The political fallout from the American International Group Inc. rescue widened Wednesday as policymakers, including the president, pointed to excesses at the insurance giant as the basis for sweeping legislation that would have far-reaching effects.
For instance, the House Judiciary Committee passed a bill Wednesday aimed at recovering bonuses paid by AIG to its executives, but it would apply to executives at all companies that have received more than $10 billion in rescue aid, including Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., and Wells Fargo & Co.
President Obama, citing the AIG mess, pledged Wednesday to speed through Congress a bill to give the government resolution power over systemically important financial firms.
"We're going to be moving that on a fast track," Obama said. "What we are working on is resolution authority that would be similarnot identicalbut similar to the powers that the FDIC currently has over banks."
The president provided no further details but said he had discussed the issue Wednesday with House Financial Services Committee Chairman Barney Frank. It was unclear, for instance, which firms would fall under the new resolution authority, including if bank holding companies, which are currently not subject to receivership by the Federal Deposit Insurance Corp., could be included.
Obama said resolution authority would "allow us proactively to get out in front, make sure that we are separating out bad assets from good, dealing with contracts that may have been inappropriate, and preventing the kinds of systemic risk that we've seen taking place with AIG."
Steve Adamske, a spokesman for Frank, said that both the White House and the Massachusetts Democrat's staff are drafting resolution authority legislation. He said that the Financial Services Committee would hold a hearing as soon as drafting was complete, probably next week, and that if the "planets align" there could be a committee vote on the bill before the Easter recess in April.
Adamske said that the Federal Reserve Board is the regulator most likely to receive resolution powers for non-banks but that the details are still to be worked out.
"We have to wait to get these details," he said.
The flurry of congressional activity came in response to growing public outrage over $165 million paid in bonuses to AIG, which has received four government bailouts so far.
House Judiciary Committee Chairman John Conyers, D-Mich., said he conceived of his bill on Monday and drafted language on Tuesday. He said the panel was moving the bill quickly so that it could be voted on by the House next week.
"The legislation before us represents an effort to safeguard taxpayer funds and rein in out-of-control compensation and bonus abuses by companies that have received federal financial assistance to avoid bankruptcy," Conyers said.
The legislation would allow state attorneys general to sue to recover "previously excessive payments of compensation" and to limit compensation payments if they are more than 10 times the average amount of annual compensation paid to the company's non-management employees. The speed of the legislation clearly caught other lawmakers and the banking industry off guard. Lawmakers on both sides of the aisle questioned the legality of the bill and the speed with which it was being considered.
"In responding to the economic crisis, Congress has let emotion overrun reason," said Lamar Smith, the lead Republican on the Judiciary Committee. "We have had no debate, no hearing, no witnesses, and no real evaluation of this bill. Congress already has learned the hard way about the unintended consequences of rushing to legislate without adequate expert testimony and debate. But that's exactly what we're doing now."
Rep. Mel Watt, D-N.C., agreed.
"I just don't think we have the authority to do this given the record we have built," he said.
The bill appears slated for easy passage despite the objections. It is being pushed by House Speaker Nancy Pelosi and has the support of House Minority Leader John Boehner.
Observers said the language was so vague it was unclear what impact the bill would have on the four banking holding companies that would be subject to it and was a possible sign of more requirements for banks that took part in the Troubled Asset Relief Program.
"It illustrates that the potential rules continue to change for recipients of government assistance," said Phil Corwin, a partner at Butera & Andrews.
"In the ongoing financial crisis, there is no telling what further conditions may be put on those recipients."
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