but 
even then it took them 10 days to elevate this issue to the 
Secretary's level, even though the Fed had warned them, when 
they notified them about the size of these payments, of the 
intense press and congressional concern about them, and said, 
in their words, that they were not going to be easy for 
Treasury and Fed to defend.
    Based on these failings, our audit contained three 
recommendations. First, when we were conducting our audit we 
learned that the special master, Kenneth Feinberg, while doing 
his evaluation of AIG's executive compensation, had not been in 
touch with FRBNY officials, even though he spent the better 
part of a year studying AIG's executive compensation and spent 
a lot of resources on hiring consultants. We made a 
recommendation, and after receiving a draft version of this 
report we have been informed that Treasury has adopted this 
recommendation and Mr. Feinberg is now dealing with his 
counterparts at the FRBNY.
    We also make two recommendations looking forward. First, 
that in the future if Treasury is going to be making this type 
of investment, this type of bailout of a company, that it have 
policies in place to make sure that there is going to be a 
comprehensive and not ad hoc review of the executive 
compensation and other politically sensitive issues so that 
they know in advance when these issues are lurking around the 
corner.
    Second, to the extent that Treasury continues to rely on 
other Federal agencies or other entities to conduct its 
compliance for it, to outsource its oversight, that it do so 
with policies in place, a plan in place, for if there is 
anything that we have learned from this audit and the 
circumstances of March of this year, a failure to give clear 
directions and have a clear communication protocol with an 
oversight entity that is doing the oversight for you is a 
recipe for the disastrous consequences and results that we saw 
earlier this year.
    Mr. Chairman, ranking member, members of the committee, 
that concludes my opening statement for today and I look 
forward to answering any questions that you may have.
    Thank you.
    [The prepared statement of Mr. Barofsky follows:]
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    Chairman Towns. Thank you very much for your statement, and 
thank you for the work that you have done. You have done a 
superb job, and we thank you for it.
    Let me begin by saying AIG is now proposing to pay another 
$198 million in bonuses, so we have history repeating itself. 
Shouldn't those bonuses be reduced, given the poor performance 
of the company?
    Mr. Barofsky. I think these are exactly the issues that Mr. 
Feinberg is now grappling with, is looking at these bonus 
payments, not just within respect to Financial Products but in 
the overall picture of AIG's bonus situation. There is an 
opportunity that is here because of the advance knowledge that 
really didn't exist last time because it took so long for 
senior officials at Treasury to know about them until just days 
beforehand. But I think those are very important considerations 
that are going to be addressed.
    Chairman Towns. I know after the media got onto the 
situation last year, during the spring, the uproar over AIG's 
bonuses, AIG announced that its executives had agreed to return 
$45 million. How much of that really was collected?
    Mr. Barofsky. As of the conclusion of our audited field 
work in August it was $19 million had been collected.
    Chairman Towns. Less than 50 percent?
    Mr. Barofsky. Less than 50 percent.
    Chairman Towns. If I read your report correctly, some of 
these executives are refusing to give back the money unless 
they can get commitment that they are going to get the bonus 
the next year, so they are holding it in ransom.
    Mr. Barofsky. I think it was described to us as a wait and 
see attitude. They want to see what they are going to be 
getting after Mr. Feinberg conducts his review of the $198 
million next March before they commit or fulfill their 
commitment to pay back the bonuses. I think that is correct.
    Chairman Towns. What about those that left the company?
    Mr. Barofsky. AIG has noted that it would be difficult for 
them to enforce collecting the money for those that have left 
the company.
    Chairman Towns. You know, the media has focused on the $165 
million of bonuses AIG paid out in March, but is not it true 
that shortly after the AIG bailout last September the Federal 
Reserve learned that AIG had planned to pay over $1.7 billion 
in bonuses and retention plans?
    Mr. Barofsky. That is correct, Mr. Chairman. Across all the 
different programs affecting approximately 50,000 AIG employees 
worldwide, that is the approximate number. I say it is an 
approximate number because, as I mentioned, even today they 
still don't have--or at least as we concluded our audit work--
they still don't have their arms wrapped around all the various 
AIG bonus and retention and deferred compensation structures.
    Chairman Towns. Right. Why didn't the last administration 
extract any bonus concessions out of AIG in return for the $85 
billion bailout?
    Mr. Barofsky. Well, the Federal Reserve put no restrictions 
in. They view themselves as a creditor, as opposed to having 
made an investment, and the only provision in their agreements 
related to general governance issues, which is what they use to 
take a look at AIG's bonus structure, and why they focus on 
issues related to paying back money. And this is one of the 
criticisms of our report.
    When Treasury outsourced its oversight to the Federal 
Reserve, Federal Reserve had a far different interest and 
approach to executive compensation than what Treasury had to do 
as an investor on behalf of the Government people. So their 
concerns were based on getting money to pay back the loan but 
didn't focus on the issues that this Congress, when it enacted 
the TARP, required Treasury to consider when using TARP funds.
    Chairman Towns. Right. Is it true that AIG's management 
still does not have a complete picture of AIG's different bonus 
and retention obligations? Did AIG ever really know where all 
the money was going?
    Mr. Barofsky. As of the time we concluded our audit work, 
that is correct. They did not know. This was an incredibly 
decentralized system. It was, as I mentioned in my testimony, a 
mess.
    Chairman Towns. Right. I knew Treasury and the New York 
Feds have been on the ground for months at AIG. Have they taken 
any steps to address this problem?
    Mr. Barofsky. The Federal Reserve, to its credit, when it 
came in in September recognized what a mess it was, and they 
hired an outside consultant, Ernst and Young, who has assisted 
them in getting their arms wrapped around these programs. Some 
of the basic data took 5 or 6 months to pull out of human 
resources. So they have been making an effort and have 
committed resources, but the task is such an enormous one, but 
they have been trying to get their arms wrapped around these 
issues.
    Chairman Towns. Is it fair to say, based on your audit, 
that there was a breakdown in communications between Treasury, 
of course, and the Federal Reserve regarding AIG's plan?
    Mr. Barofsky. I think that would be kind to have it as a 
breakdown. I think that they were essentially, after Treasury 
invested the $40 billion, communications were virtually non-
existent.
    Chairman Towns. Right. And then I think my final question 
before I yield: are Treasury's pay restrictions truly 
enforceable? How hard would it be for TARP recipients to 
circumvent the bonus restrictions, if they just said we are not 
going to do it and started looking for ways and methods?
    Mr. Barofsky. It is particularly difficult with agreements 
like this that were executed prior to February 11, 2009, which 
is the cutoff date in ARRA, which set forth these restrictions.
    But on the flip side, we have to remember that we are also, 
with respect to AIG, we own 80 percent of the company, and I 
think sometimes it is important for the Federal Government to 
recognize the leverage that is associated with having such a 
significant ownership interest when seeking to renegotiate 
these payments.
    Chairman Towns. Right.
    I now yield 5 minutes to the gentleman from California, Mr. 
Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    I have called this a political bankruptcy and I stand by 
that. Had a genuine bankruptcy occurred, is not it true that 
all these contracts would have been immediately void or 
voidable?
    Mr. Barofsky. Mr. Issa, I am not a bankruptcy expert, so I 
am not sure, but certainly----
    Mr. Issa. Has someone mentioned that to you at some point?
    Mr. Barofsky. No, no. I don't want to be definitive, but I 
am pretty sure that a bankruptcy would certainly impact those 
types of contractual obligations.
    Mr. Issa. You know, I fly United Airlines back and forth 
every week, so I sit and stand with the flight attendants who 
watched their obligation for their pension be shut off the day 
they went into bankruptcy and what they got was pennies on the 
dollar, so I'm very familiar in that sense with how broad 
bankruptcy can be, even if I hadn't had to deal with it in my 
own business life.
    But looking forward, the special master, Mr. Feinberg, he 
is going to make these decisions, the pay czar, if you will. 
Are you going to have full access and oversight as the IG of 
his decision process?
    Mr. Barofsky. Absolutely. That is clearly within our 
jurisdiction.
    Mr. Issa. The next time we have you back or in an interim 
report if you can, can you do us a favor, I believe on both 
sides of the aisle, and de-aggregate, if you will, $165 million 
and all these numbers, and give us the amount that would be 
fair and reasonable that should be paid that would be paid, if 
you will, in somebody else's opinion, and/or the amount of 
people whose bonuses are not in question.
    I bring this up for a moment. I am not trying to say that 
we shouldn't have done a better job. As a matter of fact, the 
second half of what I am going to ask is very much about that. 
But is not it true that $165 million, some of those people 
should have gotten what they got, and some of those people got 
relatively small bonuses compared to others; is not that true?
    Mr. Barofsky. I think that is a difficult question to 
answer because of the policy implications. As you noted, if 
there was a bankruptcy it is likely that none of these people 
would have received any bonuses. What the value of these 
individuals is really beyond the scope of our work. It would be 
difficult for me to answer that question.
    Mr. Issa. OK. Well, hopefully you will be able to do it in 
some future time.
    Would you also, every time we get a report, give us the 
base pay of the individuals relative to bonus so that we know 
over the covered period how much they made in pay. In other 
words, if you pay $1 billion in salaries and you have $165 
million in bonuses, you have 16.5 percent bonus. On the other 
hand, if you pay $100 million in base pay and $165 million in 
bonuses you have 165 percent. We need to know that. I think it 
is going to help this committee understand, or at least the 
American people understand the magnitude, because I believe up 
until now we have been dealing with these, first of all, small 
numbers compared to the trillions that are still floating 
around in the risk pool, and we probably have been stepping on 
some individuals who simply--sort of the janitor's bonus for 
not leaving and letting the toilets back up. You know, perhaps 
we should look at those as not all equal.
