Obama, voicing outrage, vows battle to block AIG bonuses

U.S. President Barack Obama, accompanied by Philadelphia restaurant owner Marco Lentini, right, and Grapevine, Texas, banker Cynthia Blankenship, delivers remarks to small business owners, community lenders and members of Congress Monday at the White House in Washington, D.C.(Gerald Herbert/Associated Press)

U.S. President Barack Obama declared Monday that he will do everything he can to stop insurance giant American International Group — a company kept alive by huge federal bailouts — from paying millions in bonuses to key employees.

AIG is in trouble because of "recklessness and greed," he said at the outset of an appearance to announce help for small businesses hurt by the deep recession.

"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," he said. "How do they justify this outrage to the taxpayers who are keeping the company afloat?"

Obama spoke in the wake of disclosures that AIG was set to pay roughly $165 million US in bonuses to key people in a unit that sold credit default swaps, risky contracts that caused massive losses for the company.

The company has benefited from more than $170 billion US in federal aid and reported this month that it lost a record-breaking $61.7 billion US in the fourth quarter of last year.

Pointing to the public money AIG received, Obama said he has asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."

The CBC's Neil MacDonald, reporting from Washington, said Obama faces populist rage about the AIG situation.

"People are losing their jobs, their personal wealth is evaporating, and then along comes a company that was a disaster, that was part of starting this economic crisis, and it announces that it's going to pay $165 million in bonuses, some of it to the very people in the financial products section who dreamed up and sold these idiotic derivatives that helped drag the whole world economy down," he said.

But it is not clear what the president can do, since the Treasury Department appears to think that the employee contracts on which the bonuses are based can't be broken, he said.

"There is a taste for punishment out there in the American public, and he understands it. But in the end it’s up to lawyers, and in the end Wall Street's credo seems to be that the ordinary person may win or lose but Wall Street always gets its money."

Earlier Monday, a leading congressional player on financial issues called for a shakeup at AIG in the wake of the bonus disclosures. Representative Barney Frank, chairman of the House financial services committee, said members of Congress are going to look very closely at the situation

He 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 executives may have a right to their bonuses, but that they don't have the right to hold their jobs forever.

He added that the government appears to be "rewarding incompetence."

With files from the Associated Press