WASHINGTON — Joining a wave of public anger, President Obama blistered insurance giant AIG for "recklessness and greed" Monday and pledged to try to block it from handing its executives $165 million in bonuses after taking billions in federal bailout money.
Members of Congress also expressed outrage. Rep. Brad Sherman, D-Calif., began work on legislation to tax bonuses received by AIG employees last year or this year. "It's very clear to me that we could have — and still can — prevent this outrage," he said.
Rep. Gary Peters, D-Mich., beat Sherman to the punch, introducing a bill Monday calling for a 60 percent surtax on bonuses over $10,000 at any company in which the U.S. government has an equity stake of at least 79 percent. That description fits AIG.
Others in Congress, including Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, expressed similar concern. He said he wanted to look further into claims by AIG that it was legally obligated to make the retention payments to 43 executives because the bonuses were agreed to in 2008. AIG officials say the payments were made Friday.
The rhetoric grew so heated Monday 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 that he does not actually want executives to kill themselves.
Obama aggressively joined other officials in criticizing American International Group. "How do they justify this outrage to the taxpayers who are keeping the company afloat?" he asked.
Bailouts for AIG totaling over $170 billion since September have given the government an 80 percent stake in the faltering insurance giant.
But the bonuses could contribute to a backlash against Washington that would make it tougher for Obama to ask Congress for more bailout help — and jeopardize other parts of the recovery agenda that is dominating the start of his presidency. Thus, the president and his top aides were working hard to distance themselves from the insurer's conduct.
Obama had scheduled a speech Monday to announce new help for recession-pounded small businesses. But first, he said, he had a few words to say about AIG. "This is a corporation that finds itself in financial distress due to recklessness and greed," Obama declared.
He said he had directed Treasury Secretary Timothy Geithner to "pursue every legal avenue to block these bonuses."
Later, White House spokesman Robert Gibbs said the administration would modify the terms of a pending $30 billion bailout installment for AIG to at least recoup the $165 million the bonuses represent. That wouldn't rescind the bonuses, just require AIG to account for them differently.
At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials studied the possibility of rescinding or delaying the bonuses. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses.
On a separate track, New York Attorney General Andrew Cuomo said Monday he would issue subpoenas for information on the bonuses. Cuomo said his office would investigate whether the bonuses were fraudulent under state law.
Obama to be on Leno
The president will appear on Jay Leno's late-night TV talk show on Thursday, a chance for him to add a light touch to his effort to get the economy back on track. NBC says it will be the first time a sitting president has appeared on such a program.
Information from the Los Angeles Times, Washington Post and New York Times was used in this report.