    Let me go to one other question, though, because, you know, 
when you talked about abrogating responsibility to the Fed, you 
really abrogated it--or we abrogated it as a Government through 
Treasury to Mr. Geithner; is not that true?
    Mr. Barofsky. He was the president of FRBNY at this time, 
yes.
    Mr. Issa. And the question for us here today is: what did 
he know and when did he know it and why didn't he know it if 
today he is the Treasury Secretary? Was he inept? And I am 
going to go through a quick set of questions for you.
    My understanding is your investigation only went up to the 
senior vice president, probably AIG relationship monitoring. 
That would be the highest level that was interviewed; is that 
roughly right?
    Mr. Barofsky. As far as interviews are concerned, I know we 
did talk to the senior vice president level, but I also 
personally spoke to higher ranking members at FRBNY.
    Mr. Issa. OK. So if the senior vice president in the area 
that we think over risk management would have been the person 
to talk to, if above that you have an executive vice president, 
today it is Sandy Krueger, above that you have a first vice 
president, today it is Christine Cumming, above that you have a 
president. And, of course, above that you have the Board of 
Directors and the chairman of the Board, and above that you had 
Tim Geithner.
    How do we know today that no one in that chain knew--we 
assume many of them did--and that none of them talked to Mr. 
Geithner? In other words, in your opening statement you said, 
well, the Fed didn't know. Well, how do we know they didn't 
know if these individuals haven't been personally interviewed 
to find out if they spoke to anyone at the Fed, Federal Reserve 
Bank of New York, including Mr. Geithner?
    Mr. Barofsky. When we do our review we obviously request a 
broad range of documents, we ask to speak to a broad range of 
people, we ask to be identified a broad range of people, and in 
this audit, like all our audits, we talk to senior people at 
the Federal Reserve, as well as at Treasury, as well as at AIG, 
and one of the questions that we asked was: was communications 
up and to the then president, current Secretary, Mr. Geithner. 
We review those documents. We talk to a number of individuals. 
We talk to the individuals that we think are necessary.
    As far as Secretary, himself, he has publicly made 
statements about the time of his knowledge, and we saw nothing 
in our report or in our interviews that would indicate that he 
was not being truthful. From our perspective this is a 
significant failing in management, but I also think it is 
important to note--and this is sort of what gets to one of our 
recommendations--is that the Federal Reserve did not view, 
until very recently--I mean until recently before the payments 
were made--didn't really view these as much of a big deal. They 
were looking at this purely from a dollars and cents 
perspective of $165 million, which, while significant, was a 
drop in the bucket compared to their over-arching concern, 
which was paying back the debt. They were not concerned, and 
that is the problem about Treasury outsourcing this, because 
while Treasury may have been and would have been required to 
have been more sensitive to these issues, the Federal Reserve 
was looking at this from a creditor, and $168 million from a 
creditor's perspective just wasn't that much of a concern.
    So I am confident that audit team took the steps that were 
necessary to answer that question. It is a question that I 
wanted them to answer about when Mr. Geithner became aware of 
this.
    And I would also like to note that we share our information 
and drafts of this audit report and we check in both formally 
and informally to make sure that we have our facts right. There 
is nothing that could prevent individual officials at the 
Federal Reserve from lying to us. There is nothing that could 
prevent them from withholding documents that we requested. But 
we saw no indication of any of those things occurring, and I 
stand by my audit team's work on this and in their belief that 
we didn't see anything that indicated that he knew before March 
10th.
    Mr. Issa. Thank you, Mr. Chairman.
    Chairman Towns. The gentleman's time has expired.
    I yield 5 minutes to the gentleman from Maryland, Mr. 
Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Thank you, Mr. Barofsky. You talked during your opening 
statement about this failure to communicate somewhere between 
Treasury and the Federal Reserve. Who is dropping the ball 
there? I guess what I am trying to do is trying to figure out 
how do we make sure that there is communication that needs to 
happen. I mean, so how would you remedy that? I looked at your 
recommendations and you seem to talk about a plan, but how do 
you think we ought to try to deal with that?
    Mr. Barofsky. I think the issue is that, once the decision 
was made that the Federal Reserve was going to take the lead of 
doing oversight and doing compliance, there wasn't any protocol 
established. There wasn't any communication. What types of 
things are we interested? What types of things are we looking 
at? Whether it was because of a lack of resources or a lack of 
commitment, the Fed was sort of left off to its own.
    What we recommend is to learn the lesson here and to 
establish, first of all, in any extent possible Treasury should 
directly be involved in providing oversight when it is TARP 
money. This is Treasury's responsibility ultimately. But in 
those circumstances where it is decided to outsource, there has 
to be established plans, policies, and procedures. Treasury 
needs to identify for the Federal Reserve what are the issues 
that it wants it to followup on, and then they have to maintain 
and followup. Set guideposts. Set milestones. Make it a 
priority to have that level of communication.
    I think ultimately it is difficult to assign blame squarely 
on one entity or the other, but ultimately it was Treasury's 
responsibility to provide oversight for the first $40 billion.
    Mr. Cummings. Now, in my discussions and letters with Mr. 
Liddy, exchange of letters with Mr. Liddy, the former CEO, he 
used all kinds of terms like retention payments, bonus 
payments, and he didn't use these words, but he did say that 
they needed to keep certain employees for winding down. They 
were the only people that could wind down.
    It seems like it was all kinds of reasons why they were 
keeping these folks, but then, when I see that we have an 
unemployment rate of 8.5 and we are supposed to believe that 
AIG would not have been able to replace--and I do have a lot of 
empathy for kitchen assistants and mail room assistants getting 
$7,000 bonuses, and we are supposed to believe that AIG 
Financial Products could have unwound the problem trades 
without so-called crucial employees, retaining them, I'm 
talking about the big, big money. As you know, it was not 
lightweight bonuses. These people got some nice, nice, nice 
funds.
    So, I mean, in your research did you find that there was a 
need to keep folks on? It seems like it is such a wide range of 
folks who were getting bonuses. And when you get down to the 
mail room, when you've got millions upon millions of people 
unemployed in our country, you have to wonder.
    Mr. Barofsky. Congressman, I think you are absolutely 
accurate. I don't think that it is defensible to suggest that 
if AIG did not pay a retention payment to a mail room employee 
or a kitchen assistant that employee, A, would necessarily 
leave and, if that employee left, whether it would be difficult 
to replace that position, given the state of the economy.
    But I also think the first part of your statement, this 
also is a problem with transparency. I, too, was left with the 
impression after the hearings and all the public announcements 
that these payments were going to those who were necessary and 
involved to unwind these complex transactions, and it was one 
of the things that surprised me the most as I saw the audit 
work come in, that this was essentially to every single 
employee at Financial Products.
    Here the failure of transparency goes to what we were 
discussing just a moment ago: the fact that Treasury had 
outsourced this and wasn't aware of this information meant that 
it couldn't be transparent about these payments because they 
didn't have that knowledge.
    As I have discussed in other reports and I will be 
discussing in my quarterly report, which I will be discussing 
with this committee next week, there is a cumulative effect 
from these failures of transparency.
    Mr. Cummings. No doubt about it. And the question becomes I 
think AIG was just ingenuous, at best, and outright deceptive, 
at worst, because I am going to tell you, based upon all the 
communications I got, and then to find out this kind of 
information, what that means is somebody simply was not telling 
the truth. I think that is why the American people got so upset 
about this and will get even more upset, because they feel that 
they have been--you know, they think they are doing one thing, 
but yet still they are losing their houses, their homes, their 
savings, and everything while other people are getting these 
bonuses and saying they are supposed to be retention payments 
when really a lot of these people did not fit that category.
    Mr. Barofsky. I think so. And I would throw one other 
possibility in there, which is just incompetence. The list that 
we received that put the positions with the bonus payments, 
that was something AIG had to create. It wasn't a document that 
existed beforehand, that they created in response to our audit. 
So it may be that we were the first person to even ask the 
question of who were the people who actually got these bonuses 
and what their jobs were. But I don't know. I don't know which 
category it fits within.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Chairman Towns. Thank you very much.
    I now yield 5 minutes to the gentleman from Indiana, Mr. 
Burton.
    Mr. Burton. Thank you, Mr. Chairman. I just have a couple 
of questions, then I will yield to Mr. Issa.
    Mr. Issa mentioned that it would have been better, in many 
of our opinions, if we had let all these problems go through 
the regular bankruptcy procedures, but there were decisions 
made by the administrations to bail out a number of these 
companies.
    When the bailout procedures took place, there evidently was 
no provisions put in those agreements that said that, since the 
Government is loaning that money or spending that money to buy 
stock in those companies, that the Government has the right to 
review the bonus procedures, was there?
    Mr. Barofsky. No. Absolutely not. Very limited 
circumstances for a limited number of employees.
    Mr. Burton. There are a lot of people that believe we are 
not out of the woods yet as far as the economy is concerned. In 
the event that this comes up again in the not-too-distant 
future and that we don't go down the bankruptcy court route, 
could we put in those agreements that the Government is bailing 
out an industry, could we put in those agreements a specific 
language that would say that the Government has to review and 
approve any bonuses before they are given?
