- The Washington Times - Tuesday, March 17, 2009

UPDATED:

President Obama, seeking to quell anger from taxpayers whom he soon may have to ask to support another bailout, on Monday called for trying to block the $165 million in bonuses that American International Group paid to reward top executives even after taking billions of government bailout dollars.

Mr. Obama called the move an “outrage,” but administration officials spent hours Monday attempting to explain why Treasury Secretary Timothy F. Geithner gave AIG a new payout this month even though the bonuses had been on the books since last year.

At the same time, the Obama administration offered new help to community banks to get small-business loans flowing, saying the nation’s shops and restaurants will be the ones to lead the country out of the recession.

Joining the chorus of enraged Capitol Hill lawmakers, Mr. Obama said that given the “substantial sums” AIG has received in government bailout money - upward of $170 billion - he has directed Mr. Geithner to use the funds as “leverage” and to pursue “every single legal avenue” to get around contracts to block the bonuses.

He said AIG’s woes are “due to recklessness and greed,” and Sen. Charles E. Grassley, Iowa Republican, suggested that AIG executives should follow “the Japanese example” by publicly apologizing and “do one of two things: resign or commit suicide.” Grassley spokesman Casey Mills later told reporters that the senator “doesn’t want U.S. executives to do that,” but said those who accept tax dollars and spend them on travel and bonuses do so irresponsibly.

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” Mr. Obama said. “I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?”

A CBS News poll shows just 37 percent of Americans approve of government bailouts of banks and financial institutions, while 53 percent disapprove, the highest number CBS has found since it began the poll in December.

White House press secretary Robert Gibbs said Treasury is “looking through contracts to see what can be done to wrest these bonuses from their recipients,” but no one in the administration would promise that the executives would have to return the money.

Mr. Gibbs repeatedly told reporters that the bonuses were granted before the government created the Troubled Asset Relief Program and said it may be tough to call back the bonuses.

Instead, Mr. Obama may “change the rules of the road going forward,” Mr. Gibbs said. The president pointedly mentioned that AIG’s new chief executive, Edward Liddy, took over after the bonuses were put into place.

“We can’t change everything in the past,” he said. “We will do all that we can - the president has asked the administration to look and see what possible remedies there are. But we’re also focused on ensuring that the actions we take are consistent with changing the way we do business here in Washington.”

On March 2, the government gave AIG another $30 billion in bailout funds. AIG was scheduled to pay out $165 million in bonuses Monday, from about $450 million it plans to distribute to about 400 employees in its Financial Products division, according to Bloomberg News.

AIG commanded attention on both ends of Pennsylvania Avenue.

House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, said Congress should “re-examine” laws that allow the Federal Reserve Bank to lend money without congressional approval, as was the case with AIG’s initial $85 billion Treasury loan.

Mr. Frank said that because the federal government assumed an 80 percent interest in the company as a condition of its loans, the executives’ bonuses make it appear that the government is rewarding incompetence.

Congress is preparing to tackle the difficult task of figuring out what to do with the so-called “toxic debt” weighing down financial giants staggered by the subprime-loan crisis. Mr. Obama’s proposed federal budget includes $750 billion designated for a possible bank bailout.

Senate Minority Leader Mitch McConnell, Kentucky Republican, called the AIG bonuses “appalling” and “disturbing,” while House Speaker Nancy Pelosi, California Democrat, said Congress will “demand answers” if AIG persists in paying the bonuses.

Also Monday, New York Attorney General Andrew Cuomo said he will issue subpoenas to get executive names and their bonus amounts from AIG after the insurance giant failed to comply with his request.

The president made his comments about AIG at an event with community lenders and small businesses to announce a $15 billion plan to get credit flowing.

Under the plan, the government this month will make direct purchases of securities backed by small-business loans and buy new securities so community banks and credit unions will offer new loans.

They also will offer higher loan guarantees and temporarily eliminate fees, with the goal of boosting confidence and getting more loans out the door quickly.

The White House noted that small businesses have created 70 percent of the new jobs over the past decade, and said the U.S. Small Business Administration is reporting the year is on track for less than $10 billion in new lending, half the typical annual total.

Senior administration officials said the action was needed because SBA loans were down 57 percent in the fourth quarter last year and are probably going to be worse this quarter.

“This was going to take too long if we did not act quickly,” an official said, predicting the move would instantly create liquidity and revive markets.

Cam Fine of the Independent Community Bankers of America, at the White House to support the president’s plan Monday, agreed it would be a “jolt in the arm” for Main Street America, and said he expects “hundreds and hundreds” of loans to start moving.

During the event, Mr. Geithner offered what he said should be a “clear message” to the nation’s banks, saying their role in the financial crisis means “you bear a special responsibility for helping America get out of it.”

He said banks must “go the extra mile,” especially since the government has afforded “extraordinary protections” to them this year.

“We need you to put that assistance to work,” he said. “The risk now to the economy is that you will take too little risk.”

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