President Barack Obama told Treasury Secretary Timothy Geithner to take all legal measures to block hefty bonuses awarded to employees of AIG , the insurance company that received up to $180 billion in bailout money, a White House adviser said Monday.
"The president told Secretary Geithner ... to take every legal means that he has to push back against this, to figure out who put this in the contracts and when, and to make sure this doesn't happen again," Austan Goolsbee, a member of Obama's Council of Economic Advisers, told Reuters Financial Television.
"Obviously we're not going to break the law, but there are a number of legal means that we have to push back, and the president instructed Secretary Geithner to do so," he said.
Obama's action comes after Rep. Barney Frank, chairman of the House Financial Services Committee called for a shake up at insurance giant American International Group in the wake of disclosures it will pay roughly $165 million in bonuses to its executives.
Frank says members of Congress are going to look very closely at the situation with AIG and see what can be done about it.
Frank noted that the Federal Reserve Board was the governmental entity that first gave AIG bailout assistance, and complained that Fed officials did not attach enough conditions to the deal.
Frank said on NBC's "Today" show Monday that "these people may have a right to their bonuses. They don't have a right to their jobs forever." He added that "it does appear to be that we're rewarding incompetence."
Obama Advisers Voice Outrage
On Sunday, President Obama's top advisers and Democratic and Republican congressional leaders voiced outrage that the insurer, recipient of a $173 billion taxpayer bailout, is paying $165 million in employee bonuses.
But they agreed it was unclear what, if anything, the government can do to recover the bonus money from the insurance giant or cut the bonuses since the contracts seem legally binding.
Lawmakers said, however, that plenty of questions need to be answered and some AIG officials may need to be ousted. They also said legislation may be needed to avoid a repeat of such action and retain public confidence in federal bailouts.
"We will absolutely do everything possible to make sure that the money we put in there is spent in a way that we think is appropriate," Christina Romer, chair of the White House Council of Economic Advisers, told NBC's "Meet the Press."
Romer and another top Obama adviser, National Economic Council Director Lawrence Summers, said contracts must be honored but the matter at AIG would be examined.
Contracts Say Must Pay Millions in Bonuses
AIG agreed on Saturday to revamp its system for paying bonuses after the Obama administration objected to plans for hundreds of millions of dollars in such payouts, but it said it had no choice but to pay out the $165 million due by Sunday.
From 'Fast Money':
AIG will sharply cut remaining 2009 salaries for top executives of its AIG Financial Products unit and realign 2008 bonuses to tie them to restructuring and repayment targets, AIG Chairman Edward Liddy wrote in a letter to Geithner.
AIG had promised to pay about $1 billion in retention bonuses over a period of several years, half of which has already been paid.
Liddy, in his letter to Geithner, said the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set early last year before problems at its Financial Products unit became public.
AIG Financial Products was the unit that made bad bets on toxic mortgages and credit default swap contracts that led to the company's near collapse—and the first of a series of taxpayer-funded bailouts in mid-September.
- Reuters contributed to this report.
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