    Mr. Barofsky. It certainly would be a possibility.
    Mr. Burton. Well, that is the one thing I would like to 
point out. I was not for the bailouts and did not vote for 
them, but it seems to me if we were going to do that and we 
were going to take the taxpayers' money, we certainly should 
have had provisions in there that controlled the way that money 
was going to be spent because it was taxpayers' money. And when 
you talk about these huge bonuses, it seems to me they could 
have put a lid on some of that.
    But we should have gone through the bankruptcy procedure, 
in my opinion.
    With that, let me yield to my colleague.
    Mr. Issa. Thank you. I thank the gentleman for yielding.
    I want to ask from this side of the aisle, because I think 
your answer was good and I want to make sure both sides have 
asked it, if I understand correctly you said everyone got a 
bonus, and clearly, in your opinion, not everyone needed to get 
a bonus in order to be retained or, if they weren't retained 
because they didn't get a bonus, they could have been replaced, 
including, as Mr. Cummings I think alluded to, you know, basic 
clerical personnel who had no special skills; is that correct?
    Mr. Barofsky. I do believe that.
    Mr. Issa. So very clearly somebody who made the decision to 
give these bonuses made a decision that was in the best 
interest of making everyone happy and not the best interest of 
the American taxpayers or even AIG; is that correct?
    Mr. Barofsky. I think that at the time these contracts were 
entered into it was before the Government bailout, but 
ultimately yes, the decision was made not to try to renegotiate 
these payments and go forward with them. That is correct.
    Mr. Issa. OK. I want to go back down a track for a moment. 
You made a decision not to speak or speak directly with some 
people in the chain of command who may have talked to somebody 
at the New York Fed about these bonuses prior to the document 
production. And I know you said sometimes people withhold 
documents. But if I understand correctly, individual members of 
the board, the then president, the first vice president, and 
the executive vice president that were in place at that time 
may not have been asked, Did you speak to anyone at the Fed or 
even at Treasury about these bonuses prior to the date you 
currently know of; is that correct?
    Mr. Barofsky. I don't have the exact list of people that my 
audit team interviewed; however, again, I think we followed 
this information to its appropriate conclusion with those----
    Mr. Issa. Then can I ask that as a supplemental--and I will 
put it in writing if you need it--that each of these 
individuals who were in place at that time be asked, What did 
you know? When did you know it? And who did you tell? That each 
of those people, if they haven't been asked personally, not 
document production but personally, if they knew about it and/
or if they spoke to anyone at the Fed, if each of these people 
could be interviewed either through interrogatories or actual 
interviews and you could get back to us so we could be 
satisfied that these people who, to me, logically are part of 
the trail that has to be followed, have been followed?
    Mr. Barofsky. If you would send us a letter I would be 
happy to forward that communication on to the Federal Reserve 
and FRBNY and be happy to report back to you the responses.
    Mr. Issa. OK. And then, last, if we had gone through 
ordinary bankruptcy, obviously FP would not have made everybody 
whole unless the Government threw the money in. But let me ask 
one final question. The individuals who received the greatest 
amount of these bonuses, the ones that really trigger our 
inquiry today, they negotiated basically paying 100 cents on 
the dollar. Where was the expertise in unwinding used to pay 
less than 100 cents on the dollar when, in fact, these products 
in their market, those who unloaded these products prior to 
getting 100 cents on the dollar, unloaded them from anywhere 
from a nickel or a dime up to maybe forty cents on the dollar. 
Where was that expertise used, if anywhere?
    Mr. Barofsky. That is a tremendously important question, 
and we are going to be addressing it in an audit that we are 
going to be putting out next month that studies the counter-
party payments and the decision by the Federal Reserve to pay 
100 cents on the dollar, so I look forward to sharing that 
audit with you and, of course, would be happy to come back and 
testify about that audit.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Chairman Towns. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you very much.
    Mr. Barofsky, when did the last administration become aware 
of AIG bonus and retention plans? Was it before or after the 
$85 billion bailout?
    Mr. Barofsky. It would have been after the September 
bailout, the September infusion of $85 billion from FRBNY.
    Mr. Kucinich. On page 11 of your audit report you state 
that the New York Fed spent months after October 2008 
influencing changes to future compensation decisions. Exactly 
what influence did they have over AIG compensation decisions, 
and did the officials make the decisions for AIG?
    Mr. Barofsky. We are going to be studying that issue a lot 
more closely on corporate governance. It is an audit that we 
have pending right now, we are doing in connection with GAO.
    Mr. Kucinich. OK.
    Mr. Barofsky. It is going to really look at the 
Government's role in making those types of governance 
decisions.
    Mr. Kucinich. Thank you. Now, during this period did 
officials from the Federal Reserve use their influence to try 
and streamline AIG's compensation structure so it would be 
easier to understand and manage?
    Mr. Barofsky. Yes. They worked with AIG, with a consultant, 
to get a better sense of what the entire structure was and 
advising AIG to make a better, more comprehensible structure.
    Mr. Kucinich. During the testimony in front of the House 
Committee on Financial Services on March 24, 2009, Secretary 
Geithner and Chairman Bernanke both admitted that they had seen 
AIG's SEC filing and knew a great deal of information in the 
public domain regarding AIG's excessive bonus programs; 
however, neither of them claim to have known about the 
retention bonus plans for AIGFP employees until March 10, 2009. 
Now, have you examined AIG's SEC filing in early September 
2008? And if so, were the retention bonus plans for AIGFP 
employees included in that filing?
    Mr. Barofsky. Generally speaking I think that they would 
have been aware of those bonus plans. I think the testimony was 
the specific size and scope of the amounts that went out in 
March 2009, earlier this year.
    Mr. Kucinich. Well then, given Mr. Geithner's heavy 
involvement in the bailout of AIG as the president of the 
Federal Reserve Bank of New York, now Mr. Barofsky, it is 
really hard to believe that he wasn't informed of the retention 
bonuses for AIGFP employees prior to March 10th, especially 
since they were awarded retention bonuses of $69 million in 
December 2008. Was Mr. Geithner informed of the bonus plans? 
And if not, why not?
    Mr. Barofsky. I think we have not seen evidence that he was 
informed of the size and scope of these retention plans. As to 
the why not, I think that he should have been. I think it was a 
failure, again, as I said before, a failure of management. The 
one explanation I would offer is the one I offered earlier, 
which is, to a certain extent, the Federal Reserve officials 
who were looking at this just didn't identify it as significant 
an issue as it really was, and that may have contributed to 
that failure to raise it up.
    Mr. Kucinich. I think it is very important for Members to 
regard closely what Mr. Barofsky just said, because there is 
legislation in another committee that would give the Fed even 
broader jurisdiction in matters relating to the economy, and 
they can't even handle simple things like being able to keep 
track of bonuses that are going out the door at a time that 
they are being asked and the Fed is being asked to pump money 
into the economy to prop up the AIGs of the world.
    Now, Mr. Barofsky, did you come across any information that 
would explain why these Federal Reserve Bank of New York 
officials did not immediately inform Mr. Geithner about the 
payments? Why didn't they tell him?
    Mr. Barofsky. What they explained to us was, in substance, 
they didn't think it was such a big deal. The $168 million was 
a drop in the bucket. Their concern, their focus, was on 
repaying----
    Mr. Kucinich. Think about that bucket.
    Mr. Barofsky. No, it is a big bucket. But their concerns 
were misplaced. I mean, frankly, this was sort of the problem 
of the outsourcing of oversight to an entity that just doesn't 
have the political sensitivities, particularly at that time, 
that you would expect from Treasury, of looking at this not 
from just a dollars-and-cents of moving the beads on the 
abacus, but more fundamental questions that we are addressing, 
which is: is it fair? Is it right to give $168 million to the 
very individuals responsible for driving that company into the 
hole that it was that put it on the brink of bankruptcy.
    Mr. Kucinich. Thank you, Mr. Barofsky.
    Mr. Chairman, the Constitution of the United States makes 
it very clear that the power to coin money and regulate the 
value thereof is reserved to the Congress. Now, we gave that 
away in the Federal Reserve Act of 1913. But we had better look 
twice before we consider giving the Federal Reserve any more 
power, and we should also consider whether or not it is time 
for Congress to try to make up for some of the damage that was 
done to the American people by outsourcing our money supply and 
the supervision of it to the Federal Reserve. They can't keep 
track of small matters, let alone large matters. Time for us to 
start thinking about changing the direction we have with that 
institution.
    I thank you. I yield back.
    Chairman Towns. Thank you very much. I thank the gentleman 
from Ohio for his statement.
    I now yield 5 minutes to the gentleman from Tennessee.
    Mr. Duncan. Thank you very much, Mr. Chairman.
    I agree with the comments that most of the people have made 
here today, Mr. Burton and Mr. Kucinich both, and I think there 
is widespread agreement, and I think almost all of the American 
people just think these bonuses are ridiculously excessive. But 
we are talking today more specifically about the AIG bonuses.
    The AIG bailout funds, according to the time line and 
sheet, the briefing that we have been given, totaled $180 
billion; is that correct?
    Mr. Barofsky. The total commitments add up to $180 billion.
    Mr. Duncan. I mean, that is a mind-boggling figure that 
nobody can really humanly comprehend, but some banks and 
companies have paid back some of the bailout money. Do you know 
how many have paid back, of the companies or the banks or the 
firms that got bailouts?
