Obama tackles AIG anger during California trip

COSTA MESA, California (Reuters) - President Barack Obama pressed his case for an expensive budget and broad financial reforms on Wednesday while anger over bonuses paid at bailed-out insurance giant AIG threatened to overshadow his economic agenda.

During a campaign-style trip to California, a state that has been hard hit by the recession, Obama tried to defuse criticism about the AIG payouts and defend the government's bailout of struggling banks even as he tapped populist anger over the country's financial woes.

"I know a lot of you are outraged about this -- rightfully so. I'm outraged too," he said of the $165 million in bonuses given top officials at American Insurance Group Inc, which accepted $180 billion in government aid to keep it from going under.

"I'll take responsibility. I'm the president," he told the cheering crowd of some 1,300. "It's my job to make sure we fix these messes even if I don't make them."

The 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.

At a brief White House news conference before his trip, Obama expressed confidence in Treasury Secretary Timothy Geithner, who has come under harsh criticism over the bonuses, and his economic team, many of whom stood at his side.

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.

"I'm absolutely committed to ensuring that we have the tools we need to prevent the kinds of abuses that sent AIG spiraling," he said in California.

"We've got to make sure that we've got regulations that don't allow companies to take these huge risks that are so big that they can sort of hold us hostage."

HEARING FROM VOTERS

The trip gave Obama, a Democrat who thrived as a campaigner, a chance to engage Americans directly about his costly proposals.

The audience, which responded loudly to his comments on AIG and cheered when he took off his suit jacket, prodded him with questions about job losses, education and credit cards.

Costa Mesa is 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. The area is strongly Republican and voted for Obama's Republican opponent, Senator John McCain, in the November election.

"It is always good to get out of Washington for a while," he said in the first of two such events set up for him to hear voters' concerns and pitch his plans for economic recovery.

Obama will also appear on NBC's "The Tonight Show with Jay Leno" on Thursday, the first appearance by a sitting U.S. president on a late-night TV talk show -- which 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.

"Now, there are those who say these plans are too ambitious," Obama said to a shouts of "No!" from the audience.

"I say our challenges are too large to ignore," he said.

One audience member asked him if he would run for re-election in four years.

"If I don't deliver on those things four years from now, then I think you will be answering the question of whether I run for re-election or not," he said.

(Additional reporting by Caren Bohan, John Whitesides and Matt Spetalnick)