WASHINGTON — U.S. President Barack Obama on Monday said the White House is exploring "every legal avenue" to block $165 million U.S. in bonuses to employees at American International Group, the giant Wall Street insurer at the heart of the nation's financial crisis.
Amid a growing public backlash toward AIG — which has received $170 billion U.S. in federal bailout funds — Obama said the lavish compensation payments are an insult to American taxpayers increasingly struggling with financial hardships of their own.
"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama told a group of small business owners at the White House.
"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?"
Obama's remarks were his first since revelations over the weekend that AIG planned to proceed with bonus payments — ranging from $1,000 to $6.5 million — to about 400 employees in its financial products unit. That's the division of the company that brought the firm — and the entire U.S. financial industry — to the edge of collapse last September with huge losses on risky financial derivative products such as credit-default swaps.
AIG has been the biggest federal bailout recipient, and reported a $61.7-billion loss in the fourth quarter of 2008, the largest shortfall in U.S. corporate history.
AIG chief executive Edward Liddy has defended the bonus payments as necessary to "retain the best and the brightest talent" from leaving the company.
But with the bonus payments threatening to derail support for Obama's economic recovery agenda, the president said the interests of U.S. taxpayers — who now own almost 80 per cent of AIG — must come first.
The president said he has instructed Treasury Secretary Timothy Geithner to "pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Geithner initially had told AIG the bonuses were unacceptable, and pressured Liddy to slash payments to the top 50 AIG executives by half.
He ultimately concluded, however, that the Obama administration could do little to stop all bonuses, because the firm was under contract with its employees to make the payments.
Robert Gibbs, the White House press secretary, said one option under consideration is to require repayment of the bonuses as part of a recently-announced agreement to provide AIG with another $30 billion in loans.
Separately, New York Attorney General Andrew Cuomo threatened to subpoena AIG executives unless they provided the names, titles and salaries of employees receiving the payments.
"Taxpayers of this country are now supporting AIG, and they deserve, at the very least, to know how their money is being spent," Cuomo wrote.
The AIG bonus controversy holds huge political risks for Obama, who may need to seek approval from Congress for adding funds to bail out Wall Street firms before the financial crisis is over.
With Americans already angry over myriad earlier controversies involving Wall Street excesses, the White House may find it immeasurably more difficult to convince lawmakers to proceed with even more assistance to the financial industry.
Obama said it's time for Wall Street to demonstrate it understands the depths of the U.S. recession, and its own responsibility to sacrifice alongside ordinary Americans.
"This isn't just a matter of dollars and cents. It's about our fundamental values," he said.
"All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-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."
Almost from the day Obama was sworn in as president, the White House has clashed with Wall Street over how to stabilize the U.S. financial industry.
In February, Obama imposed a $500,000 cap on salaries for executives at financial firms receiving money from the Troubled Asset Relief Program (TARP) — a move Wall Street said would drive off talented managers.
At times, Wall Street has seemed almost oblivious to public sentiment.
AIG, for example, sent executives on a $440,000 California spa retreat, and an $86,000 partridge-hunting expedition in England last fall at the same time the company was receiving federal loans.
The White House also expressed growing frustration Monday that leading U.S. banks have done little to unfreeze credit markets, despite the approval of the $700-billion TARP plan.
On Monday, Obama and Geithner announced plans to force the nation's top 21 to report each month on how much money they've lent to small businesses. All remaining banks will be required to make quarterly reports on small-business loans.
"When banks individually pull back, out of a sense of prudence and caution, the collective impact of those actions will make the economy weaker," Geithner said.
"Many banks in this country took too much risk, but the risk, now, to the economy, is that you will take too little risk."
Democratic leaders in Congress, meanwhile, called for heads to roll at AIG over the bonus controversy.
"These people may have a right to their bonuses — they don't have a right to their jobs forever," Representative Barney Frank, chairman of the House Financial Services Committee, said on NBC's Today Show.
Frank said the bonuses "reward incompetence," and "maybe it's time to fire some people," instead of paying them more.
"Forget about the legal matter here, for a second," Frank said. "These bonuses are going to people who screwed this thing up enormously, who made terrible decisions."
AIG revealed on the weekend it spent more than $75 billion of U.S. taxpayers' money to pay bills it owed to dozens of American and foreign banks, among them, the Bank of Montreal.