    Mr. Barofsky. The precise number will be in our quarterly 
report next week. I don't have the number at my fingertips. It 
is about $70 billion or so, but I don't remember the exact 
amount of what it is right now.
    Mr. Duncan. How much of the $180 billion has AIG paid back?
    Mr. Barofsky. I think the total amount that is outstanding, 
according to GAO's most recent report, is about $120 billion 
outstanding of the $180 billion.
    Mr. Duncan. So $120 billion. And the bonuses that we are 
talking about, they wanted to pay $243 million in bonuses; is 
that correct?
    Mr. Barofsky. For AIGFP it was about $60 million in 
December, the $168 in this March, and another $198 that is due 
next March.
    Mr. Duncan. So how much is that in total?
    Mr. Barofsky. It is a little bit over $400 million.
    Mr. Duncan. So it is $400 million. In one of our papers it 
was talking about just the $243 million. What is the largest of 
those bonuses? How large are those bonuses?
    Mr. Barofsky. I believe that they went up to $4 million for 
an individual.
    Mr. Duncan. For an individual, $4 million. And then in your 
report it says that the Treasury put down these rules and said 
the annual compensation limit of $500,000 proposed by February 
2009 was not retained; that is correct?
    Mr. Barofsky. That is correct.
    Mr. Duncan. And then bonus payments to senior executive 
officers are limited to one-third of total compensation. What 
is the highest compensation that is being received by somebody 
at AIG at this time?
    Mr. Barofsky. I'm not sure AIG overall. I know recently the 
pay package for the new CEO of AIG was recently approved, and I 
think that could be, with incentives, of up to $10 million.
    Mr. Duncan. Was how much?
    Mr. Barofsky. It is $10 million with various incentives, if 
he meets all his incentives. I think that is approximately the 
number. I don't have the number right before me.
    Mr. Duncan. Well, I agree with all these others that these 
bonuses--first of all, these bailout funds shouldn't have been 
paid, we shouldn't have gone in this direction, but even 
National Review Magazine had an editorial comment, and they 
said that they ordinarily wouldn't be in favor of the 
Government being involved in the compensation of any private 
business, but when a business had accepted a bailout money, 
that they sought justification for limiting salaries and 
bonuses in that situation. I certainly agree with that, and I 
think about 99.9 percent of the American people agree with that 
and feel that these bonuses have been ridiculous and excessive.
    Thank you very much.
    Chairman Towns. I thank the gentleman from Tennessee.
    I now yield 5 minutes to the gentlewoman from California, 
Ms. Watson.
    Ms. Watson. Thank you very much.
    According to an article in the Wall Street Journal 
yesterday, the moves made by Kenneth Feinberg, the special 
master for compensation at the Treasury Department, to more 
clearly tie compensation to long-term performance are aimed 
squarely at salaries, not bonuses, which are restricted by 
rules passed by Congress earlier this year. Do you agree with 
the Wall Street journal's assessment that there is a legal 
differentiation between an executive's salary and their 
bonuses, and that Kenneth Feinberg's authority is limited only 
to their salary?
    Mr. Barofsky. I think that I would really defer to his 
office for their current definition of their authority, but I 
think that his jurisdiction and scope is fairly broad. There 
are certain legal limitations that he is operating under. For 
example, bonus programs or programs that were executed prior to 
February 11th are specifically exempted from the statute of 
being controlled by the executive compensation restrictions 
that are in EESA as amended. But with that said, there is an 
amount of leverage that comes from being a significant equity 
owner of these companies, and I think that Mr. Feinberg views 
his role broadly and will be making advisory opinions beyond 
just the scope of what is completely spelled out in the 
statute.
    Ms. Watson. Recent news reports have stated that Mr. 
Feinberg is planning to shift a portion of an employee's annual 
salary into stock that cannot be accessed for several years to 
better tie pay to performance in the financial sector; however, 
some have made a counter argument that making stock a part of 
an executive's annual salary creates an incentive to boost the 
stock price in the short term rather than focus on long-term 
shareholder value. Do you agree that tying compensation to 
stock will create this counter-intuitive short-term incentive?
    Mr. Barofsky. I think a lot of that depends on the terms 
and conditions that are associated with the bonus payment. I 
think that is a legitimate concern, but perhaps it is one that 
can be addressed by the way the restrictions are spelled out.
    Ms. Watson. You know, in your opening statement you said it 
was a mess. That is why we are trying to get detailed with it, 
because it is a mess. And, as I said before, it is like trying 
to unscramble rotten eggs. So can you recommend any other 
guidance for how to structure compensation so that it 
encourages reasonable and sustainable work performance?
    Mr. Barofsky. I think what we will do and what we will 
continue to do is to try to bring as much transparency to this 
process. It is ultimately not our role to make the policy 
decisions, but it is our role to bring as much transparency to 
the decisionmaking process so that you, the policymakers in 
Congress and the policymakers in the Executive have all this 
information available to them to evaluate those decisions and 
tweak them, whether it is through different policies and 
procedures by Treasury or through legislation of this body. We 
will continue to fulfill that role.
    Ms. Watson. And according to your report, despite promises 
from AIG that they would attempt to recover some of the $165 
million worth of bonuses paid in March, so far they have only 
recovered $19 million of the $45 million they asked recipients 
to repay, and apparently part of the problem is that some 
employees resigned so they could keep their money instead of 
returning it. So can you explain why, if AIG was contractually 
obligated to pay the bonuses as part of retention bonus plans 
agreed on in January 2008, the employees are not obligated to 
continue working for AIG in order to receive the extra money?
    Mr. Barofsky. In the agreements, once they receive their 
retention payment they can leave, and that way, if they quit, 
they wouldn't be able to receive the future retention payments 
of 2010. However, if they are fired, and they are fired not for 
cause, they still are actually entitled to receive retention 
payments, and approximately 50 or so of those who received the 
retention payments in March of this year were not working at 
AIGFP at the time they received those payments because they 
fell into that category of people who had been fired but not 
for cause.
    Ms. Watson. So they are sticking to the contract, rather 
than the thought of trying to repay us who bailed them out that 
money. The employees left and so their performance is no longer 
there for anyone to review, but they have the money and got 
away with it?
    Mr. Barofsky. That is correct.
    Chairman Towns. The gentlewoman's time has expired.
    Ms. Watson. Well, I will continue at another time. Thank 
you.
    Chairman Towns. OK. I now yield 5 minutes to the gentleman 
from North Carolina, Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    Mr. Barofsky, thank you again for your testimony. We have 
seen a good bit of you as of late here on Financial Services, 
as well, which I am a member of. Thank you for your frank and 
honest testimony.
    You know, let's rewind a little bit. I know the ranking 
member had some questions about who you interviewed and that 
whole process, but it is clear you did not interview Secretary 
Geithner?
    Mr. Barofsky. My audit team interviewed Secretary Geithner 
on a number of different audits. I don't believe that they 
asked questions about this specific issue during that 
interview.
    Mr. McHenry. OK. Did your investigators interview Sarah 
Dahlgren, who was Geithner's top bank supervisor at the New 
York Fed?
    Mr. Barofsky. Yes, we did.
    Mr. McHenry. Yes?
    Mr. Barofsky. Extensively.
    Mr. McHenry. OK. Were any questions posed to her whether or 
not her boss was informed of this?
    Mr. Barofsky. Yes. And she informed us that she had not 
informed then President Geithner.
    Mr. McHenry. OK. As then president of the New York Fed 
Geithner?
    Mr. Barofsky. Yes.
    Mr. McHenry. The Treasury staff, did they report that they 
provided then Secretary Geithner with this information?
    Mr. Barofsky. Not until March 10th.
    Mr. McHenry. Not until March 10th. OK. So it seems either a 
colossal failure of administration through either error or 
omission, or willful ignorance in some cases, and it seems to 
me that Secretary Geithner is a pivotal player here as both the 
head of the New York Fed, which had direct action, is that 
correct----
    Mr. Barofsky. Yes.
    Mr. McHenry [continuing]. With the AIG bailout in the fall 
of last year.
    Mr. Barofsky. That is correct.
    Mr. McHenry. That is correct. And he was a key 
decisionmaker in the winter and spring of this year about the 
AIG bonuses, as well; is that correct?
    Mr. Barofsky. Yes, he was clearly, from the time as the 
president of FRBNY, there was a brief period of time where he 
recused himself from matters after then President-Elect Obama 
identified him as the future Secretary of Treasury until he 
became Secretary of Treasury. He had recused himself from some 
of those matters. But other than that window, basically from 
September until the present in one job or the other he was the 
head of an organization that was involved in the bailout of 
AIG.
    Mr. McHenry. OK. And, according to your report, the 
Treasury failed in its oversight of AIG compensation generally; 
is that true?
    Mr. Barofsky. That is correct.
    Mr. McHenry. OK. So it is kind of interesting to me, as a 
part of an oversight panel, that we have as Secretary of the 
Treasury someone who not only failed in his oversight and 
actions about the bonuses as Secretary of the Treasury, but in 
his job immediately before that--and he did recuse himself as 
of November 24th when the President nominated him. You are 
correct. But it also seems to me that he failed as head of the 
New York Fed in terms of having oversight of this. In fact, 
these bonuses and these retention payments were a matter of 
public disclosure to the SEC by AIG. So it was in the public 
purview by then, was it not?
    Mr. Barofsky. Yes. I think, much like if anything goes 
wrong in my organization I am responsible and it is my failure, 
since we are criticizing both the Federal Reserve and the 
Treasury for failures of communication, management, and 
oversight, of course, he is ultimately responsible.
