President Barack Obama is reaping a political whirlwind as massive bonuses planned by bailed-out insurer AIG ignite a backlash against the very idea of government support for Wall Street.

The controversy at American International Group, the totemic symbol of the financial industry's orgy of excess, comes at a bad time for Obama as his team readies new proposals to help US banks clean out their bad debts.

A bonus too far

"AIG is a bonus too far," said Thomas Ferguson, a professor of political science at the University of Massachusetts in Boston, after several rows over executive bonuses and corporate junkets at other rescued companies.

"My suspicion is that public patience with all this is pretty much over," he said, blaming Treasury Secretary Timothy Geithner and chief White House economic adviser Lawrence Summers for badly misjudging the public mood.

"The political people in the White House are now going to take this out of the hands of Summers and Geithner, because it's become just too costly politically."

A total of $700-billion has been sunk into bailouts by the current and former US administrations, including $180-billion for AIG alone, on the premise that everyone on Main Street will suffer if Wall Street melts down.

Too big to fail

AIG was deemed to be too big to fail, given the complex ties it built with financial institutions worldwide through so-called credit default swaps linked to the tanking property market.

The Obama administration's public relations battle has not been helped by the news that AIG used much of the bailout money to pay back European banks that took out its swap products as insurance against risky investments.

Obama acknowledged the sour public mood on Monday as he ripped into AIG, a day after Summers insisted the government's hands were tied because the bonuses were a contractual promise to executives and traders at the crippled firm.

"How do they justify this outrage?"

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, attacking $165-million in bonuses going largely to the same London-based traders who brought ruin to AIG.

"I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole," the president said.

New York state Attorney General Andrew Cuomo is not waiting for action in Washington. On Monday he started to slap subpoenas after AIG bosses ignored an afternoon deadline to divulge details of the bonuses.

"Taxpayers have a right to get the facts," Cuomo told CNBC, a financial network that is under nightly fire from "The Daily Show" host Jon Stewart for cozying up to Wall Street bosses instead of holding them to account.

Stewart, a satirist whose comedy has rarely been so biting, is earning rave reviews for surfing a tidal wave of public anger at the financial industry's mistakes during the boom times, and Washington's failure to prevent them.

That wave is now lapping over Obama's plans to promote a thorough banking overhaul, which analysts say will inevitably involve more public money.

Outrageous bonuses

John Boehner, the Republican leader in the House of Representatives, said the "outrageous" AIG bonuses proved his party's case that Obama must spell out an "exit plan" to wind down the administration's hefty market interventions.

Barney Frank, the Democratic chairperson of the House financial services committee, said it was high time for the Obama administration to boot out tainted executives before their firms get any more taxpayer funds.

"These people may have a right to their bonuses. They don't have a right to their jobs forever," he told NBC, noting that the taxpayer now owns 80 percent of AIG.

The controversy is not about to go away. Government-appointed AIG boss Edward Liddy has been summoned to a hearing Wednesday before the House subcommittee on capital markets.

The panel's Democratic chairperson Paul Kanjorski said: "Unfortunately, taxpayers do not understand how AIG ended up in such a terrible situation, nor do they understand why the federal government continues to give it money."

AFP

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