Sunday talk shows preview coming budget battle

Administration officials and Congressional Republicans squared off this morning over the President's $3.6 trillion budget outline amidst news that the Congressional Budget Office's forecasts are significantly gloomier than the Administration's own projections.

The CBO announced on Friday that federal deficits would rise an additional $4.8 from 2010-2019, $2.3 trillion more than the Administration's estimates. The difference stems in large part from a disagreement over how fast the economy will grow after it escapes from recession.

"When you get out five, 10 years, they’re assuming that real GDP is only going to grow about 2.2 or 2.3 percent a year," said Christina Romer, chair of the Council of Economic Advisers, on Fox News Sunday. "And that’s just lower than private forecasters. It’s lower than the Federal Reserve. And we think it’s just too pessimistic."

Congressional Republicans, including several powerful moderates, said that the deficits were unacceptably large and would need to be scaled back in the final budget.

Senator Susan Collins of Maine said on ABC's This Week that the debts were "not sustainable," and that they posed "a threat to the basic health of our economy." Senator Judd Greg, who declined to serve as President Obama's Commerce Secretary, called the debts "staggering," and said that deficits of "4 percent to 5 percent of GDP" were "not sustainable under any form of government."

"The practical implications of this," Judd continued, "is bankruptcy for the United States. There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."

Policymakers also demonstrated their support for Treasury Secretary Timothy Geitner, who received widespread criticism after it was revealed that A.I.G. used part of its bailout money to pay for $165 million in employee bonuses.

"If you’re asking me should he resign," said Senator Chuck Grassley on CBS' Face the Nation, "I don’t think anybody after two months has been tested enough that I would say he should resign. I think he ought to be given some time."

Romer characterized calls for the Secretary's resignation as "really silly."

Members of Congress continued to fume over the A.I.G. bonuses, though it seemed far from certain that the President would sign a House-passed bill reclaiming the bonuses through the tax code.

"Retention bonuses are, to a great extent, extortion," Congressman Barney Frank said. "It is people saying... I’ve got the combination to the safe, and if you don’t bribe me, I’m going to leave and you’ll never be able to open the safe."

Vice Presidential advisor Jared Bernstein responded on This Week that the bill might be "dangerous," saying: “The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people."

Over on NBC's Meet the Press, Governors Ed Rendell and Arnold Schwarzenegger joined with New York City Mayor Michael Bloomberg to discuss their new group, Building America's Future, which will call for substantial investments in the nation's infrastructure.

"This country desperately needs to build a high-speed rail passenger system." Governor Rendell said. "We need to improve our rail freight system. But it's not just transportation.  It's the levees that failed in Cedar Rapids and New Orleans.  It's dams, it's water and wastewater systems. It's so much more."

Fannie and Freddie bonuses in the crosshairs

Fannie Mae and Freddie Mac, the mortgage giants taken over and bailed out by the federal government, appear to be next on Washington's target list of failing companies which have given out executive bonuses.

Rep. Barney Frank, the House Financial Services Committee chairman, sent a letter to the director of the Federal Housing Finance Agency, which oversees the groups, asking him to cancel bonuses at Fannie and Freddie.

"I am writing to urge strongly that you rescind the retention bonus programs at Fannie Mae and Freddie Mac, prohibit any further payment of bonuses to executives under that program, and pursue repayment of any already-paid bonuses," Frank wrote. "The public, having provided significant support for the purpose of restoring trust and confidence in our country’s financial system, rightfully insists that large bonuses such as these awarded by institutions receiving public funds at a time of a serious economic downturn cannot continue."

It was revealed that top executives at Fannie Mae would likely get bonuses in excess of $1 million as part of an employee retention program. The same is expected of Freddie Mac, but details are not public yet.

Fannie and Freddie own or back about half of the nation's mortgages. Both groups have asked for billions in federal money to prevent their collapse.

Fannie Mae's chief executive wrote a memo to employees this morning saying that eliminating the bonuses could jeopardize the rebuilding of the housing market.

"I am deeply concerned that eliminating our retention plan would jeopardize our ability to fulfill the mission the Government has given us to address the housing crisis, including the Administration's Homeowner Affordability and Stability Plan that so many of you have been working nights and weekends to carry out," Herbert Allison wrote, according to the Washington Post. "Your experience and expertise make you highly competitive in the job market, especially as so many other companies need your talents to work through this crisis."

Frank, in his letter, tried to head off that line of argument.

"I remain very skeptical that retaining and rewarding people who made the mistakes that contributed to the unsatisfactory performance is a good idea," Frank wrote. "Further, in this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave."

House passes bill taxing bonuses at AIG, other bailed-out companies

A day after a House panel vented its fury on AIG's CEO, the representatives voted to take back nearly all of the bonuses money handed out by the bailed-out insurance giant.

From an Associated Press report:

The Democratic-led House overwhelmingly approved a bill on Thursday to slap punishing taxes on big employee bonuses from AIG and other firms bailed out by taxpayers. The vote was 328-93. "We want our money back and we want our money back now for the taxpayers," said House Speaker Nancy Pelosi, D-Calif.

The bonuses, totaling $165 million, were paid to employees of troubled insurer American International Group, including to traders in the unit that nearly brought about the company's collapse.

In all, 243 Democrats and 85 Republicans voted "yes" on the bill. It was opposed by six Democrats and 87 Republicans.

The Senate has its own punitive measure for bonus-giving, bailed-out companies, charging a 35 percent tax on the company and a 35 percent tax on the employee receiving the bonus. The Senate is expected to take up the matter next week.

UPDATE: The White House released a statement from President Barack Obama regarding the House's bill.

