RKMBs Forums .::Important::. Politics and Current Events The Great Crash of 2008

So, the banks are starting to admit that they didn't need money in the first place but took it anyway.

Take this TARP and shove it? Not so fast.
Goldman Sachs wants to pay back the bailout money it got from the government last year. But that may be easier said than done...and a bad idea.

NEW YORK (CNNMoney.com) -- Some major financial firms are getting anxious about giving back the billions in U.S. government rescue funds they took hold of late last year. But it may not be that simple.

David Viniar, Goldman Sachs' (GS, Fortune 500) chief financial officer, made headlines Wednesday when he voiced that very sentiment to attendees of a Credit Suisse conference, saying it would be easier for the company to run its business if it could pay back the $10 billion in capital it received from the government last fall.

And in a statement to CNNMoney.com Thursday, Bank of New York Mellon (BK, Fortune 500), which received $3 billion last year, said it was looking to redeem the government's investment "as soon as is practical."

These comments come at a time when public distaste for the nation's banking industry is boiling over. Taxpayers are seething over the fact that major financial firms continue to pay lavish bonuses and make seemingly frivolous purchases after getting government aid.

Earlier this week, President Obama struck back, announcing that the government would limit executive pay for any institution that accepts government financial aid in the future from programs such as the Troubled Asset Relief Program, or TARP.

Fearing that lawmakers will make further demands, it's no surprise that Goldman may want to free itself from more regulatory influence.

But Goldman, or other banks for that matter, can't just simply write the government a new check for the money they received last year. And even if they could, it might not be a good idea.

Goldman Sachs and the other top banks that were recipients of the first round of TARP funding, including State Street (STT, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and Bank of America (BAC, Fortune 500), weren't exactly given a choice about signing up when the program was first announced in October.

Federal Reserve chief Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair defended the move at the time, saying it would help stabilize the shaky banking industry.

Credit market conditions may have improved somewhat since then, but it remains to be seen whether Goldman Sachs, or any other leading bank for that matter, is indeed healthy enough to shun government assistance and go it alone.

Mark Lane, an equity research analyst who tracks Goldman Sachs and rival Morgan Stanley (MS, Fortune 500), which also received $10 billion in TARP funds, at Chicago-based investment firm William Blair & Co., is one disbeliever.

"[Goldman] cannot fund their business on an unsecured basis," he said "To say we don't need TARP funds doesn't make a lot of sense to me."

Last quarter's sharp downturn in the economy and dour capital markets activity rippled through the banking sector, resulting in billions of dollars in losses for many firms, including Goldman Sachs. Shares of most major banks have tumbled this year, as a result.

What's more, under the terms of the Treasury's capital purchase program, a bank can only buy out the government's stake as long as the money comes from an equity offering of a similar amount that meets government approval.

And in these market conditions, it seems highly unlikely that banks would be able to raise that much capital.

So many investors have gambled on U.S. financial firms over the past year and a half, only to watch those shares suffer another steep decline just months, or even weeks, later. In addition, an offering of new shares would cause substantial dilution to the value of the holdings of existing shareholders, something that banks may not want to risk.

Ultimately Goldman and other banks simply don't like being susceptible to the government's bidding, according to one hedge fund manager, especially as the White House gears up to unveil its latest efforts to deal with the financial crisis on Monday.

"What it really comes down to is Goldman Sachs does not have control of its own destiny," said James Ellman, head of San Francisco-based Seacliff Capital, a hedge fund specializing in financial services. "The President of the United States does and the President of the United States will tell us in 3 to 4 days what Goldman Sachs' options are."

PJB: ‘Buy American’ — or Bye-Bye America

By Patrick J. Buchanan

“British jobs for British workers!” thundered Gordon Brown, as he emerged from the shadow of Tony Blair to become prime minister.

His populist sloganeering has now come back to bite him.

Across Britain, thousands laid down tools in wildcat strikes in solidarity with a walkout from a French-owned oil refinery in North Killinghome — to protest a $300 million contract to an Italian company that plans to bring in 400 Italian and Portuguese workers to fulfill it.

