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AIG bonuses leave Obama in a tough spot

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“If Obama had stuck with his original position ... that would have been highly problematic,” says Darrell West, director of Governance Studies at the Brookings Institution. “But now they seem to be shifting to a more aggressive stance ... by employing the shame strategy.”

The administration is “hoping that there’s enough public pressure and late-night comedy pressure to force voluntary action from AIG,” Mr. West adds. “The longer this stays in the news, the greater the chance that effort will be successful. A company is ready to take one day of bad news, but when it gets to be two, three, four days, they capitulate.”

At this point, facts seem to be less important than public perceptions. And in fact, AIG has already stated that it is seeking ways to repay the American people for what it calls “retention payments” to employees. In a letter to Treasury secretary Geithner, AIG chairman Edward Liddy laid out ways the company is reducing compensation to employees, especially those in the Financial Products division that engaged in the risky behaviors.

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