"Today's vote rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat.  Now this legislation moves to the Senate, and I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.

In the end, this is a symptom of a larger problem – a bubble and bust economy that valued reckless speculation over responsibility and hard work. That is what we must ultimately repair to build a lasting and widespread prosperity."

AIG takes a beating in Congress, CEO asks employees to give bonuses back

Edward Liddy, the chairman and CEO of AIG, appeared for a House subcommittee hearing Wednesday and was greeted with much of the pent up outrage that politicians--and many Americans--feel toward the troubled insurance giant.

"You know, as far as the American people are concerned, I think AIG now stands for arrogance, incompetence and greed," Rep. Paul Hodes said, summing up the tone of the House Financial Services Capital Markets Subcommittee.

Liddy, who took over at AIG six months ago, did offer some concessions to the Congress. He said that AIG would likely not ask for more government money.

"I do not anticipate asking the federal government for more money," Liddy said. "I would like very very much if we did not have to draw on the $30 billion."

On the topic of millions of dollars in bonuses paid to executives and derivatives traders, the company chief said some employees had already given the money back.

"I have asked the employees of A.I.G. Financial Products to step up and do the right thing," Liddy said. "Specifically, I have asked those who received retention payments of $100,000 or more to return at least half of those payments."

He did repeat the need for the "retention" payments.

"Americans are asking quite simply, Why pay these people anything at all?" Liddy said. "Here's why: I am trying desperately to prevent an uncontrolled collapse of that business."

Liddy also said that officials at the Federal Reserve knew about the bonus payments well before Treasury Secretary Timothy Geithner talked about them last weekend.

President Barack Obama commented on the AIG situation as well. He again expressed his anger over the bonuses.

"Obviously, the whole issue of AIG and these bonuses that have been paid out have been consuming a lot of attention--and rightfully so, because they represent what I think all of us consider an inappropriate use of taxpayer funds," Obama said.

But the president tried to move on from the venting of anger to fixing structural problems in the economy.

"What I think is also important and just as outrageous is the fact that we find ourselves in a situation where we're having to clean up after AIG's mess," Obama said. "And so I just had a meeting with my economic team, but also spoke with Chairman Barney Frank of the Financial Services Committee about the importance of giving ourselves tools to prevent ourselves from getting in a situation where an AIG can pose such enormous vulnerabilities to the system as a whole."

N.Y. attorney general releases details of AIG bonuses

Seventy-three individuals received bonuses of $1 million or more from the troubled insurance giant AIG's "retention" plan, New York Attorney General Andrew Cuomo's office revealed Tuesday.

In a letter posted on the attorney general's website but addressed to Rep. Barney Frank, the chairman of the House Financial Services Committee, Cuomo wrote that his office has subpoenaed AIG for the names of those who got bonuses from the company after it had taken a $170 billion bailout from the federal government.

Cuomo wrote that his office had not gotten a list of names from the company, but it had found out this much:

• The top recipient received more than $6.4 million;
• The top seven bonus recipients received more than $4 million each;
• The top ten bonus recipients received a combined $42 million;
• 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
• 73 individuals received bonuses of $1 million or more; and
• Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million

Cuomo was not gentle in his condemnation of AIG. The indignation of his letter was only slightly less than that of Sen. Chuck Grassley, who said AIG executives should resign or kill themselves.

From Cuomo's letter to Frank:

We learned over the weekend that AIG had, last Friday, distributed more than $160 million in retention payments to members of its Financial Products Subsidiary, the unit of AIG that was principally responsible for the firm's meltdown. Last October, AIG agreed to my Office's demand that no payments be made out of its $600 million Financial Products deferred compensation pool. While this was a positive step, we were dismayed to learn after the fact that AIG had made multi-million dollar payments out of its separate Financial Products retention plan on Friday.

AIG now claims that it had no choice but to pay these sums because of the unalterable terms of the plan. However, had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan. My Office has reviewed the legal opinion that AIG obtained from its own counsel, and it is not at all clear that these lawyers even considered the argument that it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money.

Politicians pile on AIG after news of bonus payments

Since the news broke that AIG, the floundering insurance giant, was paying out $165 million in bonuses, the company has become an easy target for politicians.

The company announced this weekend that it was contractually obligated to pay up to $450 million in bonuses, with the first round going to executives.

This morning, President Barack Obama lashed out at AIG, which has been the beneficiary of $170 billion in emergency government aid.

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama said. "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?"

Noting that AIG's previous management signed the deals with its employees, Obama said his administration would do what it could to reverse the payments.

"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," he said.

It is unclear what if anything can legally be done to stop the bonus payments. Edward Liddy, the current CEO of AIG, said in a letter to Geithner that his hands were tied.

"Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Liddy wrote. "Honoring contractual commitments is at the heart of what we do in the insurance business. I cannot have our clients lose faith in our desire and ability to do just that."

On ABC's This Week, Larry Summers, the president's top economic adviser, said, "We are a country of laws. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system."

Rep. Barney Frank, the chairman of the House Financial Services Committee, gave the impression on the Today show that he intended to find a way.

"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank

New York's Attorney General Andrew Cuomo is already pressuring AIG to release the names of those who are getting the payments and is threatening an investigation.

"We have requested the list of individuals who are to receive payments under this retention plan, as well as their positions at the firm, and it is surprising that you have yet to provide this information," Cuomo wrote in a letter to AIG. "In addition, we also now request a description of each individual's job description and performance at AIG Financial Products."

Cuomo's letter gave four reasons for wanting the company to name names:

1. whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout
2. whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions
3. whether such contracts may be unenforceable for fraud or other reasons
4. whether any of the retention payments may be considered fraudulent conveyances under New York law