JIM LEHRER: President Obama issued a new defense today in the firestorm over the AIG bonuses, and the head of the insurance giant had his day before Congress. NewsHour correspondent Kwame Holman has our lead story report.
KWAME HOLMAN: The president weighed in before leaving for California. He acknowledged the anger over the bonuses, even as he pointed out it all started before he took office.
U.S. PRESIDENT BARACK OBAMA: Nobody here drafted those contracts. Nobody here was responsible for supervising AIG and allowing themselves to put the economy at risk by some of the outrageous behavior that they were engaged in.
We are responsible, though. The buck stops with me. And my goal is to make sure that we never put ourselves in this kind of position again.
KWAME HOLMAN: Mr. Obama also argued again AIG was part of a broader, systemic problem, calling for new regulation and new attitudes.
BARACK OBAMA: People are rightly outraged about these particular bonuses, but just as outrageous is the culture that these bonuses are a symptom of that have existed for far too long, a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag.
And one of the messages that I want to send is that, as we get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don’t think that we can return to business as usual.
KWAME HOLMAN: The focus then shifted to the Capitol, where AIG’s chief executive, Edward Liddy, was the star witness at a House hearing. He may have calmed some on the committee when he said he has heard the outrage.
EDWARD LIDDY, CEO, AIG: The payment of large bonuses to people in the very unit that caused so much of AIG’s financial trouble does not sit well with the American taxpayer in any way, shape or form, and for good reason.
Accordingly, this morning I’ve asked the employees of AIG Financial Products to step up and do the right thing. Specifically, I’ve asked those who received retention payments in excess of $100,000 or more to return at least half of those payments. Some have already stepped forward and offered to give up 100 percent of their payments.
KWAME HOLMAN: At the same time, Liddy said, AIG was legally bound to pay $165 million in bonuses last weekend. And he said the company needs to keep vital employees, especially after accepting $170 billion in federal aid.
EDWARD LIDDY: Payments were made to employees in the Financial Products unit that caused many of AIG’s problems, and Americans are asking, quite simply, why pay these people anything at all?
Here’s why: I’m trying desperately to prevent an uncontrolled collapse of that business. This is the only way to improve AIG’s ability to pay taxpayers back quickly and completely and the only way to avoid a systemic shock to the economy that the U.S. government help was meant to relieve.
KWAME HOLMAN: In fact, the New York state attorney general has reported 52 of the more than 400 employees who got bonuses left the company anyway. They worked in a division that took huge losses linked to risky mortgages.
Liddy was asked if those people truly deserved the money.
REP. MICHAEL CAPUANO, D-Mass.: Do you really believe that these are the only people that are capable of doing this job?
EDWARD LIDDY: No, I don’t.
REP. MICHAEL CAPUANO: So that we could — there are other people out there that would have taken this job that maybe wouldn’t have gotten this bonus. So you could have fired these people to replace them with equally capable professional people that are currently unemployed on Wall Street right this minute?
EDWARD LIDDY: If I — if you’ll let me explain, each of these contracts is a complicated contract unto itself. It’s not, “You’ve seen one, you’ve seem them all.” They’re really all unique.
Had we done that, more than likely those people would have walked out the door tomorrow or whenever, and we would have had this $1.6 trillion book of business, which needs to be managed every day, with no one to manage it.
Liddy discusses future of AIG
KWAME HOLMAN: Liddy said he envisioned AIG returning to profitability in two or three years, which prompted a new question.
REP. JEB HENSARLING, R-Texas: If these people who received the bonuses share your bullish thought on AIG, why don't you do double-or-nothing on these bonuses? If these people have skin in the game and if they believe they can work it out of trouble, then we don't have to worry about these other options.
EDWARD LIDDY: Interesting idea. I -- I would say it's probably not in the taxpayer's best interest to go there. I have much confidence that we can, in fact, rescue AIG. It's not failed company; it is a failing company unless we do something about it. And we, in fact, have a plan to do something about it.
KWAME HOLMAN: Treasury Secretary Geithner came to Liddy's defense last night. He wrote to congressional leaders, saying Liddy inherited the problems at AIG when he took over the company last year at the government's request.
Geithner also wrote that he's working with the Justice Department to determine ways to recoup the bonus and retention money already paid and that the Treasury will deduct the amount of those bonuses from the latest round of federal aid to AIG.
Geithner has faced growing criticism over his handling of the issue. The White House confirms he learned about the impending bonus payments last Tuesday; he informed presidential aides two days later. But Mr. Obama said today he has complete confidence in Geithner.
BARACK OBAMA: There has never been a secretary of the treasury -- except maybe Alexander Hamilton, right after the Revolutionary War -- who's had to deal with the multiplicity of issues that Secretary Geithner is having to deal with all at the same time.