    Mr. McHenry. Certainly. Well, I appreciate your frank 
testimony there. You have been a straight shooter all along, 
which I don't think--it is not a partisan issue. I mean, both 
parties are involved in this chaos, it seems to me. But 
additionally you have oversight over the pay czar, the special 
master for compensation, Ken Feinberg's operation; is that 
correct?
    Mr. Barofsky. Yes.
    Mr. McHenry. Their operation in terms of reworking these 
retention bonuses, could that have a negative impact on the 
Government's repayment of funds from AIG?
    Mr. Barofsky. It is possible. One could envision a scenario 
that, if there really is one person who is so important, so 
vital to unwinding these transactions and has such a level of 
information and a decision is made that results in that person 
leaving, it is theoretically possible. Now, whether those facts 
are true or whether it will play out that way, I don't know. I 
am not in a position to say. But it is certainly at least 
theoretically possible.
    Mr. McHenry. Does your office have a plan for oversight of 
this pay czar and their operations?
    Mr. Barofsky. We have a number of audits under 
consideration as we staff up. One of them that I certainly have 
discussed with my audit staff will be an audit of the pay czar. 
We are not announcing it yet. We want to sort of see what 
happens, and that way we can better structure the audit, make 
sure that we ask the right questions and do it in a correct 
way. But I do anticipate that we will be auditing that process. 
Almost certainly.
    Mr. McHenry. Thank you, sir. Thank you for your testimony.
    Chairman Towns. The gentleman's time has expired.
    I now yield 5 minutes to the gentlewoman from Washington, 
DC, Ms. Eleanor Holmes Norton.
    Ms. Norton. Thank you, Mr. Chairman, for these important 
followup hearings on this matter of great concern to this 
committee.
    Sir, I am intrigued by the legal basis for your conclusion 
that AIG was required by law to distribute these bonuses. Now, 
my concern comes from not only my own specific concern, but one 
that has also been voiced by the attorney general of the State 
of New York, Andrew Cuomo. Understand that I am trained as a 
lawyer to respect the sanctity of contracts, so I don't ask 
this question lightly. But nor, I think, did Andrew Cuomo ask 
it lightly, and he apparently sent a letter to the chairman of 
Financial Services, Mr. Frank, in which he takes on your 
conclusion that these bonuses were legally required. I could 
not help but smile at a line in his letter that he wondered 
whether AIG attorneys ``considered the argument that it is only 
by the grace of the American taxpayers that members of 
Financial Products even have jobs.''
    Now, I was intrigued by Attorney General Cuomo's analysis, 
and I wonder if you considered his arguments before drawing 
your own conclusions. For example, AIG, which by contract 
apparently was to pay people certain salaries. They seem not to 
have had trouble renegotiating those salaries, which surely 
weren't orally pronounced. They renegotiated those contracts, 
but when it came to these retention bonuses the law didn't 
allow such renegotiation or change. I wonder if you could 
indicate your view of these arguments, some of which are in Mr. 
Cuomo's correspondence.
    Mr. Barofsky. Sure. I think there are two different parts 
here. First is whether this was a legally binding contract. 
Based on what we report on is the different legal opinions that 
Treasury received: AIG counsel, from its own counsel, from 
Department of Justice.
    Ms. Norton. I know the conclusion, sir.
    Mr. Barofsky. No, no. May I continue? The second part of 
your question, which is a far different one, was: could they 
have renegotiated? And I think the answer to that question was: 
of course they could have renegotiated. They could----
    Ms. Norton. Should they have?
    Mr. Barofsky. I think the fact that right now--I will 
answer that question by what is going on right now, which is 
basically Mr. Feinberg is encouraging them to renegotiate, and 
they, as we detail in our audit, they are----
    Ms. Norton. Well, should they have renegotiated--you know, 
this is what caused outrage. This is what is making it hard for 
more funds to come through here. Let's hope we don't have 
another rolling crisis here.
    Mr. Barofsky. Right, and I think that is----
    Ms. Norton. And if they are doing that now, does that not 
indicate that they should have renegotiated these bonuses 
rather than arguing that by law they had to pay them? Because 
if by law they don't have to pay them now, how could they have 
by law had to pay them then?
    Mr. Barofsky. And I think your point is very well made, 
especially when you look at the bailout in context. Certain 
times we say contracts are inviolable and this is a binding, 
legal contract and therefore it has to be followed, but if you 
look at it in context with other parts of the bailout, whether 
the auto industry, whether it is contracts with auto dealers or 
contracts with debt holders, sometimes contracts are compelled 
to be renegotiated and terms are changed.
    So I think your concern is right and should not confuse our 
finding that, while this was, indeed, a binding contract--there 
was an offer and consideration and performance, three elements 
of any contract--that is not to say that was the correct move 
to just say that this is a binding, legal contract, here's your 
check, thank you very much. That is not our conclusion at all, 
and I think----
    Ms. Norton. What is your conclusion? I mean, I don't know 
why you would simply have endorsed their conclusion that, well, 
these were legally binding contracts, and then you cite others 
who found those contracts. I want you to know that the American 
people say, are you crazy? Would these people, for example, 
have had any bonuses had they lost their jobs, which they 
retained by the grace of the taxpayers? So your answer seems to 
be that yes, they could have renegotiated them. I don't know 
why that wasn't your conclusion in the report so that people 
would have understood there is real oversight going on here, 
that there were alternatives, that people losing their jobs and 
their bonuses here can expect that people in high places who 
had their money would also be required to do so.
    Mr. Barofsky. Our conclusions I think make pretty clear, 
and we point out that, first of all, we were asked the 
question, we answer the question, was this a legally binding 
contract, and the answer to that question is based on these 
various people that it is. But the question that you are asking 
is why didn't we suggest what are the alternatives. The answer 
is that we do in our audit. We specifically note one 
opportunity that was lost as far as Government leverage was the 
fact that $30 billion more of taxpayer money was coming down 
the pike in March 2009, and this would have been an opportunity 
to go back and compel a renegotiation. So I think that----
    Ms. Norton. So that leverage, which was in the hands of 
management----
    Mr. Cummings [presiding]. The gentlelady's time has 
expired.
    Ms. Norton [continuing]. Was not used on behalf of the 
taxpayers.
    Mr. Barofsky. Yes, and I think that your concerns are 
addressed in our audit report. We do report, as we are required 
to do, on the basic legality of whether or not there was a 
contract, but I think our audit makes clear that just because 
that was a legally binding contract didn't mean that there were 
not other alternatives available to AIG and the Federal 
Government that didn't take place, and that these options are 
still on the table and are being pursued with respect to the 
next traunch of payments in March 2010.
    Mr. Cummings. Mr. Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman.
    I would like to just echo the frustration of the Delegate 
from the Federal District over how a lot of this was handled. I 
guess we have just got to be reminded this is exactly the 
problem with big government thinking that we are going to use 
that to hold big business accountable and the taxpayer and the 
little guy seems to get stomped in the long run, and so I do 
echo the Delegate's frustration there.
    At this time, Mr. Chairman, I would like to yield my time 
to the ranking member from California.
    Mr. Issa. I thank the gentleman.
    You know, your oversight and your testimony time and time 
again are critical, and sometimes the most critical part is 
when we revisit what you previously had been working on and 
perhaps not satisfied. The last time you were before us you had 
deep concerns in your previous report, and particularly as to 
the public/private investment program, and particularly as to 
the absence of a firewall and self-dealing, including, I guess, 
Black Rock, who is being paid on one side and can still invest 
on the other. Have changes been implemented so that those 
concerns are less? And if so, could you tell us how?
    Mr. Barofsky. Overall, no. There have been some changes. We 
are going to detail them in our report that is coming out next 
week. But walls have not been implemented.
    Mr. Issa. So self-dealing is still possible with taxpayers' 
money?
    Mr. Barofsky. It is an extreme risk, and absent these 
ethical walls it maintains a strong risk that we are going to 
be paying very careful attention to.
    Mr. Issa. Have you reviewed Secretary Paulson's telephone 
records that have now been released?
    Mr. Barofsky. I personally have not.
    Mr. Issa. We looked at them briefly, and what we discovered 
was that his phone logs show that he was talking to obviously 
Secretary Geithner a great deal, but also to now President 
Barack Obama. It appears from those records as though the 
transition had occurred by November; that, in fact, the 
majority of the calls were being made to the incoming 
administration not to the outgoing. Would that surprise you?
    Mr. Barofsky. Those events occurred before I was even sworn 
in, so I----
    Mr. Issa. But you are now looking back on who knew what and 
when did they know it and how the mistakes continued to be 
made. Is that an area that you think is within your purview to 
continue looking at?
    Mr. Barofsky. If it is related to a specific TARP issue, 
absolutely. We saw no indication that anyone at Treasury, 
including Secretary Paulson, knew about these AIG bonus 
payments at that time, so that wouldn't have been part of this 
audit. But it is certainly within the scope of potential future 
audit products. Absolutely.
    Mr. Issa. Now I want to followup on what Delegate Norton 
had said, because I think what she hit on and your answer needs 
one more, if you will, filling out.