As Brown pleaded from the World Economic Forum in Davos, Switzerland, that Britain must not retreat into “protectionism,” strikes spread to Scotland, Wales and Ulster.

Britain’s commitment to let foreigners buy up its utilities and industries and bring in foreign workers to run them has backfired. Brown’s own Labor Party is now angrily demanding that he live up to his pledge: British jobs for British workers.

“The Return of Economic Nationalism,” wails the alarmed cover of The Economist. And understandably so.

For the stimulus bills of both Houses have a “Buy American” provision mandating that in “public works” only U.S. iron, steel and manufactures be used. The provision came out of the appropriations committee of the House on a 55-to-0 vote.

The Senate watered it down by declaring the Buy American provision must be consistent with all U.S. trade commitments. But Congress is sending a message: The rebuilding of America is to be a project of, by and for Americans, not outsourced. Sen. McCain’s free-trade amendment, to strip all Buy American provisions from the bill, was routed 65 to 31

The reaction of Barack Obama, a NAFTA skeptic in 2008 with bumper stickers that read, “Buy American, Vote Obama,” was to genuflect to the gods of globalism and recant his economic patriotism.

“I think it would be a mistake … at a time when worldwide trade is declining, for the United States to start sending a message that somehow we’re just looking out after ourselves,” he told Fox News. We don’t want to “trigger a trade war,” he told ABC.

Apparently, Obama was unnerved by rumbles from Europe, which is threatening to drag us before a World Trade Organization tribunal and have “Buy American” banished forever.

But there is no easy way out now for a Democratic Party where economic nationalism is rampant. If Congress drops or Obama refuses to enforce the Buy American provision, and billions of stimulus dollars are spent on foreign iron, steel and cement, Middle America will know whom to blame. But if Americans get the contracts, and Europeans get nothing, Europe will have to decide whether to retaliate and start a trade war with a populist and nationalist America.

We may be at a turning point in history. For we are about to choose whether to fully and finally cast our lot with globalism, or to become again a nation and people who put Americans first.

We are about to decide, perhaps for all time, whether we believe in a deepening interdependence leading to one world government, or we restore the independence won for us by the men on Mount Rushmore: Washington, Jefferson, Lincoln and Theodore Roosevelt.

All four were economic nationalists. All would today be decried as protectionists. For all believed that the nation’s independence and prosperity hung upon its ability to stand alone in the world, and that foreign goods should never enjoy as privileged access to America’s markets as American goods made in the U.S.A.

All four put America first. And it was they who created out of 13 rural colonies the greatest manufacturing power in history. Is not their record superior to what Bush-Clinton-Bush left us: a hollowed-out industrial nation dependent on foreigners for the needs of our national life and for the loans to pay for them?

Even John Maynard Keynes came around in 1933 to believe in “national self-sufficiency.”

Those who prattle about the perils of protectionism need to be asked: What has free trade produced, but a bankrupt America that must go hat-in-hand to Beijing to borrow the money to rebuild our crumbling infrastructure? Are we also to use Chinese iron, steel and cement because they, with their Third World wages, will work for less than our fellow Americans?

As for Europe’s threat of a trade war, bring it on!

We would eat their lunch. As analyst Charles McMillion writes, in eight years of Bush, Canada ran up $500 billion in trade surpluses at our expense, Japan ran up $600 billion, the European Union $800 billion.

These three trading partners, often by imposing value-added taxes on U.S. imports, and rebating those taxes on goods sold here, racked up $1.9 trillion in trade surpluses, sucking jobs, factories and technology out of the United States. These trade deficits, and the even larger ones with China, says Paul Volcker, are behind our present crisis.

America is bust. It is shameful to have to go to China and Japan to borrow the money to rebuild America. But to go to China and Japan and borrow billions, and not spend the money here, makes zero sense.

We have indulged in free trade for a quarter century. And look where it has gotten us.

I disagree with it. Not only does protectionism hurt the economy in the long run and encourage shoddy workmanship and union thuggery, but Buchanan was discovered some years ago to favor Mercedes cars over domestic models.

Despite all the White House hoopla Monday about "fiscal responsibility," Washington is showing little inclination to practice what it's preaching.

