Cuomo Describes Bonuses; Lawmakers React

He said the tax would apply only to those at AIG who had received bonuses. The provision would help the government get back the money in the form of tax revenue, he said.

Today, in a hearing on insurance regulation, Dodd said the American people "are outraged–and I am as well."

"The chairman of the Federal Reserve has said that the government's efforts to prevent AIG from failing outright are akin to a neighbor smoking in bed and setting the house on fire," Dodd said.

"With these bonuses, what we are seeing is the folks responsible picking the pockets of the firefighters and stealing the hubcaps off the fire truck; it's outrageous," he added.

Dodd also said he wants to hear from the Fed what steps are being taken to deal with the situation.

"And we also want answers regarding where the Fed had been on conditions for these types of bonuses since this rescue effort first began," Dodd said.

Sen. Sen. Charles Grassley, R-Iowa, told Cedar Rapids, Iowa, radio station WMT, that, "I would suggest the first thing that would make me feel a little better toward them [AIG executives] is if they follow the Japanese example and come before the American people and take that deep bow and say, 'I am sorry,' and then either do one of two things: resign or go commit suicide. And in the case of the Japanese, they usually commit suicide."

Later today, Grassley apologized to reporters for his comments about suicide.

Sen. Charles Schumer, D-N.Y., demanded that the bonuses be returned–or taxed.

Recipients "should voluntarily return them," Schumer said in a statement on the Senate floor. "If they don't, we plan to tax virtually all of it."

Schumer called it "Alice in Wonderland business practices" to give bonuses to executives at a firm that lost nearly $100 billion last year and had to be rescued with $170 billion in taxpayer money.

"It boggles the mind," he said.