White House Scolds AIG On Bonus Payout

  • Playlist
  • Download
  • Embed
    <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Pressured by demanding global financial markets and a populist backlash at home, President Obama unloaded on AIG executives Monday for keeping bonuses but extended an offer of help to small businesses.


It's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Renee Montagne. The economic news has not prevented Americans from feeling more optimistic or at least less pessimistic. That's one finding of a new NPR survey about two months after President Obama took office. We'll have more on that poll in a moment.

INSKEEP: First, we'll report on a political challenge for the new president. It's news that the insurance firm AIG paid big bonuses to executives after receiving a federal bail-out. The president delivered a public scolding to the company, which does not mean the executives will give the money back. Here's NPR's Scott Horsley.

SCOTT HORSLEY: President Obama says it was AIG's own recklessness and greed that brought the insurance company to its knees last fall and forced the government to step in with a rescue package that so far totals more than $170 billion. Given that history, the president asked, why should AIG executives get any reward, let alone $165 million in bonuses?

President BARACK OBAMA: I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat? In last six months, AIG has received substantial sums from the U.S. Treasury, and 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.

(Soundbite of applause)

HORSLEY: It makes for a good applause line. Although it's not clear whether the government can actually do anything about the bonuses. Over the weekend, the president's own advisors seem to agree with AIG's chief executive that the company is contractually obligated to make the payments, having committed to them before this financial collapse. White House spokesman Robert Gibbs said the president told his staff: go back and look again. Mr. Obama said yesterday, people across the country are working hard without bonuses or government bail-outs. All they want, he said, is to see that everyone plays by the same rules.

President OBAMA: What this situation also underscores is the need for overall financial regulatory reform, so we don't find ourselves in this position again, and 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.

HORSLEY: As an insurance company, AIG was not subject to the same kind of government regulation that a bank is. Lawmakers in Washington and in other countries are looking to change that. The thinking is that any company like AIG, with the potential to threaten the whole financial system, should be subject to stricter government oversight. The rattling of the financial system has made it harder for consumers and companies to get the credit they need. The government is already working to expand consumer credit, and yesterday the administration announced new steps to help small businesses get loans.

The government is planning to use $15 billion from its bank rescue fund to finance the effort. It's waiving up-front fees to make small business loans more affordable. And it's offering bigger government guarantees to encourage banks to lend more. Treasury Secretary Timothy Geithner told community bankers yesterday, he wants lenders to make regular reports so the government can make sure money is getting where it's needed.

Secretary TIMOTHY GEITHNER (Department of Treasury): We need our nation's bank to go the extra mile in keeping credit lines in place on reasonable terms for viable businesses. Many banks in this country took too much risk, but the risk now to the economy is that you will take too little risk.

HORSLEY: Boosting lending to small businesses is a way for the Obama administration to encourage job growth, since small businesses had been among the biggest job creators before the downturn. It's also a way for the president to show his populist side, like his broadside against the bonuses at AIG.

Scott Horsley, NPR News, Washington.

Copyright © 2009 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.

Outrage Over AIG Politically Tricky For Obama

From left: Sen. Mary Landrieu (D-LA), Treasury Secretary Timothy Geithner and President Obama i

From left: Sen. Mary Landrieu (D-LA), Treasury Secretary Timothy Geithner and President Obama meet with members of Congress and small-business leaders at the White House Monday. The president announced that he has asked Geithner to use all legal tools to block executives at AIG from receiving bonuses. Martin H. Simon/Pool/Getty Images hide caption

toggle caption Martin H. Simon/Pool/Getty Images
From left: Sen. Mary Landrieu (D-LA), Treasury Secretary Timothy Geithner and President Obama

From left: Sen. Mary Landrieu (D-LA), Treasury Secretary Timothy Geithner, President Obama and Cynthia Blankenship, co-founder of Bank of the West, meet with members of Congress and small-business leaders at the White House Monday. The president announced that he has asked Geithner to use all legal tools to block executives at AIG from receiving bonuses.

Martin H. Simon/Pool/Getty Images

Reaction was swift and visceral to the weekend news that insurance giant American International Group — a major government bailout beneficiary — paid out $165 million in employee bonuses.

Furious American taxpayers, struggling through the worst recession in decades, flooded congressional phone lines and filled chat rooms with "this is the last straw" righteous indignation.

And that was before the company revealed that it also sent billions in bailout money to foreign banks.