    Even though there is billions of dollars more coming from 
the Federal Government, don't we at the dias have, if you will, 
a self-fulfilling prophecy? We have determined at that time 
this is too big to fail and the Government will put any and all 
money in necessary, so if the Government did not put in more 
money at the time when they could have used it as leverage, if 
they said, look, if we don't get negotiated-down costs we are 
not going to put the money in, wouldn't that basically have 
said, you go into bankruptcy if you don't do it, and didn't the 
employees basically all know that was a false statement if we 
had made it, that we had written a blank check, we had given 
the President and the Fed walking-around money that was 
virtually unlimited?
    Mr. Barofsky. I think that there is certainly a lot to that 
statement. I do think there is a tremendous amount of leverage 
when you are going to continue to make additional payments and 
put in conditions, and I think a good example of that is in the 
auto industry, where the Federal Government through the TARP 
had made billions and billions of dollars of support to 
Chrysler and to General Motors but then went back with the 
threat of bankruptcy to force very significant concessions.
    Mr. Issa. But in that case, of course, we ultimately put 
them in bankruptcy after we had had the political bankruptcy. I 
know that is not within your direct testimony today, but is not 
it true basically that we put money in that we will never get 
back in a political bankruptcy before the actual bankruptcy 
occurred, or, if you will, the sale of Chrysler to Fiat and the 
whole re-funding of General Motors?
    Mr. Barofsky. I share your skepticism about the likelihood 
of getting that money back, the early money back.
    Mr. Issa. And, by the way, just as an old car guy, do you 
actually think that Fiat has technology that Chrysler didn't 
have?
    Mr. Barofsky. That is well beyond the scope of any current 
audit product that we have.
    Mr. Issa. Thank you, but I figured it was worth a smile. 
Thank you.
    I yield back.
    Mr. Cummings. Thank you.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    Thank you so much for being here, Mr. Barofsky.
    Mr. Barofsky. Thank you.
    Mr. Clay. For the better part of the year it has been 
painfully evident to the American people that AIG has been due 
an audit. After using taxpayer dollars to bail out an insurance 
company that was once the largest in the country and possibly 
in the world, AIG used those same taxpayer dollars to reward 
the culprits of its corporate collapse. We cannot afford to be 
frivolous with the hard-earned income of our citizens.
    Following the decline of AIG's stock value in 2007, 
employee compensation packages were adjusted to account for the 
loss in value of existing plans. These changes reflect AIG's 
ability to negotiate compensation benefits with its employees 
and suggests that AIG could have done the same in light of its 
Federal assistance. Why did bonuses and retention awards 
continue to be included in compensation packages even after AIG 
received the Federal bailout from the pockets of American 
taxpayers? Why did that persist?
    Mr. Barofsky. That is a vitally important question. The 
explanations that we have received that we report in our audit 
was essentially what we have heard, which is this notion of the 
sanctity of the contract, but I could not agree more with your 
statement that of course there was an opportunity to 
renegotiate these agreements, both then and as is going on 
right now.
    Mr. Clay. According to your findings, the 2008 bonus plan 
for senior partners was restructured in October of last year. 
According to this new plan, a portion of the bonuses would be 
paid only if the company had been sufficiently reorganized, 
progressed, and repaying Federal moneys and cut the 2008 bonus 
pool by 30 percent. How many of these stipulations were met?
    Mr. Barofsky. I'm not sure how many of those stipulations 
had actually been met on that issue. That is outside the AIGFP 
issue but on the TARP bonus structures. I think, though, a lot 
of those rules and restrictions had been superseded by ARRA and 
by the mid-June Treasury regulations, and I think that the 
decisions about the pay plans for the top 100 employees at AIG 
are going to be determined by Mr. Feinberg. But I can followup 
and get more information on that.
    Mr. Clay. And could you tell us how much of the $150 
billion Federal rescue package has been repaid?
    Mr. Barofsky. Right now the current amount outstanding to 
AIG is about $120 billion.
    Mr. Clay. I see. Retention payments to AIGFP, what 
justification has AIG given regarding the payment retention 
awards to the FP division, the division central to AIG's 
demise?
    Mr. Barofsky. The two arguments that have been advanced 
are, one, again, that this was a binding legal agreement and 
therefore they were compelled to do so. The second argument is 
that employees at AIGFP, some of them were essential because of 
their unique knowledge, to unwinding the complex transactions 
that occurred. As noted earlier, neither one of these arguments 
is entirely satisfying.
    Mr. Clay. Yes. And, I mean, it even got to the absurdity of 
retention awards being paid to non-essential staff, including 
almost $8,000 to a kitchen assistant and $7,000 to a mail room 
assistant. What was the justification for that?
    Mr. Barofsky. We are still waiting to get our justification 
for that. I think, again, that falls back into the first point, 
that these were legally required under contract is the 
justification. Again, it is not one that we share or find 
particularly satisfying, but that is the explanation.
    Mr. Clay. Were the retention programs successful in 
retaining these employees?
    Mr. Barofsky. Certainly there are a number. They are still 
AIGFP employees. Whether or not they are still there because of 
these retention payments or because of the realities of the job 
market or maybe the realities of having AIGFP on your resume 
may not make you the most attractive potential employee, it is 
difficult to determine.
    Mr. Clay. Can you share with the committee how many 
resigned despite receiving a retention award?
    Mr. Barofsky. I don't have that number right at hand, but I 
am sure it is a number we can find out.
    Mr. Clay. Would you get it to us, please? I thank you for 
your response and I yield back.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] 55101.050
    
    [GRAPHIC] [TIFF OMITTED] 55101.051
    
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    I now yield 5 minutes to the gentleman from Missouri, Mr. 
Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Thank you, Mr. Barofsky, for your testimony today. It is 
very compelling. I appreciate your thoroughness.
    I am just kind of curious. I know that in the stimulus 
package, I think it was Senator Dodd at the request of someone 
in the administration, put in there the continued authorization 
to pay these bonuses; is that not correct?
    Mr. Barofsky. I think the provision you are referring to is 
the one that made it so that any agreement that had been signed 
prior to February 11, 2009 would not be subject to the ARRA 
restrictions that were incorporated into EESA.
    Mr. Luetkemeyer. OK.
    Mr. Barofsky. So that is correct, that part.
    Mr. Luetkemeyer. Do you have any information as to why that 
would have been in there? Did they need that in order to be 
able to pay these bonuses legally, or were there concerns on 
their part that they are not legal otherwise so they put this 
in there?
    Mr. Barofsky. I am not familiar with the legislative intent 
of why that provision was put in there.
    Mr. Luetkemeyer. OK. Did it have any impact on your audit?
    Mr. Barofsky. It had an impact to the extent that it really 
made it very clear that these would have been exempt and carved 
out of any of the EESA restrictions.
    Mr. Luetkemeyer. OK. So, in other words, it emphasized the 
fact that they wanted to make these bonuses available or be 
able to be paid to their executives; is that correct?
    Mr. Barofsky. There would be no TARP restriction on making 
these payments.
    Mr. Luetkemeyer. OK. Thank you.
    What is the percentage right now that the Government 
actually owns of AIG? Did you say 80 percent? Is it still 80 
percent?
    Mr. Barofsky. It is slightly under 80 percent.
    Mr. Luetkemeyer. OK. Since we the people own that, do we 
have a representative on this board of directors?
    Mr. Barofsky. Right now the Government's ownership interest 
is managed by trustees, three independent trustees.
    Mr. Luetkemeyer. Are they represented on the board of 
directors?
    Mr. Barofsky. I think they advise the board of directors. I 
don't know if they are actually on the board of directors.
    Mr. Luetkemeyer. So we don't have representation on a board 
that we own 80 percent of?
    Mr. Barofsky. I think that is correct. I think we do not 
have--the Government does not have representatives on the board 
of directors. I am not 100 percent sure, but I can find out.
    Mr. Luetkemeyer. Why do we not have representatives on the 
board of directors?
    Mr. Barofsky. I think the decision was made to manage the 
Government's interest through these trustees instead.
    Mr. Luetkemeyer. OK.
    Mr. Barofsky. But, again, I'm not sure we don't have 
representatives on the board of directors, but I will find out.
    Mr. Luetkemeyer. OK. And right now we have a gentleman, Mr. 
Feinberg, who is the pay czar who is going to oversee the 
payment of future bonuses; is that correct?
    Mr. Barofsky. Yes, that is true.
    Mr. Luetkemeyer. What authority does he have to do that? 
Where does he get his authority from?
    Mr. Barofsky. His authority basically arises out of ARRA, 
which we were discussing earlier, and the Treasury regulations 
that were issued resulting out of ARRA, which set forth the 
executive compensation restrictions and set forth this 
procedure for Mr. Feinberg. So it ultimately draws from the 
statute.
    Mr. Luetkemeyer. So they supersede any contractual 
obligations that AIG might have with its employees?
    Mr. Barofsky. That is going to be one of the challenges 
that Mr. Feinberg has because no, it would not. For example, it 
wouldn't trump the future retention payments that are due in 
March 2010. ARRA still exempts those from EESA's restrictions. 
AIG has asked for and he can provide an advisory opinion on 
them, but ultimately those remain to be binding contracts. But, 
of course, he can make recommendations. He can take into 
account past compensation, making future compensation 
decisions----
    Mr. Luetkemeyer. So we really haven't solved the problem 
yet if we have a pay czar who doesn't have the authority to 
oversee the bonuses and we don't have a representative on the 
board of directors who can direct that these recommendations be 
taken seriously. Is that a fair assessment?
    Mr. Barofsky. It may very well be. I think that my 
understanding is from statements AIG has made to us and as they 
say publicly that they are working very closely with Mr. 