The $787 billion stimulus package that President Barack Obama signed Feb. 17 adds an estimated $185 billion to the already-record federal deficit for fiscal 2009, pushing it up to about $1.4 trillion . That's a whopping 10 percent of the gross domestic product, the highest level since the end of World War II.

The measure's full of projects that Democrats, who are in charge of the legislative and executive branches for the first time since 1994, have sought for years, and it's questionable whether many of those provide the economy much of a short-term boost.

Even more such projects are included in the next round of legislation, a $410 billion spending plan for the rest of fiscal 2009 that the House of Representatives is to consider Wednesday.

That package would spend about 8 percent more than the same programs got last year, the second biggest annual increase since 1978 for discretionary spending, programs that the government isn't required to fund, unlike Social Security and Medicare .

The White House message Monday at the fiscal meeting, which included experts from the political, academic and economic worlds, was one of hope.

"As we take the steps that we must to get through the crisis we're in now, we will not lose sight of the long term," Vice President Joe Biden said.

Obama pledged to cut the deficit in half by the end of his first term, but he's counting on the stimulus to get the economy growing again soon, and some experts call that a risky bet.

"This really doesn't do much to juice the economy in the short term," said Brian Bethune , the chief U.S. financial economist at IHS Global Insight, an economic consulting firm in Lexington, Mass.

The nonpartisan Congressional Budget Office agreed. It found that only 23 percent of the stimulus would be spent by Oct. 1 , growing to 74 percent by the end of fiscal 2010 a year later.

The most immediate stimulus will come as tax relief, notably the $400 annual reduction in payroll taxes for most taxpayers, as well as extra unemployment benefits and help for states with Medicaid expenses, the health-care program for poor people and those with disabilities.

Obama also called Monday for pay-as-you-go spending, to avoid having new programs swell the deficits, but the legislation that the House will consider Wednesday eschews that approach.

Most government programs will run out of money March 6 unless Congress acts.

House Speaker Nancy Pelosi , D- Calif. , on Monday defended the coming spending spree, which includes an estimated 9,000 earmarks, or local projects, said to cost about $5 billion . She called the bill "the unfinished business of last year, when the president refused to address the priorities and needs of the American people."

Democrats have been awash recently in unfinished fiscal business. Last year, for instance, President George W. Bush wanted to end or cut back several law-enforcement grant programs as well as spend less on the environment, health, labor and education than Democrats wanted.

The stimulus included $2.7 billion for seven major justice grants, including the Byrne Grants, which state and local governments use for crime-fighting strategies.

Democrats also got a long list of other projects into the bill whose stimulative effects have been questioned, including $50 million for the National Endowment for the Arts , $165 million for "critical deferred maintenance" at wildlife refuges and fish hatcheries, $200 million for the Department of Homeland Security to relocate its headquarters and $300 million so that the government can buy more fuel-efficient vehicles.

Some experts maintain that all the spending is easily justified.

"You're adding $787 billion to the economy that wouldn't otherwise be there," said Stan Collender , a veteran Washington budget analyst.

Critics counter that too much of the stimulus is unfocused. Independent analysts had two other concerns.

First, they said, the stimulus, as well as the fiscal 2009 budget legislation, may not provide the psychological boost the economy needs. The bills are too difficult for the public to grasp, because they have so many ways of stimulating the economy and the aid isn't clearly visible. Then too, the stimulus' costliest tax break, the $400 annual rebate, Bethune said, "is pretty minimal," since it will add only about $13 a week to most paychecks.

The next biggest tax break, a $70 billion patch in the alternative minimum tax, is "a phantom," he said, since it simply wipes off the books an increase that people will never see. Economists agree: That one's not stimulative. Congress passes it every year; Democrats just loaded it into the stimulus bill to get it out of the way.

The other problem involves the view that Washington isn't being fiscally responsible long term by focusing so much on the near term. The CBO warns that while the stimulus should boost the gross domestic product by 1.4 percent to 3.8 percent this year and 1.1 percent to 3.3 percent next year, long-term uncertainties loom.

