Obama wants to distance economic plan, AIG rescue

By Steve Holland - Analysis

WASHINGTON (Reuters) - President Barack Obama is scrambling to assure Americans he is keenly aware of public outrage over taxpayer-backed bonuses for AIG executives, lest his own economic plan get caught up in the outcry.

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama asked, referring to AIG's management.

Obama spoke a day after it came to light that bonuses worth $165 million were being paid to executives at American International Group, a giant insurance company that is receiving up to $180 billion in federal bailout money.

The issue posed a challenge for Obama. He faces the unwelcome possibility of having the public associate AIG's taxpayer-backed bonuses with Obama's own economic agenda at a time when Americans are being asked to swallow some big numbers.

Since taking office nine weeks ago, Obama has proposed a $3.55 trillion budget for fiscal 2010. He has gained congressional approval of a $787 billion economic stimulus package and last week he signed a $410 billion budget bill for the rest of 2009.

In addition, the administration is soon to unveil a plan to remove toxic assets from banks that will likely mean more bailout money from taxpayer pockets.

"What the Obama administration is scared to death of is it morphing from AIG to the president's economic policy and if that happens, that's very bad news," said Democratic strategist Doug Schoen, who worked in the Clinton White House.

Schoen said the Obama White House so far has sounded the note of moral outrage successfully.

"The problem that they face is that people are getting increasingly skeptical and the last thing they want to do is to have to defend bonus payments to AIG," he said.

In retaliation, the U.S. Treasury will modify a planned $30 billion capital infusion for AIG. A Treasury official said the move was aimed at recouping hundreds of millions of dollars in bonuses.

The bonus issue brought Democrats and Republicans together in a way unseen all year. Massachusetts Democratic Rep. Barney Frank suggested the executives should be fired.

"These people may have a right to their bonuses; they don't have a right to their jobs forever. The federal government now is the 80 percent owner. One of the things we can do to make sure this doesn't happen again," he told NBC's "Today" show.

Senate minority leader Mitch McConnell, a Kentucky Republican, said on the Senate floor that the Obama administration should work to ensure there is no repeat of the "absolutely appalling" bonuses.

"The American taxpayer needs to have complete certainty that their tax money is not going to be spent in this way ever again," he said.

WEARY TAXPAYERS