The ferocity of the AIG backlash — more than any event to date — appeared to have the potential to erode the president's good standing with the American people.

"This is a debit on the Obama administration," said Ruy Teixeira, a liberal thinker and author who studies political demographics. "But people generally feel that he's trying hard, and this — while it doesn't help — is unlikely to undermine that."

Mark Blumenthal of adds, "This has hit a nerve with Americans. And there's already quite a bit of survey results showing that Americans are highly distrustful of banks and of government doing too much for large banks and financial institutions."

Opening For More Regulation?

Blumenthal, however, is among those who believe that in the brouhaha, the president could well find an opportunity to tighten banking regulations.

A clear majority of Americans endorse stricter regulations, Blumenthal says. And when the word "nationalization" is stripped from the equation, a small majority of Americans say they favor temporary government takeovers of banks in danger of failing.

"The climate and this backlash have Americans ready to have their government increase their regulations," he says.

Obama on Monday channeled some of the national outrage over AIG and the seemingly endless bailout of banks to advance his policy plans for more vigorous Wall Street regulation.

"What this situation also underscores is the need for overall financial regulatory reform, so we don't find ourselves in this position again," Obama said, addressing a gathering of small business leaders at the White House.

Payouts Hard To Block

In a rapid and strategic move to tamp down the fallout, Obama also announced Monday that he has instructed Treasury Secretary Timothy Geithner to "pursue every legal avenue to block these bonuses and make the American taxpayers whole." Geithner last week had already confronted AIG chief Edward Liddy about the payouts. Liddy is expected to testify at a congressional hearing Wednesday on the bailout.

Experts say that the path to preventing the contractual bonuses is logistically and legally fraught — if not impossible — even though leaders on Capitol Hill are calling for the company to renegotiate the bonus agreements.

Because the agreements were made before the government bailout, they say it would very likely take nothing short of some moral enlightenment at AIG to keep the money in the bank, so to speak. (New York Attorney General Andrew Cuomo Monday tried to encourage that enlightenment, demanding that AIG make public the names of bonus recipients and the managers who approved them.)

But, politically, Obama had little choice but to take a hard public stand against the payouts: In the wake of bailouts and enormous market losses, he is set to embark on a crusade to sell to the American people a $3.6 trillion budget plan that would overhaul the nation's health and tax policies. And the president needs all the public support he can muster.

Bonus Blame Game

In its efforts to bar the bonuses, Obama says his administration will use as leverage the $170 billion — and counting — that the U.S. Treasury has already paid out to "rescue" AIG.

During a press conference Monday, White House spokesman Robert Gibbs said that the administration is looking into whether "taxpayer protection can be added" to rules regarding the drawing down of the latest $30 billion loan slated for AIG.

The company, which lost a record $62 billion last quarter, is now nearly 80 percent owned by the federal government.

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama said. "It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay."

The bonuses were contracted and the bailout plan devised and approved before Obama was elected (as senator, he voted in favor of the bailout).

Gibbs placed the blame on the Bush administration. He said Monday that the Obama administration is dealing with contractual obligations and responsibilities "we found when they gave us the key to the front door."

Loopholes And Other Legal Matters

Why would AIG go ahead with the bonus payments during this time of crisis?

Because every indication is that it can.

The bailout bill was approved last year at a time of crisis. The bill itself, says economist Paul Weinstein of the Progressive Policy Institute, lacked specifics, and legislators were fearful of a complete collapse of the banking system after the failure of Lehman Brothers and the demise of Bear Stearns.

Lawmakers "were just looking for a bill to stem the crisis," he says, and couldn't — or didn't — anticipate all future untidiness.

To bar the bonuses now, Congress would most likely have to pass a law. And that could set up a situation in which AIG employees end up suing for the bonuses — with taxpayer dollars used to defend the decision to withhold the payouts.

"Is that all worth it?" says Weinstein. "Or is it better to try to get out in front on this issue, and to say that we're not going to allow this to happen again?"

"Obviously, this is a tricky situation," he says.

Tricky, and clearly politically perilous.

The bonuses flap could allow Obama to distance himself from past Wall Street practices, but the president also has to show that he feels taxpayers' pain.

During Monday's meeting with small-business leaders, Obama coughed.

"Excuse me," he said. "I'm choked up with anger here."

At that moment, though his comment held a hint of humor, he spoke for the nation.



Please keep your community civil. All comments must follow the Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

NPR thanks our sponsors

Become an NPR sponsor

Support comes from