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Obama caught between public outrage, need to manage credit crisis

WASHINGTON — It was the kind of statement that Barack Obama is famous for — at once empathetic, stern and measured. In remarks to a group of small-business owners, the president lashed out at AIG, said he felt the outrage of average workers and pledged to turn his anger into action.

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

But the president's comments Monday did little to contain a political wildfire that presents his White House with an early test of the crisis management strategy used with success during the 2008 campaign — confront, accept responsibility and move on. For an administration still in its infancy, the stakes are high, because the compensation controversy, at a minimum, is a diversion from its broader efforts to fix the economy and re-order budget priorities, and it could undermine them.

When Congress returns Monday, it will continue work on legislation to stop bonuses at the insurance giant and other financial institutions receiving federal bailout assistance. The House vote Thursday to impose a 90 percent tax on bonuses was an opening ante in Congress's battle with Treasury officials over executive compensation limits.

Bankers and other financial leaders are warning that the legislation pending in Congress could doom Obama's efforts to resuscitate lending by causing banks to reject government help. In a letter to his employees, Citigroup chief executive Vikram Pandit wrote that the bailout would be "significantly set back" by the congressional move to heavily tax bonuses.

Pandit said he takes "exception" to a "tide of negative sentiment rising in Washington, D.C."

In an effort to contain that anger, the White House indicated this weekend that it wants to see more measured attempts to curb bonuses that will not threaten the efforts to revive the banking system. White House chief of staff Rahm Emanuel said he expects Obama will not be asked to sign a bill exactly like the one that passed the House last week.

Emanuel said that while he thinks the anger of the public and Congress is understandable, "everybody woke up the next day, took a deep breath and realized, let's not govern out of frustration."

Senior White House aides concede that the AIG scandal made it difficult for them to communicate their message last week. They said the media failed to take note of the 30 percent increase in home refinancing and paid relatively little attention to the president's small-business proposal, his diplomatic opening with Iran and his legislative agenda.

The mounting anger on both sides of the issue served as a blunt reminder that Obama's efforts to fix the economy will require a delicate balance of several constituencies: the public, the Congress and the financial industry.

In his weekly radio and Internet address Saturday, Obama made no mention of the AIG bonus scandal, choosing instead to use the forum to urge lawmakers to pass his budget. He plans to do the same at his second prime-time news conference Tuesday night.

Obama returns Cheney's fire

Obama hit back at former Vice President Dick Cheney, calling Bush administration policy on detainees at Guantanamo Bay, Cuba, "unsustainable." "How many terrorists have actually been brought to justice under the philosophy that is being promoted by Vice President Cheney?" Obama asks in an interview to air today on CBS' 60 Minutes. Cheney had said that Obama's plan to shut down Guantanamo, and other policies on treatment of terror suspects, would make the United States more vulnerable.

Obama caught between public outrage, need to manage credit crisis 03/21/09 [Last modified: Saturday, March 21, 2009 10:11pm]
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