Obama: Assisting and Attacking AIG at the Same Time

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You bail it out, you own it.

That’s the problem that Barack Obama is encountering. The federal government on his watch has poured tens of billions of dollars into AIG. And then comes the news that the failed insurance giant has awarded its execs hundreds of millions of dollars in bonuses. Though these rewards were set up by contracts established before the feds showered AIG with taxpayer dollars, the Obama administration is in a position to get blasted for this. After all, it’s hard for the Obama White House to defend shoring up AIG with $170 billion in money from the Federal Reserve while its executives are scoring big.

Assuming propping up AIG is good policy, Obama has to sell this rescue–and all the others–to the public, and that’s not any easier if AIG execs are lining their own pockets at the same time. Treasury Secretary Timothy Geithner has tried to pressure AIG chief Edward Liddy on these bonuses, and Liddy has attempted to hold firm, claiming much of these bonuses are necessary for the firm to retain talent. (Obvious response: if this is what you call talent, perhaps it’s time to hand AIG over to amateurs.)

So Obama has to attack AIG while aiding it. He took a stab at this on Monday morning. At a White House appearance, when he was supposed to be talking about his plans to bolster small businesses, he took the opportunity to poke at AIG:

[AIG] is a corporation that finds itself in financial distress due to recklessness and greed.

Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?

In the last six months, AIG has received substantial sums from the US Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole….This isn’t just a matter of dollars and cents. It’s about our fundamental values.

All across the country, there are people who are working hard and meeting their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses….All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic we must demand.

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 we have greater authority to protect the American taxpayer and our financial system in cases such as this. We will work with Congress to that end.

Will this approach–slam AIG, help it survive, and push financial reregulation–work politically? It probably depends on how much feeling–and what sort of feeling–Obama puts into the slamming part. A little anger won’t hurt. There may be building–or seething–outrage beyond the Beltway. Obama has to make sure he’s not blind-sided by it. And those recipients of federal largess at AIG are not helping.

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