Obama grappling with AIG bonus fallout

WASHINGTON Thu Mar 19, 2009 4:45pm EDT

President Barack Obama (R) makes comments on the economic recovery package and American International Group (AIG) with Treasury Secretary Timothy Geithner on the South lawn at the White House in Washington, March 18, 2009. REUTERS/Jim Young

President Barack Obama (R) makes comments on the economic recovery package and American International Group (AIG) with Treasury Secretary Timothy Geithner on the South lawn at the White House in Washington, March 18, 2009.

Credit: Reuters/Jim Young

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WASHINGTON (Reuters) - President Barack Obama is grappling with the AIG (AIG.N) bonus furor by both accepting responsibility for the government's failure to head off the payments and blaming it on the "big mess" he inherited.

He is working to protect Treasury Secretary Timothy Geithner, who began his tenure under a cloud over unpaid taxes and is now taking heat from Republican lawmakers for not heading off the bonuses before they were paid out.

The flap over AIG's payment of $165 million in bonuses to executives after the insurance giant got up to $180 billion in government aid has inflamed Americans, already impatient with the government's billion-dollar bailouts of firms that helped pitch the U.S. economy into crisis.

The controversy is blanketing the airwaves and taking attention away from Obama's efforts to rescue the U.S. economy and the big agenda he has laid out for long-term goals, such as healthcare and global warming.

Saying Americans were "right to be angry, I'm angry," Obama has had to spend most of the week dealing with it -- condemning the bonuses and discussing options for getting the money back and preventing a repetition.

Pressed on whether he wished he had known sooner about the bonuses, Obama, a Democrat, told reporters on Wednesday that "ultimately I'm responsible," while returning to a theme he has used repeatedly, that he inherited big problems from his Republican predecessor, George W. Bush.

"We've got a big mess that we're cleaning up," he said. "Nobody here drafted those contracts. Nobody here was responsible for supervising AIG and allowing themselves to put the economy at risk by some of the outrageous behavior that they were engaged in."

NEXT BAILOUT A HARDER SELL?

Obama has enjoyed job approval ratings of about 60 percent in the nearly eight weeks since he took office and his biggest achievement thus far was steering a $787 billion stimulus package through the U.S. Congress.

With Americans up in arms about bonuses to discredited executives, Obama may find it tougher to sell an economic agenda expected to include a request for more bank bailout money -- a step many economists say is needed to bolster the weak underpinning of the U.S. financial system.

A CBS News poll conducted last weekend found dwindling support for bailouts -- only 37 percent of Americans backed giving money to banks and financial institutions, while 53 percent were opposed.

"I think there's a danger here that when they are seen as doing stuff that a lot of the public really dislikes, then it makes it harder to do the next thing," said Merle Black, a political science professor at Emory University in Atlanta.

There is a growing sense among some political experts that Obama's ability to pin U.S. economic problems on Bush may be running its course.

"That excuse still works partly, but it's already getting old," said Larry Sabato, a political science professor at the University of Virginia. "It isn't going to work much longer."

WHO KNEW WHAT?

Obama is expressing "complete confidence" in Geithner in the midst of a Washington feeding frenzy over "who knew what when."

Geithner said he knew about the bonuses on March 10 and told the White House two days later. The news broke publicly last weekend.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, has questioned all week why the Treasury Department did not lay down conditions about bonuses before handing over $30 billion to AIG two weeks ago.

"The Treasury Department was supposed to be minding the store," he said on Wednesday. "It was Treasury's responsibility to watch how these funds were used. Obviously, they fell asleep on the job."

Presidential scholar Stephen Hess, a professor at George Washington University, said Geithner should have immediately alerted the White House.

"There's some news that you immediately send up to the top. You don't sit on it," he said.

Republican strategist Scott Reed said the controversy could embolden Democrats who control Congress to challenge the president.

"You're seeing it from his own party -- the Democrats are starting to step out a little bit against this White House," he said.

(Additional reporting by Caren Bohan; Editing by Peter Cooney)

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