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WASHINGTON – President Barack Obama Monday vowed to block multi-million-dollar bonus payouts by bailed-out insurer AIG as he confronted intensifying public anger against Wall Street excess.
The controversy escalated as New York state Attorney General Andrew Cuomo started to slap subpoenas on American International Group, after the crippled firm ignored a Monday afternoon deadline to divulge details of the bonuses.
Conscious of the potential backlash as his administration readies new support for the financial industry, Obama said the planned bonuses for AIG executives and traders revealed over the weekend were an "outrage".
"This is a corporation that finds itself in financial distress due to recklessness and greed," he said, in a rare flash of public anger, at a White House event with owners of small businesses.
"Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less USD 165 million (EUR 127 million, CHF 195 million) in extra pay," Obama said.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, adding half in jest that "I’m choked up with anger here" as his voice caught at one point.
On Sunday, administration officials said there was little that Treasury Secretary Timothy Geithner could do legally to stop the bonuses, because they were promised under AIG employment contracts before the insurer was bailed out.
But Obama, noting the substantial government support extended to AIG, said: "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."
Massive losses at a London trading division have already forced the US government to pump some USD 150 billion into AIG, leaving the company 80 percent owned by the taxpayer.
On 2 March, the administration unveiled another emergency injection of USD 30 billion.
According to widespread reports, the bonuses are largely going to traders at the very London-based financial products unit that is blamed for AIG’s spectacular fall from grace.
White House spokesman Robert Gibbs said the administration was looking to attach stricter conditions to the latest infusion of USD 30 billion.
"Certainly, any person that is subject to these bonuses … should think long and hard about whether, given the performance of the company, this is either warranted or appropriate," he told reporters.
Acknowledging the public’s anger at how USD 700 billion in government bailout money for Wall Street has been used, Gibbs said the AIG case "offends our common sense, offends our sense of value, and seems completely misplaced."
The administration is at risk of deeper public anger after AIG revealed on Sunday that it had passed on USD 22.4 billion of government money to many foreign-owned banks that signed up for its exotic insurance against risky bets.
France’s Societe Generale and Germany’s Deutsche Bank were among the top three recipients after AIG used the bailout funds to cover so-called credit default swaps offered by the London office.
AIG was deemed by the US government to be too big to fail, given the intricate web of ties it built with other financial institutions through the credit default swaps linked to the tanking property market.
Obama said he wanted Congress to pass tougher financial regulation "so we don’t find ourselves in this position again."
In a letter to Geithner Saturday, government-appointed AIG boss Edward Liddy said the bonuses could not be cancelled due to the threat of lawsuits for breach of employment contracts.
He also argued that AIG risked an exodus of senior employees unless it awarded incentives to retain "the best and the brightest talent".
That argument is being ridiculed in Congress as the Obama administration girds for the tough sell of asking for more bailout money to help US banks clear out their toxic assets.
John Boehner, the Republican leader in the House of Representatives, said the "outrageous" AIG bonuses proved his party’s case that Obama must spell out an "exit plan" to wind down his administration’s hefty market interventions.
AFP / Expatica