Obama heads out of town as AIG controversy boils

WASHINGTON (Reuters) - President Barack Obama headed to California on Wednesday to make the case for his budget and financial rescue plans, leaving behind a capital irate over bonuses paid to executives at bailed-out insurance giant AIG.

At a brief White House news conference before his departure, Obama criticized the $165 million handed out by AIG as an "inappropriate use of taxpayer funds" and expressed confidence in Treasury Secretary Timothy Geithner and his economic team to deal with the financial crisis.

"I think people are right to be angry, I'm angry," Obama told reporters about the bonuses given to top officials at American Insurance Group Inc, which accepted $180 billion in government aid to keep it from going under.

"Just as outrageous is the culture that these bonuses are a symptom of, that have existed for far too long -- a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable," he said.

The growing firestorm over AIG and its business-as-usual bonuses threatens Obama's image as a crusader for change and could undermine his efforts to pull the economy out of a deep recession and pass his record $3.5 trillion budget.

Obama said the administration was developing a proposal to create a "resolution authority" with powers over institutions like AIG, similar to the FDIC's ability to shut down insolvent banks.

Obama's comments came shortly before AIG's chief, Edward Liddy, appeared at a Capitol hearing before angry lawmakers who have been hearing for days from incensed constituents.

HEARING FROM VOTERS

On his two-day trip to California, Obama will hold two town hall meetings with voters to hear their concerns and pitch his plans for economic recovery.

"We're going to be answering questions from voters about a whole host of issues," Obama said before leaving for the trip. Geithner, who has come under heavy criticism over the AIG bonuses, and other members of Obama's economic team were at his side.

Obama also will appear on NBC's "The Tonight Show with Jay Leno," the first appearance by a sitting U.S. president on a late-night TV talk show that will give him a high-profile stage to explain his economic proposals.

Obama has intensified efforts to sell his record-high budget proposal in recent days as Republicans and some Democrats complain the plan, much of it aimed at lifting the economy out of the recession, would cost too much.

Obama and senior administration officials have tried to rebut criticism that he is doing too much by launching initiatives to expand healthcare, reform education and combat climate change while working to fix the economy and stabilize the financial sector.

Obama will hold his first town hall meeting in Costa Mesa, a suburban town of about 113,000 in Orange County, which has been hammered by the recession despite a median income of more than $70,000.

Orange County is strongly Republican and voted for Obama's Republican opponent, Senator John McCain in the November election.

(Additional reporting by John Whitesides and Matt Spetalnick; Editing by Vicki Allen)