Faced with a growing chorus of national outrage, the Obama administration has changed its position regarding the $165 million in bonuses that AIG is distributing to the small group of employees whose risky trades brought the company to the brink of collapse. President Obama today excoriated AIG, saying the company was in its present position because of "recklessness and greed":
"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession.
"How do they justify this outrage to the taxpayers who are keeping the company afloat," the president said.
Obama stated that Treasury Secretary would "pursue every legal avenue to block these bonuses and make the American taxpayer whole," and a White House official told the Wall Street Journal that the Treasury will use a planned $30-billion infusion as a lever to force AIG to replay the bonuses.
However, the administration knew about these bonuses and, while outraged, seemed initially resigned to the idea that they could not force AIG to halt the bonuses because the company was "contractually obligated" to pay them. The New York Times reports in their story from Saturday night:
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them...
...The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.
Indeed, one of Obama's senior economic advisers, Larry Summers, went on the ABC Sunday talk show "This Week" to reiterate this very point, saying, "We are a country of law. There are contracts. The government cannot just abrogate contracts."
The AIG bonuses dominated the Sunday talk shows, however, and there was such bipartisan anger at the company that the chorus demanding AIG either halt the bonuses or the government should step in and force a halt to the payments began to sound louder and louder.
Sunday night, the bipartisan rage against AIG had reached a boiling point. Monday morning, New York Attorney General Andrew Cuomo was issuing subpoenas to AIG and Rep. Barney Frank was calling for people to be fired. The populist backlash had reached a level which the Obama administration could not dismiss, and the result was the president promising to use every means available to stop AIG from paying out these bonuses.