The CBO projects that the GDP in 2015 and beyond will be as much as 0.2 percent smaller than it would have been without the stimulus package, dragged down by financing all the debt that's being piled up. In addition, noted the Committee for a Responsible Federal Budget, a bipartisan fiscal research group, the bill will "have a permanent impact on the deficit through higher interest payments on additional public debt."

As Kenneth Thomas , a lecturer in finance at the Wharton School of the University of Pennsylvania , put it, "There's going to be collateral damage. But now the goal is just to put out the fire."

House Democrats unveiled a $410 billion spending bill on Monday to keep the government running through the end of the fiscal year, setting up the second political struggle over federal funds in less than a month with Republicans.

The measure includes thousands of earmarks, the pet projects favored by lawmakers but often criticized by the public in opinion polls. There was no official total of the bill's earmarks, which accounted for at least $3.8 billion.

The legislation, which includes an increase of roughly 8 percent over spending in the last fiscal year, is expected to clear the House later in the week.

Democrats defended the spending increases, saying they were needed to make up for cuts enacted in recent years or proposed a year ago by then-President George W. Bush in health, education, energy and other programs.

Republicans countered that the spending in the bill far outpaced inflation, and amounted to much higher increases when combined with spending in the stimulus legislation that President Barack Obama signed last week. In a letter to top Democratic leaders, the GOP leadership called for a spending freeze, a step they said would point toward a "new standard of fiscal discipline."

Either way, the bill advanced less than one week after Obama signed the $787 billion economic stimulus bill that all Republicans in Congress opposed except for three moderate GOP senators.

Apart from spending, the legislation provides Democrats in Congress and Obama an opportunity to reverse Bush-era policy on selected issues.

It loosens restrictions on travel to Cuba, as well as the sale of food and medicine to the communist island-nation.

In another change, the legislation bans Mexican-licensed trucks from operating outside commercial zones along the border with the United States. The Teamsters Union, which supported Obama's election last year, hailed the move.

The Bush administration backed a pilot program to permit up to 500 trucks from 100 Mexican motor carriers access to U.S. roads.

The legislation covers programs for numerous Cabinet-level and other agencies, and takes the place of regular annual spending bills that did not pass last year as a result of a deadlock between the Bush administration and the Democratic-controlled Congress.

Congressional expenses are included. The bill provides $500,000 for what is described as a Senate "pilot program" that will defray the cost of mass mail postcards to households notifying them of a nearby town meeting to be attended by any senator.

The Democratic-controlled House approved $410 billion legislation Wednesday that boosted domestic programs, bristled with earmarks and chipped away at policies left behind by the Bush administration. The vote was 245-178, largely along party lines.

Republicans assailed the measure as too costly — particularly on the heels of a $787 billion stimulus bill that President Barack Obama signed last week. But Democrats jabbed back.

"The same people who drove the economy into the ditch are now complaining about the size of the tow truck," said Rep. James McGovern, D-Mass., pointing out the large increase in deficits that President George W. Bush and GOP-controlled Congresses amassed.

From the GOP side, Rep. Jeb Hensarling of Texas said the legislation was "going to grow the government 8.3 percent ... but the family budget which has to pay for the federal budget only grew at 1.3 percent last year."

The debate occurred one day after Obama told Congress in a prime time television address that he intends to cut deficits in half over the next four years, and one day before he submits tax and spending plans for the coming year. Given the extraordinary costs of the financial industry bailout and the stimulus, the White House projects this year's budget shortfall will be $1.5 trillion, triple the previous record of $455 billion in 2008.

In a symbolic bow to the recession, Democrats included in the spending measure a prohibition on a cost-of-living increase for members of Congress for the year.

Overall, the legislation would provided increases of roughly 8 percent for the federal agencies it covered, about $32 billion more than last year.

The bill is intended to allow smooth functioning of the government through the Sept. 30 end of the fiscal year. The Senate has yet to vote on its version.

After persuading lawmakers to keep earmarks off the stimulus bill, Obama made no such attempt on the first non-emergency spending measure of his presidency. The result was that lawmakers claimed billions in federal funds for pet projects — a total of 8,570 earmarks at a cost of $7.7 billion, according to Taxpayers for Common Sense. Majority Democrats declined to provide a number of earmarks, but said the cost was far smaller, $3.8 billion, 5 percent less than a year ago.

