UPDATE 4-Millions in AIG bonuses ignite bipartisan fire

* White House, Congress outraged at AIG bonuses

* Contracts binding but questions persist

* AIG names of counterparties who benefited from bailout (Updates with AIG releasing list of counterparties and AIG chief to testify to Congress, final three paragraphs)

WASHINGTON, March 15 (Reuters) - President Barack Obama’s top advisers and Democratic and Republican congressional leaders voiced outrage on Sunday that insurer American International Group, recipient of a $173 billion taxpayer bailout, is paying $165 million in employee bonuses.

But they agreed it was unclear what, if anything, the government can do to cut the bonuses since the contracts seem legally binding.

Lawmakers said, however, that plenty of questions need to be answered and some AIG officials may need to be ousted. They also said legislation may be needed to avoid a repeat of such action and retain public confidence in federal bailouts.

“We will absolutely do everything possible to make sure that the money we put in there is spent in a way that we think is appropriate,” Christina Romer, chair of the White House Council of Economic Advisers, told NBC’s “Meet the Press.”

Romer and another top Obama adviser, National Economic Council Director Lawrence Summers, said contracts must be honored but the matter at AIG would be examined.

“We are a country of law. There are contracts. The government cannot just abrogate contracts,” Summers told ABC’s “This Week.” Regardless, he said: “Every legal step possible to limit those bonuses is being taken by (Treasury) Secretary (Timothy) Geithner and by the Federal Reserve System.”

Senate Republican Leader Mitch McConnell said of the bonuses, “This is an outrage,” and that the Obama administration needs to do more.

“We all know that contracts are valid ... but they need to be looked at,” McConnell told ABC “This Week.”

“Did they (AIG) enter into these contracts knowing full well that ... the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess,” McConnell said.

Public outrage at the AIG bonuses was equally apparent on news websites and in blogs.

“This makes me ill,” a reader wrote on the New York Times website, voicing the sentiment of many. “Let AIG fail, and then let’s see what those executives believe they are entitled” to.


AIG agreed on Saturday to revamp its system for paying bonuses after the Obama administration objected to plans for hundreds of millions of dollars in such payouts, but it said it had no choice but to pay out the $165 million due by Sunday.

AIG AIG.N will sharply cut remaining 2009 salaries for top executives of its AIG Financial Products unit and realign 2008 bonuses to tie them to restructuring and repayment targets, AIG Chairman Edward Liddy wrote Geithner.

AIG had promised to pay about $1 billion in retention bonuses over a period of several years, half of which has already been paid.

Liddy, in his letter to Geithner, said the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set early last year before problems at its Financial Products unit became public.

Financial Products was the unit that made bad bets on toxic mortgages and credit default swap contracts that led to the company’s near collapse -- and the first of a series of taxpayer-funded bailouts in mid-September.

“We need to find out whether these bonuses are legally recoverable,” said Democrat Barney Frank, chairman of the Financial Services Committee in the House of Representatives.

Appearing on “Fox News Sunday,” Frank said the government also needs answers from AIG.

“Who said and at what point, ‘We’re going to give these bonuses no matter what.’ And I do think it’s inappropriate for those people to stay in power at that company,” he said.

Republican Senator Bob Corker, appearing with Frank, said corporate recipients of federal bailouts should “have to play by a different set of rules, and hopefully that will cause institutions across this country not to want to take government money” and face increased federal scrutiny.

Rep. Paul Kanjorski, a Pennsylvania Democrat who chairs a House subcommittee on capital markets, said the bonuses would be a topic at a hearing on Wednesday at which Liddy will testify.

The bailout of AIG not only propped up the insurer but benefited a range of big banks, including some of Europe’s largest, who were conducting transactions with the insurance giant.

Under pressure from lawmakers, AIG disclosed on Sunday that more than $90 billion had been paid to various banks, including Deutsche Bank DBKGn.DE, France's Societe Generale SOGN.PA and U.S. investment powerhouse Goldman Sachs GS.N, since the insurer nearly went bankrupt in September. [ID:N14474055] (Reporting by Thomas Ferraro, Jim Vicini, Philip Barbara and John O'Callaghan; writing by Thomas Ferraro, editing by Bill Trott, Philip Barbara and Paul Simao)