And, you know, he is doing so with intelligence and diligence. Nobody's working harder than this guy. You know, he is making all the right moves in terms of playing a bad hand.
KWAME HOLMAN: That statement fell well short of satisfying Republicans. House Minority Leader John Boehner said they want answers.
REP. JOHN BOEHNER, R-Ohio, House minority leader: Mr. Liddy, who's running AIG on behalf of the federal government, must have had conversations. He's known about this problem for some time. Who did he talk to in the administration? What did he know? When did he know it? And until we begin to get some answers to these questions, I think it's premature to write a prescription until we diagnose the problem.
KWAME HOLMAN: The head of the Federal Reserve, Ben Bernanke, also may have new questions to answer. Liddy testified today the Fed knew about AIG's bonus plans and went along.
And the head of the Office of Thrift Supervision conceded his agency did not recognize the risk AIG was taking before it nearly collapsed.
SCOTT POLAKOFF, acting director, Office of Thrift Supervision: We should have done it. We didn't do it. There's a lot of people walking around who failed to understand how bad the real estate market was going to get. I, in no way, want to suggest that there's a pointing game going on here or we're looking at others. We do believe that this company deserves the oversight of what we'll call a systemic risk regulator.
KWAME HOLMAN: But that will have to wait. For the moment, Congress is focused on how to get the AIG bonuses back. The House votes tomorrow on imposing a 90 percent tax on the payments.
JIM LEHRER: And Gwen Ifill has more about today's hearing and the fallout from AIG.
Gauging the political impact
GWEN IFILL: For a look at the political impact of all this and what it may mean for the Obama administration's overall agenda, we turn to Roger Altman, a former deputy treasury secretary under President Clinton. He's now an investment banker and chairman and CEO of Evercore Partners in New York.
And A.B. Stoddard, associate editor of the Hill newspaper.
Welcome to you both.
A.B., did Edward Liddy, starting with him, today, did he diffuse any of the outrage that has been building over this whole deal?
A.B. STODDARD, associate editor, The Hill: Well, the purpose of the hearing was for members of Congress to let off steam and express the outrage that they're hearing from their constituents, and they certainly did that.
I think the fact that he said that he has asked for the executives to return the bonuses probably helped a bit. And he also, I think, provided a very solid defense of why AIG needs to keep some policies in place in order to come back and ultimately repay the taxpayer.
GWEN IFILL: Roger Altman, does it make -- does his argument make sense when he says, hey, listen, AIG's exposure was $2.6 trillion before and now it's $1.7 trillion, so we're making some progress?
ROGER ALTMAN, former Clinton deputy treasury secretary: When, Gwen, I think, if everyone involved could go back three months or so, they'd like to do this differently. It hasn't been well handled, and it's part of the larger AIG problem which has turned into be by far the biggest individual mess amidst all the bailouts.
It's a much bigger mess, actually, than Citigroup or Bank of America or any of the other banks or mortgage lenders. We now have $170 billion of taxpayer money into AIG. It was injected three separate times, as AIG nearly fell over, and three separate times the format for those -- for the federal investment has been revised.
And it's no reason that -- it's no surprise that Chairman Bernanke a few days ago said this is the one situation which has driven him to distraction. So this could have been done quite a bit better than it was.
GWEN IFILL: Well, let me ask you this. You're a White House veteran of a previous administration. When the president came out on the South Lawn today and said, "The buck stops here," does that diffuse outrage or is it a little too late?
ROGER ALTMAN: I don't think the president's personal popularity, which is extraordinarily high and very understandable, is likely to be dented by this. I think the public is giving the president, deservedly so, a lot of patience and a lot of slack.
As to whether that diffused it, I'd be surprised, because whether it's diffused or not will depend on how many of the recipients of these bonuses actually do return them. And it's possible that publicizing all those names of those who got them could trigger almost all of them to return at least some amounts here, because there may be some of them who are really fearful, at minimum, over the publicity and even more perhaps for their own safety.
So how much of this is diffused depends on really what happens next.
Questioning Geithner's actions
GWEN IFILL: Yes, we don't know yet how much money is actually being returned. Let me ask you that question, A.B. Stoddard, about the president when he went out today and gave that defense of Timothy Geithner and said the buck stopped with him. Does that work?
A.B. STODDARD: I thought that was very shrewd, because the question now is going to turn to whether or not the Obama administration could have prevented those bonuses from going out and, if they couldn't have prevented it, when they allowed for the most resent installment of $30 billion, could they have at least articulated that this was coming?
GWEN IFILL: Because they knew, some of them knew.
A.B. STODDARD: Because it's not reasonable that the Federal Reserve has known about this and that Timothy Geithner, the treasury secretary, who once worked for the New York Fed for years and knows everything about structure of the AIG bailout, it's not reasonable that he didn't know about the potential.
