Pressure grows on AIG to return bonuses

updated 8:23 a.m. ET March 18, 2009

WASHINGTON - Talking tougher by the hour, livid Democrats confronted beleaguered insurance giant AIG with an ultimatum Tuesday: Give back $165 million in post-bailout bonuses or watch Congress tax it away with emergency legislation.

Republicans declared the Democrats were hardly blameless, accusing them of standing by while the bonus deal was cemented and suggesting that Treasury Secretary Timothy Geithner could and should have done more.

While the White House expressed confidence in Geithner, it was clearly placing the responsibility for how the matter was handled on his shoulders. Geithner sent a letter late Tuesday to congressional leaders informing them that he was working with the Justice Department to determine whether any of the AIG payments could be recovered.

He cited a provision in the recent economic stimulus law that gave him authority to review compensation to the highest-paid employees of companies that already have received federal assistance.

Meanwhile, senior administration sources said President Barack Obama learned only last Thursday that AIG was paying the bonuses.

The White House has faced questions about when, exactly, Obama learned about the payouts. Officials for the first time on Tuesday night said Geithner told the White House last Thursday, and senior aides informed the president later that day.

Fresh details, meanwhile, pushed AIG outrage ever higher: New York Attorney General Andrew Cuomo reported that 73 separate company employees received bonus checks of $1 million or more last Friday. This at a company that was failing so spectacularly the government felt the need to prop it up with a $170 billion bailout.

Bailout remains politically unpopular
The financial bailout program remains politically unpopular and has been a drag on Barack Obama's new presidency, even though the plan began under his predecessor, George W. Bush. The White House is well aware of the nation's bailout fatigue — anger that hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.

The administration wouldn't be pleased to hear what Maria Panza-Villa, of Hillsboro, Ore., had to say. "Wasn't Obama supposed to fix this?" asked the mother of two who said she has lost three jobs since November as one employer after another went under.

AIG chief executive Edward Liddy can expect a verbal pummeling Wednesday when he testifies before a House subcommittee.

Video   Beyond Beltway March 17: Across the country, the fury over bonuses at taxpayer-owned AIG continues to grow. NBC's Kevin Tibbles reports. Nightly News

On Capitol Hill late Tuesday, House Democrats directed three powerful committees to come up with legislation this week to authorize Attorney General Eric Holder to recover massive bonus payments made by companies like the ones paid last week by American International Group Inc.

Senate Democrats, meanwhile, suggested that if the AIG executives had any integrity, they would return the $165 million in bonus money. One leading Republican even suggested they might honorably kill themselves, then said he didn't really mean it.

Whatever the process, lawmakers of all stripes said, the money — generally "retention payments" to keep prized employees — belongs back in the government's hands.

"Recipients of these bonuses will not be able to keep all of their money," declared Senate Majority Leader Harry Reid in an unusually strong threat delivered on the Senate floor.

"If you don't return it on your own, we will do it for you," echoed Chuck Schumer of New York.

Tax code as political weapon
Not all Democratic leaders were racing in that direction. Penalizing people with the tax code could be inappropriate, declared Rep. Charlie Rangel, D-N.Y., chairman of the taxwriting Ways and Means Committee. He said, "It's difficult for me to think of the code as a political weapon."

Others saw the connection as reasonable and relevant. House Financial Services Committee Chairman Barney Frank, D-Mass., noted that the government, through the bailout, is now an 80 percent owner of the company and suggested that was grounds to sue to recover the bonuses.

Republicans said President Obama and his administration should have leaned harder on AIG executives to reject the extra pay, raising some speculation over Geithner's future.

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