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March 17th, 2009

More on AIG

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As officials have informed the White House that there is little they can do to legally block AIG’s latest round of bonuses, Treasury officials said they will restructure the insurer’s latest Federal bailout to ensure taxpayers are “made whole”:

The Treasury is finalizing the terms of its latest rescue package for AIG, announced on March 2, and will attach new provisions to it, the official said.

One option being discussed is having the Treasury impose new rules on a new $30 billion loan facility to ensure taxpayers will be “made whole.”

“Treasury has instruments that can address the excessive retention bonuses,” spokesman Robert Gibbs said, when asked about the government’s options. He declined to be more specific.

While it seems Washington is trying to “shame” AIG employees into returning their bonuses, the guilt may not work on the recipients. According to AIG, the majority of the employees receiving retention payments don’t even work in the U.S., but overseas. Will foreign employees really be morally driven to return money they were contractually promised because of the economic perils of an overseas nation?

You can be sure the Treasury Department will be adding restrictions to all the new bailout money to prevent this event from happening again. To date, the firms that have chosen to return or halt bonuses have been done mainly on a voluntary basis.

We’ll have to wait and see how the added pressures placed on AIG to repay taxpayers will affect their capital and operating abilities.

Will added restrictions only serve to make the insurer weaker in the long run?

Why not just deduct the bonuses ($165 million) from the bailout money ($30 billion)?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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