The Obama administration and one of its key allies in Congress belatedly acknowledged Wednesday that they were responsible more than a month ago for clearing the way for large bonuses to be paid inside taxpayer-supported companies like AIG, undercutting the White House's attempts to distance itself from a growing political embarrassment.
Meanwhile, fresh evidence emerged that more largesse was about to be doled out to the government's hand-picked executives running the troubled mortgage giant Fannie Mae.
As outrage grew on Capitol Hill and among the public, President Obama tried to deflect blame while conceding "the buck stops" ultimately with him in ensuring future bonuses aren't paid at taxpayers' expenses. Lawmakers on Capitol Hill unleashed their fury on Edward Liddy, chief executive of American International Group Inc., for allowing $165 million in new bonuses to be paid to executives of the bailed out insurer.
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Mr. Liddy made a gesture in remorse, saying the company was already trying to get some of the executive to refund their bonuses, and that some had agreed to do so.
Revelations about backroom dealings last month on matters affecting the AIG bonuses came after Democrats engaged for much of the day in a furious round of finger-pointing, acknowledging that changes were made to the law but refusing for much of the day to say who specifically was responsible.
Sen. Christopher J. Dodd, Connecticut Democrat, said Democrats on Capitol Hill reluctantly agreed to the Obama administration's request to pull from the stimulus bill efforts to retroactively block bonuses of executives at companies saved by taxpayer dollars. The administration said it would trigger "a deluge of lawsuits." The measure passed Feb. 17 includes restrictions on bonuses in future bailouts.
"The administration had problems with that amendment, as others did as well," Mr. Dodd said during an interview on CNN. "They said, 'We'd like to modify that amendment.'"
Mr. Dodd argued that discussions between the Obama administration and his staff were focused on preserving " long-standing contracts."
"There were a lot of institutions, including small banks and some larger ones, that were concerned," Mr. Dodd said on MSNBC. "Nobody named AIG to me or my staff. At the time, it seemed relatively innocent."
The Treasury Department confirmed that it "flagged" the issue for Democratic lawmakers while the $787 billion stimulus was being hammered out, during a round of closed-door meetings between top congressional officials and senior White House representatives from which Republicans were excluded.
"They sent over the provisions and we said, 'You may run into lawsuits here,'" a Treasury official said on condition that he not be named talking about matters they were not authorized to address. "We flagged that for them and they made the change."
Mr. Obama, earlier in the day, praised Treasury Secretary Timothy F. Geithner for his handling of bailout and stimulus money, saying he has been "making all the right moves," despite a growing furor among Republicans and some outside groups that Mr. Geithner should have known about the $185 million in AIG bonuses far earlier than last week.
Administration officials told the Associated Press on Tuesday night that Mr. Obama was unaware of AIG's bonuses until Thursday, two days after Mr. Geithner.
Republicans and outside groups said the secretary should have known about the AIG bonuses from his time as governor of the Federal Reserve Bank of New York, which was involved in the government bailout of AIG. They also said he was deeply involved with negotiations over executive compensation with the Troubled Asset Relief Program, and could have found out about the bonuses before the government released an extra $30 billion to AIG several weeks ago.
"These bonuses had been there for a while and whether or not you believe Treasury knowing or not knowing, they should have known about it," said Bill Allison of the Sunlight Foundation, which is focused on bringing transparency to the government's economic rescue efforts.
Mr. Geithner "was much closer to the information than anybody else in the administration. It seems only reasonable that he would know about it," Mr. Allison said.
Mr. Geithner said in a letter to Congress on Tuesday that he learned of the bonuses last week and immediately "registered my strong objections" with AIG.
The growing blaze of fury threatened to singe and possibly engulf Mr. Geithner on Wednesday, as a few Republican lawmakers called for him to resign.
Mr. Obama, speaking at a town hall in California on Wednesday night, tried to soften the growing backlash against the bonus bonanzas by taking general responsibility for the problem.
"We didn't draft these contracts, we got a lot on our plate - but it is appropriate when you're in charge to make sure certain stuff doesn't happen like this," the president said.
He also told lawmakers in Washington to quit pointing fingers and instead work to prevent the corporate culture he said led to the Wall Street collapse and to those kinds of bonuses.
"Just go ahead and talk to me," he said. "My job is to fix these messes even if I don't make 'em."
Republicans, for their part, were less shy about assigning blame.
"We had an opportunity to fix this. It was in there and then it got taken out," said Julia Wanzco, a spokeswoman for Sen. Olympia J. Snowe, the Maine Republican who co-sponsored an amendment that would have taxed employee bonuses but was replaced by the Dodd amendment.
"If the administration wanted this amendment in the bill, it would have been included," Ms. Wanzco said.
Mr. Dodd said that Mr. Geithner may go back and try to confiscate the bonus money from AIG employees using language from his amendment that allows the secretary to examine whether compensation is consistent with the goals of the stimulus bill.
Other possible actions by Congress include empowering Attorney General Eric H. Holder Jr. to seek repayment from AIG, or taxing the AIG bonus money to force a repayment. There are questions, similar to the ones raised by the Obama administration, about whether this is legal or not.
But legal considerations have been secondary over the past three days to intense anger among lawmakers and ordinary Americans over the AIG bonuses, which are only the latest example of white-collar executives walking away with millions in taxpayer dollars from financial wreckage they helped create.
Also on Wednesday, Fannie Mae awarded $4.4 million in retention bonuses to four of its top six executives in 2008, including bonuses some during the final four months of the year when it was taken over by the Treasury, according to company filings with the Securities and Exchange Commission.
Fannie Mae's regulator defended the bonuses as a good investment for taxpayers on Wednesday.
"It's a reasonable and well-thought-out plan," said James Lockhart, director of the Federal Housing Finance Agency, in a speech in Washington. Keeping top caliber personnel of Fannie and Freddie Mac was critical when the two mortgage-finance companies were taken over in September, he said.
• Amanda Carpenter, Patrice Hill and Tom LoBianco contributed to this report.
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