Congressman Kanjorski, Congressman Cummings, many people on the Hill were talking about this in January, and it was known publicly in 2008 that they planned a $450 million package to try to keep their employees. They knew the company was in trouble.
So they have a political problem. And it was very wise of President Obama to come out and try to stop the bleeding and say, "The buck stops with me. I'm going to take the right steps going forward," but to acknowledge that, at some level, there was a little bit of mistake made on his team.
GWEN IFILL: Does that mean that Secretary Geithner's job is safe?
A.B. STODDARD: Secretary Geithner's job is in trouble. There have been some -- I guess one call on Capitol Hill today for his resignation. Obviously, House Minority Leader John Boehner is saying he's on thin ice.
I met with a Democratic member of Congress this morning before 9 o'clock. And the first thing he said to me was, "The thing that really can't happen is for people to lose confidence in Secretary Geithner," so that is a real problem.
GWEN IFILL: And that was before...
A.B. STODDARD: That was before...
GWEN IFILL: ... President Obama came out.
A.B. STODDARD: Right. And I -- I think that it was smart of him to back up Timothy Geithner. He has no Treasury Department. He only has a treasury secretary. Mr. Geithner's working alone. And we have a serious problem that requires a Treasury Department. So he's obviously not going to dump him, but he took responsibility, and I think politically that was the smart thing to do.
GWEN IFILL: Roger Altman, from your perch looking at this as an investment banker, but also from your time, having worked in an administration, do you see that this could be damaging to the president's other considerable ambitions, policy ambitions?
ROGER ALTMAN: I think it's too soon to judge that, Gwen. Let's take health care. There's enormous public support for universal health care and an enormous groundswell behind that. And, also, the president's popularity remains extraordinarily high.
I don't think you can say yet, at least, that the prospects for health care reform have been damaged, for instance, by this AIG bonus issue, nor do I think you can say that, for example, about energy or the president's budgets. It's too soon to judge that.
GWEN IFILL: But what about...
ROGER ALTMAN: That's a great deal of support for his agenda. And I'd also like to add, if I could, I don't agree that Secretary Geithner's job is in trouble. I don't agree at all with that. I think Secretary Geithner not only is able and extraordinarily well-suited to this job, but it's clear that the president fully backs him. And I think the president will continue to do that, and I don't think his job is in trouble.
Requesting more money for banks
GWEN IFILL: Well, let me ask you this question. At some point, the administration was planning to come back to Congress and ask for more money for the banks -- for the TARP fund, as it's known. Is that now less likely to happen?
ROGER ALTMAN: That is in trouble. If there were a vote today on more money for the TARP -- and the administration has talked about another $750 billion to go along with the original $750 billion, about 60 percent of which has been spent, and the budget cost of that additional $750 billion, by the way, is $250 billion, because you get -- you have recoveries on these investments -- I think if the vote were today on that, it would be extraordinarily difficult to pass it.
This outrage is very broad. And, incidentally, this is just the latest uptick or spike in public outrage over these rolling bailouts. This is going to turn into or almost has turned into one of the most unpopular federal actions and the TARP itself one of the most unpopular federal agencies in memory, and we're still in the early stages of that.
So getting support for the additional tranche of financial infusion into the TARP, congressional support for that is going to be tough.
GWEN IFILL: Do you agree with that, A.B. Stoddard?
A.B. STODDARD: I do. And that's very bad news, because the administration has been urged by the experts -- people in the industry are begging him to further stabilize the banking system, that it needs more money, there must be more bailouts, and the administration has budgeted for those. They've planned for those.
It's an unpopular, painful conversation he's yet to have the public, but it is true. Now that's a toxic conversation. He at this very moment is trying to come up with a plan for a private-public partnership to buy up toxic assets. He needs the trust of the private sector. He needs their private equity for that to work. This AIG thing really imperils that relationship.
GWEN IFILL: And does that toxicity, then, bleed over into what the president hopes for, for his overall budget, which would fund all the things that Roger Altman was talking about, energy and health care...
A.B. STODDARD: Oh, certainly. And I agree with Roger that there is a real -- there's a lot of hunger for health care reform, even now in the business community. But you and I both know, having covered the Congress, that the way that this works is every day you are consumed by distraction is a day you've lost on a major ambitious agenda like Barack Obama's agenda. And if it doesn't happen by this fall, you're into a midterm election year.
In addition to that, every day that the public loses their trust in Barack Obama -- and, actually, his job approval numbers are eroding a bit -- translates into Democrats losing -- weakening their spine on this very ambitious plan to reorder our tax code, energy, and health care industries.
GWEN IFILL: A.B. Stoddard of the Hill and Roger Altman of Evercore Partners, thank you both very much.
A.B. STODDARD: Thank you.
ROGER ALTMAN: Thank you.