Sunday March 15, 11:16 PM
Millions in AIG bonuses fuel political storm
By Jitendra Joshi
WASHINGTON (AFP) - President Barack Obama's top economic advisers Sunday blasted AIG as the bailed-out insurance giant readied to hand out millions in bonuses to top executives, but said their hands were tied.
Lawrence Summers, director of the White House's National Economic Council, said Treasury Secretary Timothy Geithner had "scaled back" the bonuses but that the administration could only go so far.
"The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous," he told CBS (NYSE: RBV - news) program "Face the Nation."
"Secretary Geithner has negotiated very forcefully with AIG. And he has done everything that is legally permissible for the government to do to limit the payment of bonuses."
"But where there are contracts, binding contracts that were entered into long before the government put any money into AIG -- we're not a country where contracts just get abrogated willy-nilly," he added.
"And if we were to start doing that, there would be potentially very, very destabilizing consequences."
The Wall Street Journal said Sunday that government-appointed AIG boss Edward Liddy was paying 450 million dollars to executives at a London-based financial products division blamed for the insurer's fall from grace.
In a letter to Geithner Saturday, Liddy said the bonuses could not be cancelled 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.
In a separate interview on ABC's "This Week," Summers appeared to lend some credence to that argument.
"There is one other reality we have to recognize, which is that these companies have to be enabled to function if the government is going to maximize the prospect of getting its money back," he said.
But news of the bonuses will not help the Obama administration garner public support for new bailout funds for the stricken financial industry.
Massive losses at the London division have forced the US government to pump some 150 billion dollars into the crippled American International Group (NYSE: AIG - news) , and on March 2, it unveiled another emergency injection of 30 billion dollars.
The revamped bailout came as AIG announced a quarterly loss of 61.7 billion dollars -- the biggest ever for a US firm in one quarter -- pushing up its net loss for 2008 to 99.3 billion dollars.
In a rare television interview broadcast late Sunday with CBS program "60 Minutes," Federal Reserve chairman Ben Bernanke condemned AIG's "unconscionable bets" and acknowledged public anger against the company.
More generally, Bernanke called on bonus-fueled Wall Street executives to recognize that "the era of this high living, this is over now."
A week after taking office on January 20, Obama rebuked Wall Street titans who raked in millions in bonuses while being bailed out by taxpayers as "shameful" and guilty of acute "irresponsibility."
Christina Romer, chairwoman of the White House Council of Economic Advisers, said "we are the first people to be angry" about the AIG bonuses.
"Secretary Geithner has been furious and has been pushing back, urging them to renegotiate this. We are pursuing every legal means," she said on NBC's "Meet the Press."
Condemnation of the planned bonuses came from both sides of the political aisle.
"It is an outrageous situation," Senate Republican leader Mitch McConnell told ABC, while accusing the Obama administration of dodging its own culpability.
"And for them to simply sit there and blame it on the previous administration or claim contract -- we all know that contracts are valid in this country. But they need to be looked at."
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