Among the earmarks was one sponsored by Rep. Howard Berman, D-Calif., who secured $200,000 for a "tattoo removal violence outreach program" in Los Angeles. Aides said the money would pay for a tattoo removal machine that could help gang members or others shed visible signs of their past, and anyone benefiting would be required to perform community service.

Rep. Mark Kirk, R-Ill., said the bill included at least a dozen earmarks for clients of PMA Group, a lobbying company now at the center of a federal corruption investigation.

"It's simply not responsible to allow a soon-to-be-criminally indicted lobbying firm to win funding, all borrowed, in this bill," he said. No charges have been filed against the firm or its principals, although the company's offices were raided earlier this month, and it has announced plans to disband by the end of the month.

Federal prosecutors are investigating PMA Group's founder and president, Paul Magliochetti, who is a former top aide to Rep. John Murtha, D-Pa., chairman of the House Appropriations subcommittee that funds defense programs.

In remarks on the House floor, Republican leader John Boehner urged Obama to veto the legislation, citing earmarks.

At the White House, press secretary Robert Gibbs responded only in general terms whether that was possible.

"There is great concern in this building and by the president about earmarks," Gibbs said. "Without having looked specifically at a piece of legislation, I'm hesitant to throw out that four-letter word, `Veto.'"

After eight years without control of the White House, congressional Democrats also used the legislation to target several policies of former President Bush.

Under the bill, Mexican-licensed trucks are banned from operating outside commercial zones along the border with the United States. The Teamsters union, which supported Obama's election last year, had sought the move. The Bush administration backed a pilot program to permit up to 500 trucks from 100 Mexican motor carriers access to U.S. roads.

Bush administration restrictions on travel to Cuba were loosened in the legislation, to permit more frequent visits and expand the list of family members permitted to make trips to see relatives on the Communist nation-island.

Rep. Doc Hastings, R-Wash., took aim at a provision that he said would vastly broaden the government's ability to invoke the threat of climate change to halt economic development. "Most all of the shovel-ready projects on the trillion-dollar stimulus bill would in fact be at risk," he said.

Nominally, the provision halts implementation of a Bush-era regulation that lists the polar bear as a threatened species, and Rep. David Obey, D-Wis., and chairman of the House Appropriations Committee, said it would merely give the new administration 60 days to decide its fate.

Democrats also inserted a provision into the bill to end a program that allows students in the District of Columbia to use federal funds to attend private schools of their choice. Boehner, who helped establish the program as part of a political bargain several years ago, called the move "hideous."

Billions of American taxpayer dollars used to bailout insurance giant AIG are flowing to some of the largest foreign banks in the world, according to new documents released by beleaguered company Sunday.

The revelation seemed sure to cause political complications for President Barack Obama and his economic team, already on the defensive Sunday over why they couldn’t stop AIG from doling out $165 million in bonuses to some of its top corporate officials – even as the company was receiving a massive infusion of taxpayer funds.

The documents AIG released account for some of the more than $180 billion in aid that AIG has received, and they detailed for the first time which financial firms are benefitting from the federal handout.
In all, AIG disclosed payments of $105.3 billion between September and December 2008. And some of the biggest recipients were European banks. Societe Generale, based in France, was the top foreign recipient at $11.9 billion, Deutsche Bank of Germany got $11.8 billion and Barclays, based in England, was paid $8.5 billion.

Here in the U.S. , Goldman Sachs received $12.9 billion. Edward Liddy, the government-installed CEO of AIG, sat on the board of directors of Goldman Sachs until he joined AIG.

He took the position while President Bush's Treasury Secretary, Henry Paulson—who until joining the administration had served as Goldman's Chairman and CEO—arranged the insurance company's initial government bailout.

The disclosure of US taxpayer money going to foreign banks rankled some analysts. “These revelations raise serious questions about the extent to which U.S. taxpayers are being asked to bail out foreign banks,” said James Rickards, the Senior Managing Director for Market Intelligence at Omnis, an applied research organization. “Why were French and German authorities not asked to pick up the tab for their portion of potential AIG losses?”

