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.
Americans have already grown weary of government bailouts to companies that they believed squandered their investments on questionable loans, shredded their retirement accounts and helped toss the U.S. economy into recession.
Obama said he had asked Treasury Secretary Timothy Geithner to use the federal government’s leverage with AIG and pursue “every legal avenue to block these bonuses and make the American taxpayers afloat.”
Geithner had complained to AIG Chairman Edward Liddy about the bonus structure.
Liddy said in a letter to Geithner that the firm was legally obligated to make already promised 2008 employee-retention payments, the value of which were set early last year before AIG’s financial problems became public.
AIG also disclosed that Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of $93 billion in payments — more than half of the U.S. taxpayer money spent to rescue the massive insurer.
Populist outrage at Wall Street has been boiling over, with such examples as comedian Jon Stewart’s rapier-like interview of CNBC financial guru Jim Cramer, who hosts the cable network’s popular “Mad Money” show.
Comments to a blog item on Reuters Front Row blog (blogs.reuters.com/frontrow/) were illustrative of the anger.
“Boycott AIG. Boycott any company receiving bailout funds and paying bonuses. Bonuses are extra pay, rewards, typically given for excellent, above average, performance. These companies should have to demonstrate, publicly, the validity of each bonus awarded,” wrote one commenter.
A writer who identified herself as an AIG employee expressed shame.
“While management and execs get bonuses they rip on us about how we should be acting to save the company money. Our management team is abrasive and negative and according to them we do everything wrong,” this person wrote.
additional reporting by Deborah Zabarenko and David Lawder; Editing by Cynthia Osterman