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- Leaders of the White House economic team and the Senate's top Republican bellowed about bonuses at a bailed-out insurance giant and pledged to prevent such payments in the future.
From one Sunday talk show to the next, they tore into the contracts that American International Group asserted had to be honored, to the tune of about $165 million and payable to executives by Sunday — part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue.

AIG receives a fresh $30 billion infusion from the government's $700 billion financial rescue fund that it can draw upon as needed. AIG's credit line with the Fed was also cut to roughly $25 billion from $60 billion.

AIG has agreed to Obama administration requests to restrain future payments. Treasury Secretary Timothy Geithner pressed the president's case with AIG's chairman, Edward Liddy, last week.
"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," said Austan Goolsbee, staff director of President Barack Obama's Economic Recovery Advisory Board.
"I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people, and we've done exactly what we can do to prevent this kind of thing from happening again," Goolsbee said.
Added Lawrence Summers, Obama's top economic adviser: "The easy thing would be to just say ... off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."
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Summers said Geithner used all his power, "both legal and moral, to reduce the level of these bonus payments."
The Democratic administration's argument about the sanctity of contracts was more than Senate Republican leader Mitch McConnell of Kentucky could bear.
"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," McConnell said. "Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place? I think it's an outrage."

Many companies that have received bailout funds, including AIG, have faced increased scrutiny for how they spend the cash. Click through the gallery for stories on how some spending is raising eyebrows.

In an interview that aired Sunday on CBS' "60 Minutes," Federal Reserve Chairman Ben Bernanke did not address the bonuses but expressed his frustration with the AIG intervention.
"It makes me angry. I slammed the phone more than a few times on discussing AIG," Bernanke said. "It's — it's just absolutely — I understand why the American people are angry. It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets — that was operating out of the sight of regulators, but which we have no choice but to stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy."
AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.
In a letter to Geithner dated Saturday, Liddy said outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.
Liddy said in his letter that "quite frankly, AIG's hands are tied," although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.
Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.
The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
Goolsbee acknowledged the AIG example could make it harder to sell the administration's financial plan to Congress.
"Yes, you worry about that backlash. But you're also angry that this would happen at an institution that has been so troubled and you're trying to save. So I think that's perfectly fair," he said.
Goolsbee appeared on "Fox News Sunday," and Summers was on CBS' "Face the Nation" and ABC's "This Week," where McConnell also was interviewed.

frigidmagi wrote:Now, now Nitram, you owe these guys. Because of behavior like this, I'm ready to support massive nationalization. You wouldn't get that normally.

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Not that anything about this situation is normal.

“On the one hand, all of us at A.I.G. recognize the environment in which we operate and the remonstrations of our President for a more restrained system of compensation for executives. On the other hand, we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses — which are now being operated principally on behalf of the American taxpayers — if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

Summers defends White House response to AIG bonuses:

WASHINGTON (CNN) -- With outrage mounting over AIG's $165 million in bonuses to executives, the president's chief economic adviser offered a new line of defense for the White House in an exclusive interview with CNN.

Larry Summers suggested that if Treasury Secretary Timothy Geithner had pushed the insurance giant too hard on the bonuses, AIG could have collapsed just like Lehman Brothers and sparked an even bigger crisis.

"Secretary Geithner has used all the legal authorities that are open to him to contain and limit the payment of bonuses," said Summers, chairman of the National Economic Council. "What he did not do, and what would have been irresponsible to do, as outrageous as these payments are, would have been to put at risk the stability of the financial system.

"To have courted the kind of disaster that followed the decision to let Lehman Brothers simply collapse might have felt good briefly, but it would have touched the lives of a huge number of Americans who would have unnecessarily become unemployed or seen destruction of their lifetime savings."

The collapse of the 158-year-old investment bank in September turned the U.S. crisis, based on the subprime loan debacle, into a global one, leading to credit freezes and plummeting markets nearly everywhere.

Summers said Geithner was notified about the AIG bonuses last week. The secretary tried to stop them, Summers said, but ran up against a legal contract.

"Secretary Geithner courageously has gone after these bonuses and will continue to go after these bonuses in a very aggressive way, but we can't suspend the rule of law and we can't put the whole economy at risk," said Summers.

Asked whether AIG could get more bailout funds down the road, Summers suggested the door is open to more taxpayer money, despite the bonus controversy. Video Watch senators' plan to retrieve money »

"It is wrong to govern out of anger," said Summers. "We have to recognize what we are angry about, do something about it. That's why we are focused on a new resolution regime as part of a sweeping overhaul of the financial system.

" ... But we can't let anger stop us from taking the steps that are necessary to maintain the stability of the financial system, keep credit flowing." Video Watch tempers rise over bonuses »

Summers said President Obama's entire economic team is working hard to mitigate the problems caused by bank failures, bailouts and credit freezes and boost the country's economy.

"There's one lesson of the history of financial crisis that no one can argue with, and that is that they all end, and this one will, too," he said. "And if we are able to maintain the right policies, we'll bring forward the day when it ends, and -- probably even more important -- we'll have a sounder stronger economic expansion at the end of it."

The former treasury secretary is not quite as bullish about a turnaround, however, as Federal Reserve Chairman Ben Bernanke, who predicted the recession may be over by the end of 2009.

Asked about Bernanke's prediction, Summers said he was upbeat about some aspects of the economy -- such as a 22 percent spike in housing starts and recent upticks in the stock market -- but said he was cautious about making any grand pronouncements.

Summers told CNN that while he's confident of a turnaround, "just what day the turn will come isn't something that I would dare to forecast."

"Something that the president has made clear to us is his approach and the approach he wants us to take is a recognition that we don't panic when there's a bad number, bad day on the markets, and we don't become euphoric when there's a good day in the markets, or a good number," Summers said.

Asked specifically about Bernanke's prediction on CBS' "60 Minutes" about the recession ending this year and 2010 potentially being a year of recovery, Summers demurred.

"We always are at pains to recognize when we talk to the president that economic forecasting is the most imperfect of sciences," said Summers. "Many people would say it wasn't a science at all. We stress the uncertainties in this situation."