Feinberg, and certainly we are all hopeful that AIG will follow 
those recommendations. If not I'm sure----
    Mr. Luetkemeyer. I take that as an affirmation of my 
statement.
    Mr. Barofsky. Yes.
    Mr. Luetkemeyer. Thank you, sir.
    Very quickly, as my time expires here, you have made a 
couple of recommendations in your report and we are just kind 
of curious as to whether Treasury has implemented those. One is 
that Treasury continues to hide information about the value of 
assets in its portfolio. Have they started coming clean? Have 
they started to make more available, more transparent, what 
their assets are and the value of those assets?
    Mr. Barofsky. No. They are going to be publishing as part 
of GAO's annual financial statement for the TARP, they will be 
publishing under the Credit Reform Act valuations of the 
portfolio. That is an annual process. They have not adopted our 
recommendation of sharing with the American people their 
internal valuations they receive on a monthly basis. I 
scheduled a meeting with them actually tomorrow. They are going 
to give us a briefing on their justifications and explanations 
as we continue to press for that recommendation to be adopted.
    Mr. Luetkemeyer. Now you made several recommendations in 
your report. What do you feel in your estimation is the most 
important recommendation that you can make? And have whoever 
you need to be able to address it, have they addressed it? And 
if they have, fine; if they haven't, why not?
    Mr. Barofsky. I think it is difficult to say because each 
TARP program is different, but I think our biggest over-arching 
recommendations which relate to transparency, in particular on 
requiring TARP recipients to report on how they are using the 
TARP funds. It is fundamentally important for a number of 
reasons, including it fuels a lot of the cynicism.
    The failure to adopt this recommendation I think fuels a 
lot of the cynicism that the American people have toward this 
program, this perception that the TARP is a black hole. I think 
it is a very unfortunate decision on Treasury's part. The 
decision was made by the last administration and continues with 
this administration, and it is one that we continue to press 
for, but I think that is one of the most significant failings 
because it is indicative of a basic attitude toward 
transparency that we find is lacking in the TARP program.
    Mr. Luetkemeyer. I appreciate your remarks.
    Thank you, Mr. Chairman. I yield back.
    Chairman Towns [presiding]. The gentleman's time has 
expired. Thank you very much.
    I now yield 5 minutes to the gentlewoman from Ohio, Ms. 
Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Welcome, Mr. Barofsky.
    Mr. Barofsky. Thank you.
    Ms. Kaptur. Thank you for your work.
    Could you please restate for the record to the best of your 
ability how much taxpayer money has been put at risk through 
the funding of the TARP at Treasury, and also any estimate you 
might have of the dollars that have been put at risk through 
the fed, which total into the trillions, I am told. Can you 
clarify that for the record?
    Mr. Barofsky. Sure. I don't have those numbers at my 
fingertips right now. In our last audit report we put out an 
estimate of the total amount of money that was related to the 
financial crisis outstanding, and in that we totaled it to be 
approximately $3 trillion across the Federal Government, and we 
had breakdowns with the Federal Reserve and Treasury in that 
quarterly report. I don't have those numbers at my fingertips, 
but they are reflected in that report.
    Ms. Kaptur. All right. I thank you. You know, I am in awe 
and simultaneously in utter disgust at how Wall Street and the 
money elites in our country take care of one another, to the 
point of wrapping their tentacles around the entire Federal 
Government of the United States of America. That takes a lot of 
power.
    We have 15 million people unemployed. We have millions and 
millions of people being kicked out of their homes. And yet we 
witness this egregious behavior by those who continue to 
receive these bonuses, and really an arrogant disregard for the 
republic and its citizenry.
    In your testimony on page 16 you accurately state that the 
plans for these bonuses at AIG and AIG's financing risk 
division were exempted under the American Recovery and 
Reinvestment Act this year, which explicitly stated that it did 
not apply to agreements on bonuses in place prior to February 
11, 2009. Who could have had the power to insert that 
provision? I am going to ask your staff to please provide for 
the record the exact language of the provision that did that in 
the Recovery Act.
    And I would like you to venture an opinion on who drafted 
that language and how did it get in that major recovery bill 
which included our unemployment benefit extensions, it included 
the Medicaid payments to the States. People can disagree 
whether they like the Recovery Act or not, but to have that 
provision in there, it wasn't in the House bill. How did that 
get in there?
    Mr. Barofsky. My understanding is that Senator Dodd 
introduced the amendment that reflects that language.
    Ms. Kaptur. And basically what is the net effect of that 
language?
    Mr. Barofsky. The net effect of that language is that the 
TARP does not prohibit these types of bonus payments if the 
bonus plan was offered prior to that date.
    Ms. Kaptur. That is unbelievable that this could happen in 
our country and that Members of Congress--to the extent that 
your staff can provide the exact way in which this happened 
legislatively through committee, through subcommittee, however, 
through conference committee, I would be very grateful if you 
could provide it for the record.
    Let me ask you this question. Do you believe that these 
unwarranted bonuses could have been prevented and prior bonuses 
clawed back if our Government established through a civil 
lawsuit or through administrative enforcement actions or 
criminal prosecution that the bonuses were prompted by 
accounting fraud? Could we open it up?
    Mr. Barofsky. I'm trying to go back to my days as a 
prosecutor just a year ago of forfeiture and issues. There 
certainly are circumstances, if these payments were resulting 
from fraud, that there could be opportunities for forfeiture or 
restitution.
    Ms. Kaptur. All right.
    Mr. Barofsky. I'm trying to think of the specific 
circumstances. But it certainly is possible.
    Ms. Kaptur. All right. That is an important statement for 
the record, because I think justice has to be won through the 
courts to the extent that we can, and they can't be on the 
sidelines of this, and parties to this suit should be thinking 
about that because the American people don't support this. Yet, 
this is going on and it has been made the law of the land. I 
think most Members of Congress, if you surveyed them, don't 
even realize that provision was in the recovery bill that was 
passed earlier this year.
    It takes a lot of power to insert a provision like that 
literally puts the firewall up against us going after those 
bonuses.
    Mr. Barofsky. And, to be clear, as the wheels keep turning, 
I think what we would probably need to show is an individual 
employee who participated in a type of fraud that resulted and 
included into the bonus payment. It may be more difficult to 
claw back under a fraud theory someone who is a participant to 
the contract and fulfilled their obligations under the contract 
and received a payment. That person may be more difficult to 
recover. But if one of the recipients of the bonuses was 
involved in a fraud that helped lead to those, I think there 
would be legal remedy.
    Chairman Towns. The gentlewoman's time has expired.
    Ms. Kaptur. Could I ask the gentleman to provide one piece 
of information for the record?
    Chairman Towns. The problem is we are having a vote, and I 
am afraid that some of the Members might not have an 
opportunity to--that is the problem.
    Congressman Welch.
    Mr. Welch. Thank you. I will be brief.
    Thank you very much for your good work. I just want to make 
a brief statement.
    Mr. Chairman, I think all of us are deeply troubled by 
AIG's unwillingness to live up to its clear obligation to 
return millions in bonuses that are totally unwarranted. Those 
should be returned to the American taxpayer. The Special 
Inspector General's report lays bare the troubling extent to 
which AIG continues to take advantage of the U.S. Government 
and the U.S. taxpayer. They acted in good faith last fall when 
the company's looming collapse posed a systemic risk to the 
entire U.S. economy, but the folks in AIG's Financial Products 
division who helped push our economy off a cliff don't deserve 
a dime in bonuses that are financed by the American taxpayer.
    I continue to urge to Department of Treasury and the 
Federal Reserve to work together to recoup this money and 
ensure that AIG honors its commitments and that we honor our 
obligation to the U.S. taxpayers.
    Thank you, Mr. Chairman. I yield back.
    Chairman Towns. Thank you very much. I thank the gentleman 
for his statement.
    I now yield to Congressman Murphy from Connecticut.
    Mr. Murphy. Thank you very much, Mr. Chairman.
    I want to get back to the issue of retention for a moment, 
but before I do, in followup to Representative Kaptur's 
questions, the language regarding the contractual obligations 
of bonuses in legislation inserted in the Senate, just to be 
clear, that language was in the context of an amendment that 
limited the awarding of bonuses to companies that receive TARP 
and Federal rescue funds.
    Mr. Barofsky. Yes. I mean, the ARRA restrictions, which 
significantly increased the executive compensation restrictions 
on TARP recipients, in the original version of the statute were 
much milder, to put it mildly. But this is all part of an 
amendment that included far greater restrictions which 
ultimately created the pay czar and the bonus restrictions that 
ultimately had been incorporated into EESA. That is correct.
    Mr. Murphy. In the context of the amendment offered by 
Senator Dodd in the Senate that was not part of the House 
version initially?
    Mr. Barofsky. Yes. Senator Dodd's amendment was related to 
the entire executive compensation structure, was all authored 
by Senator Dodd. If I didn't make that clear, I perhaps should 
have. That was his proposal to put into EESA through ARRA the 
enhanced executive compensation restrictions, and part of that 
was this provision. That is correct.
    Mr. Murphy. I want to come back to this issue of bonuses 
offered to retain employees, because it is a key part of your 
report and part of what you feel was missed in the discussions 
between Treasury and AIG was the lack of real solid questioning 
as to some of the declarations made by AIG.
    One of the things you say in your report to start with is 
that the resignations at AIGFP have been, I think you used the 
word particularly acute over the course of this time period. 
