Federal Reserve Chairman Ben Bernanke told Congressional lawmakers today, that he tried to prevent American International Group (AIG) from paying out lavish bonuses, and even asked that the company be sued to halt the payments … but that he was advised against it.
At a tense House Financial Services Committee hearing this morning, Bernanke told lawmakers that he found it “highly inappropriate” for the bailed-out insurer to pay $165 million in bonuses to the very division that was “the primary source of AIG’s collapse.”
He said he was told that the payments could not be stopped because of contractual obligations, and that he was also warned that legal action (which he wanted to pursue) could end up awarding the same employees more money in punitive damages.
“I then asked that suit be filed to prevent the payments,” Bernanke said. “Legal staff counseled against this action on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail. Legal action does have the perverse effect of doubling or tripling the financial benefits to the (employees).“
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