AIG Complicates Obama's Strategy

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Even before the latest flap over bonuses at AIG, the Obama administration appeared torn between attacking and defending some of the financial entities it needs to prop up in order to secure economic recovery.


And now to the political backlash from the AIG bonuses. That wave of populist outrage we mentioned earlier? It's threatening to undermine support both for future bailouts and other parts of President Obama's agenda. NPR's national political correspondent Mara Liasson reports now from the White House.

MARA LIASSON: A wave of populist anger is hard to surf, even for a politician born and raised in Hawaii. You want to be one step ahead of the backlash or else you'll be washed away, too. President Obama has been struggling to get out in front of the tide of criticism over AIG.

President BARACK OBAMA: I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?

LIASSON: That was President Obama yesterday. The president is so unflappable, so known for his even keel, that anger can seem like a foreign emotion. And yesterday, he did let the stage directions show just a little bit as he explained why the AIG scandal underscored the need for an overhaul of financial regulations.

Pres. OBAMA: So we've got greater authority to protect American taxpayers and our financial system in cases such as this. Now we already have resolution authority.

(Soundbite of President Obama coughing)

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

(Soundbite of laughter)

LIASSON: This was not the same message sent by his aides the day before, as they fanned out on the Sunday shows to say there was really nothing they could do to stop the bonuses. Now, the president has told his advisers to go back and try again. Meanwhile, Congress was in the grip of a full-blown pitchfork rebellion, with one Republican senator suggesting the AIG execs commit hara-kiri and the Senate majority leader, Democrat Harry Reid, predicting that Congress would certainly force AIG to pay back the bonuses, possibly through some kind of excise tax.

But the biggest problem for the president is more political than legal: How can he get Congress to agree to the hundreds of billions he'll probably need in additional bank bailout funds after this? There's real bailout fatigue on Capitol Hill. The last $350 billion of bailout money was approved before Mr. Obama took office, and it barely squeaked through the Senate on a 52-42 vote, with nine Democrats voting no. The AIG scandal has also emboldened Republicans to step up their attacks on Mr. Obama's budget as nothing but tax, spend and borrow. Today, the president pushed back against that criticism.

Pres. OBAMA: If certain aspects of this budget, people don't think work, provide us some ideas in terms of what you'd do. Just say no is the right advice to give your teenagers about drugs; it is not an acceptable response to whatever economic policy is proposed by the other party.

LIASSON: But, says economist David Smick, the populist backlash is imperiling the Obama budget in more ways than one.

Mr. DAVID SMICK (Economist): It's a horrible situation for this reason: His budget really depends on a pretty powerful economy, next year and for the next three years after this year, with average growth of about 4 percent. If he can do that, then the budget deficits come back into line, and you don't have the Chinese terrified about buying our Treasury debt and all the rest. All this depends on Obama being able to fix the banks. And when you have this kind of populist monster out there that's just getting larger and larger, it's very, very difficult for him to come in and say, well, I have a plan and it's going to require sacrifice.

LIASSON: That sacrifice will mean hundreds of billions in additional dollars from taxpayers to fix the banks, some of which might be seen going to individual bankers. So Mr. Obama must convince Americans that the alternative -letting the big banks fail - would lead to a global financial collapse that hurts everyone, even as he tries to prove the bailout money won't be used again in a way that insults taxpayers' values. And there's more at stake than the financial system. It's the fate of President Obama's own domestic political agenda because without fixing the banks and the economy, he won't have the capital - political or financial - to achieve his plans for health care, energy or education.

Mara Liasson, NPR News, The White House.

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