Harnessing public outrage over lavish bonuses for bailed-out executives at insurance giant AIG, President Obama said Monday that he will “pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”
Obama made his forceful remarks at a small-business event at the White House, following a weekend of heavy news coverage of the payments that fueled the populist backlash already building against bailouts for the wealthy.
“This isn’t just a matter of dollars and cents. It’s about our fundamental values,” Obama said.
“All across the country, there are people who work hard and meet their responsibilities every single day, without the benefit of government bailouts or multi-million dollar bonuses,” Obama said. “And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules.”
At one point, he ad-libbed after a cough, “Excuse me, I’m choked up with anger here.”
American International Group has received $173 billion in U.S. bailout funds, making it the largest single recipient. The company has said the bonuses, which came to light over the weekend, were required by contract and can’t be rescinded.
But administration and congressional officials are pursuing indirect ways to recover the roughly $165 million in bonuses.
Speaker Nancy Pelosi (D-Calif.) on Sunday called the bonuses "unconscionable."
House Financial Services Committee Chairman Barney Frank (D-Mass.) said on NBC's "Today" show that the bonuses amount to "rewarding incompetence” but acknowledged there might be no way to stop the payments.
“Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs," he said. "In high school, they wouldn't have gotten retention [bonuses], they would have gotten detention. ... These people may have a right to their bonuses. They don't have a right to their jobs forever."
Frank said that it was the Federal Reserve Board that gave AIG its initial government bailout, using a Depression-era statute. That happened before Congress passed legislation providing for additional assistance and said that not enough safeguards were built into the deal.
Even today, it was not immediately clear what leverage Obama or Congress has to recoup the payments.
AIG has agreed to Obama administration requests to cut back future bonuses. Geithner had pressed the president's case with AIG's chairman, Edward Liddy, last week.
"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," said Austan Goolsbee, staff director of Obama's Economic Recovery Advisory Board.
AIG is turning out to be one of the White House's biggest headaches. Allowing it to fail would send catastrophic ripples through the economy – because AIG’s complex insurance contracts are intertwined with almost every financial player in the global economy.
It is truly “too big to fail” – because it’s failure would mean that banks that are relying on AIG to back up their bad investments would suddenly be on the hook themselves. That’s why when the company first showed signs of stress last fall, the Bush administration was quick to move in to shore it up, arguing that the collapse of AIG could spark a world-wide calamity.
But in many ways, it’s also one of the hardest bailouts for Obama to defend – since it was AIG’s insurance policies on exotic investments that freed up banks to make some of their riskiest bets, bets that went sour and touched off the global meltdown.
AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.
Also adding t the political complications for Obama is a revelation Sunday that billions of American taxpayer dollars used to bailout AIG flowed to some of the largest foreign banks in the world. Some of the biggest recipients of AIG payouts were European banks, such as Societe Generale in France and Deutsche Bank of Germany, which got nearly $12 billion each.
In an interview aired Sunday on CBS's "60 Minutes," Federal Reserve Chairman Ben Bernanke said: "Of all the events and all of the things we've done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG."
"Here was a company that made all kinds of unconscionable bets," Bernanke said. "Then, when those bets went wrong, they had a-- we had a situation where the failure of that company would have brought down the financial system. ... I slammed the phone more than a few times on discussing AIG. ... I understand why the American people are angry."
Here is the president’s text:
Before I talk about the new steps we’re taking to get credit flowing to small businesses across our country, I want to comment on the news about executive bonuses at AIG.
This is a corporation that finds itself in financial distress due to recklessness and greed.
Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, AIG has received substantial sums from the US Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.
I know he’s working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year.
This isn’t just a matter of dollars and cents. It’s about our fundamental values.
All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules.
That is an ethic we must demand.
What this situation also underscores is the need for overall financial regulatory reform, so we don’t find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions, so we have greater authority to protect the American taxpayer and our financial system in cases such as this. We will work with Congress to that end.