Congress looking to punish AIG

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 saying the Treasury Department will require AIG to repay the government for the bonuses. Geithner said the money would be deducted from the government's latest $30 billion infusion of bailout funds.

Fresh details, meanwhile, pushed outrage over AIG ever higher: New York Attorney General Andrew Cuomo reported that 73 employees, including 11 who no longer work there, received bonus checks of $1 million or more last Friday. This at a company that was failing so spectacularly that the government felt the need to prop it up with a $170 billion bailout.

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 pay the price.

For the first time, White House officials said Tuesday night said Geithner had told the White House about the bonus payments last Thursday, and senior aides informed the president later that day. The officials spoke on condition of anonymity to discuss internal details of the AIG time line.

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.

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 huge 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.

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 Charles Schumer of New York.

Not all Democratic leaders were racing in that direction. Penalizing people with the tax code could be inappropriate, declared Rep. Charles Rangel, D-N.Y., chairman of the tax-writing 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. Barney Frank, D-Mass., chairman of the House Financial Services Committee, 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.

At least three Democratic bills and one Republican measure were introduced to crack down on the Treasury Department and stiffen rules for recipients of bailout funds. Two bills in the House aimed to impose a 100 percent tax on the bonuses.

In the Senate, the top two members of the Senate Finance Committee — a Republican and Democrat — announced a proposal to impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent excise tax on the employees receiving them.

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

"I don't know if he should resign over this," said Sen. Richard Shelby, R-Ala. "He works for the president of the United States. But I can tell you, this is just another example of where he seems to be out of the loop. Treasury should have let the American people know about this."

White House spokesman Robert Gibbs and chief of staff Rahm Emanuel quickly moved to quash talk of Geithner's ouster.