http://www.bloomberg.com/apps/news?pid=20601087&sid=aXZwBisa10zk&refer=worldwide Obama May Find Anger Over Bonuses Backfires on Agenda (Update1)
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By Hans Nichols
March 18 (Bloomberg) -- President Barack Obama’s attempt to harness public anger over bonuses paid by American International Group Inc. may backfire on him as Republicans try to redirect that anger toward his administration.
Obama today defended Treasury Secretary Timothy Geithner against attacks by Republican lawmakers, some of whom have threatened to block any more bailouts of struggling companies. The president said Geithner has been making “all the right moves” in dealing with AIG and the financial crisis.
The public furor over the $165 million in bonuses AIG handed out to employees gives administration critics a new weapon to thwart Obama’s agenda, from his budget to plans for financial-market regulation. It’s also sparking a new round of legislative proposals to penalize -- and potentially tax -- executives who receive bonuses at rescued companies.
“Two weeks ago, the president’s spokesman said they were confident that they knew how every dime was being spent at AIG,” House Republican Leader John Boehner of Ohio told reporters yesterday. “They didn’t know what they were talking about,” Boehner said.
“This is outrageous, and I think the American people are rightly outraged.”
Republican leaders in Congress said Geithner and White House officials should have been aware of the bonuses sooner and acted quicker. They’re also seizing on AIG’s revelations as fresh evidence that Congress should oppose future rescues.
‘No More Bailouts’
Representative Mike Pence of Indiana, the third-ranking Republican in the House, said the party’s first step should be to say “no more bailouts.”
Geithner told congressional leaders yesterday he will ensure taxpayers aren’t footing the bill for the AIG bonuses and indicated the firm’s “wind down” may accelerate.
“We will continue our aggressive efforts to resolve the future status of AIG in a manner that will reduce systemic risks to our financial system while minimizing the loss to taxpayers,” he wrote in a letter to House Speaker Nancy Pelosi and other lawmakers. “We will explore any and all ways to accelerate this wind-down process,” he said, referring to the restructuring that’s already taking place at the insurer.
He said the government will force AIG to pay the Treasury the amount of retention rewards just doled out.
‘Unacceptable Bonuses’
White House Press Secretary Robert Gibbs said Geithner reached out to AIG Chief Executive Officer Edward Liddy last week “to communicate what we thought were outrageous and unacceptable bonuses.” Congress shouldn’t “doubt the genuineness” of the administration’s outrage, Gibbs said.
Geithner first learned of the bonuses on March 10 and spoke with Liddy the next day, according to an administration official, who requested anonymity.
Obama was informed of the bonuses on March 12, before they were paid. After the funds were disbursed, the president ordered his economic and legal teams to determine if there was a way to recoup the money, according to the aide.
Obama said today the bonuses show the need for a “resolution authority” to oversee institutions that get bailouts. Such an authority would have power similar to that which the Federal Deposit Insurance Corp. has over banks, Obama said at the White House before leaving for a two-day trip to California.
Lawmakers are already moving quickly to take the initiative in responding to the public outcry. Montana Democrat Max Baucus and Iowa Republican Charles Grassley, the leaders of the Senate Finance Committee, proposed taxes totaling 70 percent on companies and individuals getting bonuses at firms that receive federal aid.
Seeking Alternatives
The tax would apply to bonuses over $50,000 paid out beginning on Jan. 1, 2009, and to the full amount of any retention bonuses, the two senators said.
Pelosi directed House committees to draft several alternatives and said her chamber may consider a bill as early as this week. Other lawmakers introduced their own plans.
Republican Senate leader Mitch McConnell of Kentucky said the Obama administration needs to provide a “full explanation” about how $30 billion in new government aid was approved by the Treasury Department earlier this month for AIG, yet officials “didn’t have any idea that this outrage was going to occur.”
“That’s the question that needs to be answered today,” McConnell said in an interview. “What I’d like to know first is how it happened, when we had extraordinary leverage a mere two weeks ago when we handed over $30 billion.”
Bully Pulpit
Obama aides said that in addition to exploring legal options on how to recoup the AIG bonuses, the president will rely on the bully pulpit to press financial companies to behave more responsibly.
Wall Street is plagued by a “bit of myopia,” David Axelrod, a senior adviser to the president, said in a Feb. 16 interview. “I am not sure everyone gets it, why people are so angry.”
Obama, 47, must now “play defense on economic populism,” said pollster John Zogby. That can be a “deadly” posture in American politics, Zogby said.
“We are not a hate-the-rich country,” he said. “There’s got to be a fine line here between going after the rich versus going after the venal greedy.”
Scott Reed, a Republican strategist, said the party will try to take advantage of the bonus issue to weaken the president.
“The real target for the Republicans is to bring Obama back down to earth,” Reed said. “The AIG issue over bonuses lies at his feet.”
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[email protected]Last Updated: March 18, 2009 14:21 EDT
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