Millions of dollars in bonus payments to employees of insurance giant American International Group resulted from a "failure of management" by the Treasury Department, the top overseer of the Troubled Asset Relief Program told a congressional panel on Wednesday.
Neil Barofsky, special inspector general for TARP, said the Federal Reserve Board of New York -- which was charged with examining the company's executive pay structure late last year -- failed to notify Treasury officials, including Treasury Secretary Tim Geithner, about the bonuses because communication between the two agencies was "virtually nonexistent."
Barofsky, who presented his office's audit of the bonus payments to the House Oversight and Government Reform Committee, asserted that compensation contracts could have been renegotiated.
The New York Fed viewed the $168 million in executive compensation payments as "a drop in the bucket" compared to the massive debt the company owed the federal government, Barofsky said, and it failed to ring alarm bells about the costly bonuses until days before they were paid in March.
"This was the problem of the outsourcing of oversight to an entity that just didn't have [the] political sensitivity" to anticipate the public firestorm prompted by the hefty bonuses, he said.
The committee will hear testimony this month from "pay czar" Kenneth Feinberg, the Treasury official charged with monitoring executive compensation in firms that received federal bailout funds, including AIG and General Motors Corp.
Feinberg is now trying to force AIG to curtail a round of bonuses -- totaling $198 million -- owed to company executives under compensation contracts, with payment due in March.
Members of both parties lauded Barofsky, who has clashed with Treasury officials over access to information regarding TARP funds.
But the watchdog's testimony was delayed by a prolonged debate at the start of the hearing over demands by Republican members that the committee use its subpoena power to obtain documents related to a VIP mortgage program offered by Countrywide Financial Corp.
Some federal officials, including Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Senate Budget Committee Chairman Kent Conrad, D-N.D., were revealed last year to be recipients of below-market mortgages, but the Senate Ethics Committee cleared the two Democrats earlier this year.
"That is not the work that this committee ought to be doing," said Rep. Dennis Kucinich, D-Ohio, after nearly 40 minutes of partisan tussling over the appropriateness of a new congressional probe into the Countrywide program. "It would just be a partisan morass."