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Anger Over Firm Depletes Obama's Political Capital

By Michael D. Shear and Paul Kane
Washington Post Staff Writers
Tuesday, March 17, 2009

President Obama's apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda.

Politicians in both parties flocked to express outrage over $165 million in bonuses paid out to executives at the company, demanding answers from the president and swamping yesterday's rollout of his efforts to spark lending to small businesses.

The populist anger at the executives who ran their firms into the ground is increasingly blowing back on Obama, whom aides yesterday described as having little recourse in the face of legal contracts that guaranteed those bonuses.

White House press secretary Robert Gibbs, peppered with questions about why the president had not done more to block the bonuses at a company that has received $170 billion in taxpayer funds, struggled for an answer yesterday afternoon. He explained that government lawyers are "looking through contracts to see what can be done to wrest these bonuses from their recipients."

Obama himself sought to channel the public's sense of disbelief yesterday. "How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, declaring the bonuses an "outrage" that violate "fundamental values."

White House aides grasped for actions that could soothe sentiment on Main Street and in the halls of Congress, where the fate of the new president's sweeping agendas on health care, climate change and education will be decided. They suggested that the government will use its latest pledged installment of $30 billion for the ailing company to recover the millions in bonuses paid Friday.

But the damage control did not seem to satisfy incredulous lawmakers in both parties, who said the image of financial executives taking huge bonuses from a taxpayer-funded rescue puts the president in a politically impossible position.

"I warned them this would be met with an unprecedented level of outrage," Sen. Christopher J. Dodd (D-Conn.), the chairman of the banking committee and part of a group of senators who pressed Treasury Secretary Timothy F. Geithner to stop the bonuses, said yesterday.

House Minority Leader John A. Boehner (R-Ohio) said the bonus issue added to his belief that there will be almost no Republican support for any expansion of a bank-bailout program that passed Congress last fall with broad bipartisan support.

"What is the government's exit strategy from this sweeping involvement in private business?" he asked in a statement, adding that "taxpayers are not receiving an adequate accounting from either the Treasury or the management of the companies that received taxpayer funds. Unfortunately, we have not yet seen such a plan."

The rhetoric grew so heated yesterday that Sen. Charles E. Grassley (R-Iowa) suggested in a radio interview that AIG executives ought to "follow the Japanese model . . . resign, or go commit suicide." An aide later explained he does not actually want executives to kill themselves.

More than 80 House Democrats signed a letter demanding that the money used to pay the bonuses be recouped from AIG. New York Attorney General Andrew M. Cuomo announced that he will subpoena the Manhattan-based company, seeking data documenting who received the bonuses and the justification for them.

"You could argue that if taxpayers hadn't bailed out AIG, the contracts wouldn't be worth the paper they were signed on," Cuomo said.

The Obama administration was already facing a skeptical public and members of Congress critical of the huge sums of money the government has allocated to shoring up the devastated financial system.

News of the latest AIG bonuses only compounded the political problems that the huge expenditures pose for the president. The administration has tried to manage the public anger by expressing empathy with the outrage over the large outlays to financial firms, while explaining that they are necessary to stabilize the economy.

Earlier this month, the administration added to the bailout money needed to keep AIG functioning, saying failure of the company would be disastrous for the larger economy. And the administration is all but certain to return to Congress for hundreds of billions of dollars more to aid the financial system.

But the bonus issue, in particular, is hounding Obama as he pursues his larger goals, in part because of the president's own repeated declarations of outrage -- offered again yesterday -- aimed especially at the firms that are feeding at the public trough.

In February, Obama announced tough new restrictions on executive compensation that promised an end to massive salaries for executives of failing companies. Similar rules were eventually written into legislation and hailed as evidence that executive compensation would be checked.

But reports about the latest AIG bonuses quickly undermined whatever political capital Obama has earned with his past efforts.

Over the weekend, White House officials expressed outrage at the bonuses paid out by AIG but said there was nothing they could do to stop them. After news of the bonuses dominated news coverage for two days, the administration took a newly aggressive stance.

Asked why the administration is attempting to claw back the bonuses now but did not do more to block the payments earlier this month when it was authorizing the latest $30 billion in new loans to the struggling insurer, Gibbs was unresponsive.

"The administration is taking the steps today to go back and see what can be done," he said.

Staff writers Michael A. Fletcher and Scott Wilson contributed to this report.

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