Obama and Geithner to claw back AIG bonuses, but is it too late?

Wednesday, March 18. US Treasury Secretary Tim Geithner today announced that failing US insurer AIG would be forced to pay back bonuses it was due to award staff courtesy of a taxpayer bailout. The announcement has mollified many pundits who had been highly critical of the Obama administration's handling of the scandal but some are suggesting that the damage to Barack Obama's popularity has already been done.

Having granted the insurance giant $170bn in bailout funds courtesy of the American taxpayer, AIG announced at the weekend that it planned to award staff with $165m in bonuses. It was an announcement that Obama said yesterday left him "choking up with anger".

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" the President had questioned on Monday. "All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."

Prior to today's announcement, Obama's anger has been matched by other lawmakers on Capitol Hill but it was Senator Charles Grassley who went furthest, suggesting in a radio interview that certain AIG executives should kill themselves. "The first thing that would make me feel a little bit better towards them if they'd follow the Japanese model and come before the American people and take that deep bow and say I'm sorry, and then either do one of two things: resign, or go commit suicide."

In the Washington Post, Dana Milbank reports that the scandal has badly affecting Obama's popularity. "His plans to stabilise the economy are at risk of being overtaken by a populist fury over the greed at AIG and in the rest of the financial industry," says Milbank. "The President and his aides, armed with little more than their jawbones, seem powerless to stop the outrage." And Obama's approval ratings have suffered: 59 per cent, down from 64 per cent last month.

Writing in the Guardian, Michael Tomasky recalls how in a similar situation in 1981, Ronald Reagan simply sacked striking air traffic control workers, to the delight of the American public who had been furious at the Patco union and their industrial action. This is Obama's 'Patco moment' says Tomasky. It seems that AIG won't get away scot-free, "but why did it take a firestorm that couldn't have been very difficult to predict for Obama to take this step?"

It's the downside of having an ice-cool president, Tomasky continues. "Most of the time, it's good to have a president who isn't a captive of his emotional temperature and doesn't say rash things… But sometimes, geez, you just want the guy to let it out."

Writing for Politico, Eamon Javers, Victoria McGrane and Lisa Lerer suggest that the controversy will doubtless permanently damage Obama's chances of successfully appealing for more bailout funds in the future. "AIG's woes threaten to severely complicate Obama's hopes of returning to the well – again – for more bailout cash. His administration has already hinted at another $750 billion in bailout funds, but public opinion and congressional resistance will make that a tough sell."

FIRST POSTED MARCH 18, 2009