'Outraged' Obama lashes out at AIG bonuses
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US President Barack Obama, who denounced the bonuses of bailed-out insurer AIG's executives and traders as "outrageous" on Monday, vows to block them. But, legally, the US administration has little power to do so.
AFP - President Barack Obama Monday ripped into bailed-out company AIG, vowing to block multi-million-dollar bonus payouts by the giant insurer as public anger builds against Wall Street excess.
Conscious of the potential backlash as his administration readies new support for the financial industry, Obama said the planned bonuses for executives and traders at American International Group were an "outrage."
"This is a corporation that finds itself in financial distress due to recklessness and greed," he said, in a rare flash of public anger, at a White House event with owners of small businesses.
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less 165 million dollars in extra pay," Obama said, after details of the payouts emerged over the weekend.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, adding half in jest that "I'm choked up with anger here" as his voice caught at one point.
On Sunday, administration officials said there was little that Treasury Secretary Timothy Geithner could do legally to stop the bonuses, because they were promised under AIG employment contracts before the insurer was bailed out.
But Obama, noting the substantial government support extended to AIG, said: "I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
Massive losses at a London trading division have forced the US government to pump some 150 billion dollars into the crippled AIG. On March 2, it unveiled another emergency injection of 30 billion dollars.
According to widespread reports, the bonuses are largely going to traders at the very London-based financial products unit that is blamed for AIG's spectacular fall from grace.
AIG was deemed by the US government to be too big to fail, given the intricate web of ties it built with other financial institutions after underwriting their riskier investments in the tanking property market.
Obama said that underlined the need for Congress to pass new financial regulation "so we don't find ourselves in this position again."
He called for "some form of resolution mechanism in dealing with troubled financial institutions, so that we've got greater authority to protect American taxpayers and our financial system in cases such as this."
The president, while noting that current AIG boss Edward Liddy only took over last year after the employment contracts were drawn up, said the bonus controversy "isn't just a matter of dollars and cents."
"It's about our fundamental values," he said to applause from the small-business owners, whom Obama lauded for struggling to keep their companies afloat "without the benefit of government bailouts" or hefty 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 have to demand."
In a letter to Geithner Saturday, Liddy said the bonuses could not be canceled due to the threat of lawsuits for breach of employment contracts, and that AIG risked an exodus of senior employees if it does not pay them out.
But the row will do nothing to improve the political environment for government support for Wall Street firms.
The US government has already extended 700 billion dollars in bailout money, and more is possible as the Obama administration readies a new program of support to help banks clean out their toxic assets.
Richard Shelby, the senior Republican on the Senate's powerful banking committee, said he hoped that Congress would block further aid to AIG.
"A lot of these people should be fired, not awarded a bonus. This is horrible. It's outrageous," he said on ABC television.