Because this is such an important piece of the justification, 
I'm wondering if you can drill down a little bit on that and 
what leads you to the supposition that resignations have been 
particularly acute at AIGFP.
    Mr. Barofsky. Basically the numbers. I don't have the 
specific numbers right in front of me, but AIG has reported 
that there has been a large number of resignations. The reasons 
for them could be multi-fold. I would hate to speculate. 
Certainly it has been reported to us that all of the attention 
that occurred in March--and there have been anecdotal stories 
of people going to AIGFP executives' houses. There is bus tours 
that stop at their houses. Obviously that creates a lot of 
pressure. Also, the business is one of winding down, and it is 
not the--and because of the very poor financial performance of 
the entity, that, too, could contribute to why people would 
leave.
    Mr. Murphy. How do we going forward try to get at this 
issue to make sure that it doesn't happen again? You have, I 
think correctly, laid out all sorts of reasons that people may 
leave, many having nothing to do with pay or compensation 
packages, and lots of reasons that people would stay, having 
nothing to do with pay and compensation packages, given the 
existing market. As we try to chart a course forward here, how 
do you suggest that Treasury or this Congress evaluate these 
claims that AIG or any other company may make that they must 
pay $1 million, $5 million, $10 million in bonus money in order 
to keep an employee, given all of those competing factors? What 
is your suggestion as to how we evaluate this going forward?
    Mr. Barofsky. I think the key to any type of policy or 
procedure that addresses your question must be that it be 
formalized and be transparent, because I think where the 
biggest problems occur is when the types of dealings or 
transactions or dealings or advice are given behind the 
curtain. That creates the cynicism and anger that we have seen 
relating to this bailout and that pervades a lot of the TARP.
    So I think what the actual policies and procedures are, 
that is a more difficult question. That is something for 
Treasury as the policymaker to determine and for this Body, but 
the structure I think is key.
    Mr. Murphy. I guess we need your help on that, though, 
because, you know, transparency is wonderful, but if all they 
are saying is a restatement of their claim that they must pay 
$10 million in bonuses in order to keep this employee, having 
that claim be transparent doesn't really help us much. It is 
hard for me to understand, as I think it is for many on this 
committee and in this Congress to understand, why these bonuses 
were merited, given the fact that there weren't a lot of job 
opportunities out there for the very people that were 
responsible for the collapse of that company.
    So I would just ask you going forward to help us try to 
chart those standards, help us come up with recommendations for 
Treasury so that we are not just reliant on the transparency 
piece, that we actually have some standards in place to 
guarantee that this is not just a claim of retention; that 
there is actually merit behind that claim.
    I thank the chairman for the time.
    Chairman Towns. Thank you very much. I thank the gentleman 
from Connecticut.
    The gentleman from Illinois, Mr. Schock.
    Mr. Schock. Thank you, Mr. Chairman.
    I would like to yield my 5 minutes to my distinguished 
ranking member, Mr. Issa.
    Mr. Issa. I thank the chairman.
    I am sorry it seems like all my folks are being real shy 
today, but perhaps it is just my day to be tough on you. I am 
going to try and bring a close to this hearing with a tough 
question.
    Mr. Barofsky. Sure.
    Mr. Issa. Your testimony previously and now is that then 
New York Fed Chairman Geithner didn't know about bonuses while 
he was New York Fed chairman, even though it was his 
responsibility to oversee that failed AIG and, of course, the 
funds that went to them; is not that correct?
    Mr. Barofsky. We haven't seen any indication that he knew.
    Mr. Issa. OK. So we don't know if he knew, but it was his 
job to know, and so far he said he has testified he didn't 
know.
    Mr. Barofsky. He said he didn't know and we haven't seen 
any indication to contradict that.
    Mr. Issa. OK. So according to his testimony he failed to 
know when it was his job to know.
    Mr. Barofsky. Yes.
    Mr. Issa. And as Treasury Secretary he failed to stop, even 
though he had at least a couple of days notice, he failed to 
stop these bonuses and has said he just couldn't, right?
    Mr. Barofsky. That is correct.
    Mr. Issa. So he failed to know when he should have known. 
He failed to stop when this committee on a bipartisan basis 
says he should have at least halted it for a review and not 
simply paid it, and now he is failing to give you transparency, 
you have testified, right?
    Mr. Barofsky. That is correct.
    Mr. Issa. So we have a Secretary of the Treasury who failed 
to know what he should have known, failed to do what he should 
have done, and has failed to give us transparency. That is 
really what this testimony today is all about and, in fact, on 
a bipartisan basis we are hearing that, one, we are not getting 
transparency and, two, even if we get transparency, if we can't 
trust the judgment and decisions of the Treasury, then, in 
fact, we are not going to get the outcome the American people 
expect us to get and we are going to continue to have non-
essential people paid huge bonuses in many cases that are 
unnecessary with taxpayers' dollars or dollars that could be 
returned to taxpayers. That is correct, is not it?
    Mr. Barofsky. There is a lot in your statement, a lot of 
which I agree with.
    Mr. Issa. OK. We won't ask for the minute part you may not 
agree with. So I guess this committee is dealing with a 
Treasury who is not providing transparency to the IG who has 
called for it and, in fact, this is a gentleman who was 
confirmed by the Senate, nominated by the President to be part 
of the most transparent--I repeat, the most transparent--
administration in history. I'm sure you have heard that claim 
by the administration, right.
    Mr. Barofsky. And much more importantly than being 
transparent to us, it is the transparency to the American 
people, the taxpayers who are the investors in this program. 
They have been good as far as giving us the documents and 
information that we have requested, but as far as bringing the 
necessary transparency to the program, I couldn't agree with 
you more.
    Mr. Issa. So, Mr. Chairman, when we have said that we 
wanted to go everywhere that the trail leads and to all people, 
I would say today--and I am not calling on you to do this, but 
I am suggesting that you and I work on a bipartisan basis to 
bring Secretary Geithner here to, in fact, review thoroughly 
what appears to be a pattern of not knowing, not stopping, and 
now not providing the transparency that the President has 
tasked him to provide.
    I think that the IG has been--I don't want to say timid, 
but he has certainly been respectful as he has delivered this 
message. But if the summary of that message that we have all 
heard is correct, then I believe that it is now time for us to 
bring Secretary Geithner here to find out if, in fact, he will 
make a change in direction of the large ship of State, the 
Treasury Department, to make them provide the transparency the 
President tasked him to do.
    I told you I would be tough. You are still standing, so it 
couldn't have been that tough. I want to thank you, though, for 
your testimony here today. I want to thank you for your 
respectful candor in delivering what is not what we like to 
hear. We don't like to hear that the administration doesn't 
have it right yet, and I think both sides of the aisle have 
worked with you to point that out. I thank you for this.
    I would, in closing, ask if you can look through your 
schedule and, I'm assuming we won't do another hearing this 
soon, but I know you are releasing additional information next 
week. If your schedule allows, I think we would like to try to 
arrange for a less formal, maybe a 1-hour with Members, so that 
we could get briefed and have a quick discussion so that we 
understand what you are releasing next week, if you can see if 
that is available.
    Mr. Barofsky. Any time. We will always be available for 
that, of course.
    Mr. Issa. Thank you. And I would like to thank Mr. Schock 
for yielding time, and I'm sure he would yield the balance to 
the chairman.
    Chairman Towns. Without objection, we would love to arrange 
a joint briefing. Of course, I hope that we can do that. Not a 
hearing, but a briefing of all the Members.
    Let me just close on this note by saying thank you very 
much, Mr. Barofsky, for your being here. We really appreciate 
the work that you are doing.
    A year ago with major Wall Street firms either bankrupt or 
teetering on the edge, House Speaker Nancy Pelosi famously said 
the party is now over. For AIG, that was true. Only massive 
taxpayer bailout has kept AIG alive. Yet, despite the fact that 
mismanagement and poor business decisions brought the company 
down, AIG's executives still insist on extraordinary 
compensation. At AIG the party might be over, but the music 
hasn't stopped playing and the musicians keep hanging around.
    One of the things we have learned today is that apparently 
AIG's executives still believe that millions of dollars in 
bonuses or retention payments or whatever you want to call them 
should be paid to them without regard to the company's 
performance. In other words, they don't want to look at 
performance; they want to just sort of say this is the way we 
do it, we've been doing it for years, and we are going to 
continue to do it. In other words, not much has changed since 
last spring.
    Now the Special Master Ken Feinberg is reviewing AIG's 
latest proposal for nearly $200 million in bonuses. The Wall 
Street Journal today says he is having trouble convincing AIG 
to reduce those payments. He has his hands full. We will hear 
the record from him 2 weeks from now at our second hearing on 
executive compensation.
    Finally, I want to thank you, Mr. Barofsky, who I think is 
doing a find job in looking into these important issues. I 
think it is particularly important for Congress to have the 
facts in hand on these important issues before we act on 
financial regulatory reform. I thank you, Mr. Barofsky, in 
terms of making this significant contribution in this regard.
    I want to thank again the Members for attending on both 
sides of the aisle this very, very important hearing.
    Finally, please let the record demonstrate my submission of 
a binder with documents relating to this hearing. Of course, 
without objection, I submit this binder into the committee 
records.
    [The information referred to follows:]
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    Chairman Towns. Without objection, the committee stands 
adjourned. Thank you.
    [Whereupon, at 12:27 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Anh ``Joseph'' Cao and 
Hon. Geral E. Connolly follow:]
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