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This Week in Scandals: Bonus Overkill

 Every week, we take stock of how the week unfolded for the stories we're tracking in Scandal Watch (see the right sidebar). Here is how we do it. And, as always, feel free to suggest new scandals.

1. AIG

The U.S. has doled out hundreds of billions of dollars to financial institutions, but it took just $165 million to trigger a nationwide catharsis of pent-up bailout anger. That’s how much AIG awarded to executives in its financial products division (which churned out the credit default swaps that nearly wiped out the company) last Friday. (AIG has gotten $173.3 billion in federal bailout money. Here’s our timeline of AIG’s bailouts and bonuses and a Q&A on the bonuses.)

CEO Edward Liddy, installed after the initial bailout, said Federal Reserve Chairman Ben Bernanke had signed off on the bonuses. But the administration’s official stance is that Treasury Secretary Timothy Geithner only learned about the bonuses on March 10, and President Barack Obama was alerted two days later. But Bloomberg News reported the bonuses back in January, and according to the New York Times, Geithner was questioned about them at a congressional hearing on March 3 and Treasury and Fed staffers were e-mailing about them in late February. (Treasury said last night that Geithner didn’t know “the timing or full extent” of the bonuses until March 10.)

Anger over the bonuses has crystallized into an effort to get them back, centering on a bill the House passed yesterday that would levy a 90 percent tax on bonuses at banks that got more than $5 billion in bailout funds. Nineteen state attorneys general and the Treasury have opened probes into the bonuses. Meanwhile, some say the real AIG outrage is the $49.5 billion in rescue funds that the company used to pay off its counterparties.

2. Market Crisis

Fannie Mae is also handing out retention bonuses to its top executives, which the federal government signed off on. But Rep. Barney Frank (D-MA) said the bonuses are rewarding poor performance and should be stopped. According to the Wall Street Journal, other companies with big losses are still handing out big bonuses to their execs too.

Meanwhile, Bank of America has complied with a judge’s order and handed over the names of the 200 Merrill Lynch employees who received the biggest bonuses. (Most of those Merrill bonuses wouldn’t be taxed under the House’s bill though, because they were moved up from January 2009 to December 2008, the New York Times reports.)

Bank of America CEO Ken Lewis also told the Charlotte Observer that the bank may pay back the government’s bailout by next year. And finally, Rep. John Lewis (D-GA) is angry that at least 13 companies that got bailout money owe the U.S. a total of more than $220 million in back taxes.

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