The US president is outraged at AIG's attempts to hand out millions of dollars of bailout money to its executives.
Obama vows to block AIG bonuses
WASHINGTON // President Barack Obama called AIG reckless and greedy during a blistering attack in which he pledged to try to block the insurance giant from handing its executives millions of dollars in bonuses after taking billions in federal aid. The White House said it's looking at restrictions on US$30billion (Dh110bn) in taxpayers' money approved to help the American International Group as the administration tries to reclaim or block the huge bonuses the struggling company awarded its executives.
Mr Obama joined other officials in criticising AIG, the company that has quickly become the symbol for the ways in which America's federal bailouts have gone awry. Mr Obama expressed outrage at reports that AIG went ahead with $165m in bonuses even though the company received more than $170bn in federal rescue money. Mr Obama directed the Treasury Secretary Timothy Geithner to see whether there was any way to retrieve or stop the bonus money - a move designed as much for public relations as for public policy.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" the president asked. "This isn't just a matter of dollars and cents. It's about our fundamental values." A public backlash against Washington over the bonuses would make it tougher for Mr Obama to ask Congress later for more bailout help - and jeopardise other parts of the recovery agenda that has dominated the early weeks of his presidency.
With that in mind, the president and his top aides were working hard to distance themselves from the insurer's conduct, to contain possible political damage and to try to bolster public confidence in his administration's handling of the broader economic rescue effort. Bailout steps for AIG totalling more than $170bn since September have effectively left the federal government with an 80 per cent stake in the faltering insurance giant.
The financial bailout programme remains politically unpopular and has been a drag on Mr Obama's new presidency, even though the plan began under his predecessor, President George W Bush. The White House is aware of the nation's bailout fatigue; hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price. David Axelrod, a senior adviser to the president, said there was no question the public's anger over the bonuses could derail administration efforts to right the economy. "People are angry because they've seen exhibit after exhibit of irresponsibility and people walking away with money in their pockets," Mr Axelrod said. "It's undermined the discussion that we have to have."
News that AIG still needs billions in taxpayer dollars to prevent a collapse did little to build public confidence, Mr Obama aides acknowledged. Seeking to turn the public tide, the White House spokesman Robert Gibbs aggressively criticised AIG and said administration officials were working to put strict limits on the next $30 billion instalment bound for the company. "Treasury has instruments that can address the excessive retention bonuses, and add provisions to ensure that taxpayers are made whole," Mr Gibbs said.
Mr Obama had scheduled a speech Monday to announce new help for recession-pounded small businesses, but first used the occasion to tear into AIG. "This is a corporation that finds itself in financial distress due to recklessness and greed," he declared. Mr Axelrod called the bonuses "spectacularly tone-deaf." He said that the administration hoped the tough talk would result in voluntary action on the part of AIG and its bonus recipients, although that remains an open question. "All we can do is administer this thing going forward," he said.
A call to AIG's corporate headquarters in New York seeking comment was not returned immediately late Monday. In a letter to Geithner over the weekend, the government-appointed chief executive of AIG, Edward Liddy, said the bonuses were legally binding obligations and the firm's "hands are tied." On a separate track, New York Attorney General Andrew Cuomo said he would issue subpoenas for information on the bonuses after AIG missed his deadline for providing details. Mr Cuomo said his office would investigate whether the employees receiving bonuses were involved in AIG's near-collapse and whether the $165m in bonus payments were fraudulent under state law. The AIG spokeswoman Christina Pretto said, "We are in contact with the lawyer general and will of course respond to his request."
Mr Obama's sharp words continued an insistent administration drumbeat over the past few days designed to pressure the bonus recipients to forgo them. Pressure was building on that issue - and on the government to rework its AIG bailout to make sure the company repays as much of the $170bn as possible. So far, the company has been honouring its contracts with US and foreign banks. The government agreed to uphold those contracts when it seized control of AIG in September, contending that failure would bring even worse global economic problems. Mr Obama was planning an appearance later in the week on Jay Leno's NBC talk show, perhaps to add a lighter touch to his efforts to show himself in command of efforts to resuscitate the economy.
The AIG bonuses were revealed at the weekend. It also was disclosed that AIG used $90bn-plus in federal aid to pay foreign and domestic banks, some of which had received their own multibillion-dollar US government bailouts. The recipients included Goldman Sachs, at $12.9bn, and three European banks - France's Société Générale at $11.9bn, Germany's Deutsche Bank at $11.8bn, and Britain's Barclays PLC at $8.5bn.
Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans and which is now part of Bank of America, had received $6.8bn as of Dec 31. The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions. The AIG news overshadowed what Mr Obama's aides had hoped to spend the first part of the week discussing: billions of dollars to help the nation's small businesses in the hopes of getting credit flowing again.
Mr Obama heaped praise on the small businesses of American industry, often overshadowed in the blitz of government bailouts. Mr Obama's latest plan allows the government to spend up to $15bn to buy the small-business loans that are now choking community banks and lenders. That, in turn, could allow those banks to start lending money again to small companies to invest, pay bills and stay afloat. "You deserve a chance. America needs you to have a chance," Obama said in an appeal to all those who run small businesses or hope to one day. Small businesses have created about 70 per cent of the new jobs over the past decade, and as their credit lines have dried up, so has their ability to thrive or survive.
On Capital Hill, the House Republican leader Rep John Boehner was unmoved. He called Mr Obama's White House event "simply an attempt to provide political cover for the job-killing burden the president's budget would place on our nation's small businesses".