Political pressure is also building on AIG, as House Speaker Nancy Pelosi on Sunday called on AIG executives to “renounce” their bonuses and refuse retention pay, and said that House Financial Services Chairman Barney Frank would “examine options that are legally available to recover taxpayer funds of companies that abuse the privilege of taxpayer assistance.”

The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises has called on Liddy to testify before the committee on Wednesday.

That’s information that members of Congress and media outlets have been trying to get either AIG or the federal government to divulge since last year. The U.S. government now holds a majority stake in the bank,

AIG has resisted disclosure of the so-called "counterparties" who were at the other end of the firm’s complicated financial transactions. The company argued that such information was proprietary and private. And the Bush and Obama administrations also declined to divulge the information. But some in Congress pushed hard for it, insisting that taxpayers had a right to know which companies were benefiting from bailout money.

"Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions," said Liddy.

Senate Democratic Leader Harry Reid said Tuesday Congress will force executives of American International Group to pay back at least some of the $165 million in bonuses they received after the insurance giant got billions in federal bailout money.

It's unclear how that would be done, but Senate Finance Committee Chairman Max Baucus suggested imposing an excise tax on the AIG bonuses. "What is the highest excise tax we can impose that will stand up in court?" Baucus asked. "Let's find out what it is."

The latest jockeying came amid mounting criticism of the bonuses and after the Obama administration said it wanted to put strict limits on how future government bailout dollars can be used. That didn't stop sharp questions about what the administration knew about the bonuses — and when.

Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, chastised the administration earlier Tuesday, saying Treasury Secretary Timothy Geithner should have blocked the payouts. Shelby charged that Geithner either knew or should have known about the bonuses.

"We need to know, what are the details of this? When were the bonuses signed up? Who's getting it?" Shelby said.

The Alabama senator stopped short of calling for Geithner's resignation, but said, "He's under fire from all sides now."

"I don't know if he should resign over this," Shelby said. "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."

AIG was predictably raked over the coals at a banking committee hearing on regulating the insurance industry.

"One way or another, we're going to try to figure out how to get these resources back," said Christopher Dodd, D-Conn., the panel's chairman.

"This is ridiculous," exclaimed Sen. Jon Tester, D-Mont. He said AIG executives "need to understand that the only reason they even have a job is because of the taxpayers."

Sen. Sam Brownback, R-Kan., said that any AIG executive who received a bonus should return it or be fired.

"I am outraged at the news that AIG, a company that has taken so much taxpayer money in the form of bailouts, is now paying out hundreds of millions of dollars in executive bonuses," Brownback said. "I will do everything I can to see that AIG returns its bonus money to taxpayers."

Edward Liddy, the CEO of American International Group Inc., is scheduled to testify Thursday before a House subcommittee.

AIG is not alone in the controversy, however.

Earlier this month, Sen. Robert Menendez, D-N.J., a member of the Senate banking committee, sent a letter to Geithner urging him to investigate bonuses reportedly planned by Morgan Stanley and Citigroup's Smith Barney as well as deferred guaranteed bonuses being considered by Bank of America.

Morgan Stanley's joint brokerage venture with Citigroup was reportedly planning to pay its brokers up to $3 billion in retention bonuses to keep them from jumping to other firms. Wells Fargo & Co., however, decided not to make such retention payments to Wachovia Corp.'s brokers. Wells Fargo acquired Wachovia in December.

"Awarding excessive bonuses to executives who have driven their companies to the brink of collapse would seem to be fundamentally backwards," Menendez wrote. "Using taxpayer funds to make these payments would be offensive and illegal."

The financial bailout program remains politically unpopular and has been a drag on Obama's new presidency, even though the plan began under his predecessor, President George W. Bush. The White House is aware of the nation's bailout fatigue; 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 have paid the price.

President Barack Obama has lambasted the insurance giant for "recklessness and greed" and pledged to try to block payment of the bonuses. Obama said he had directed Geithner to determine whether there was any way to retrieve or stop the bonus money — a move designed as much for public relations as for public policy.

New York Attorney General Andrew Cuomo said he has issued subpoenas for the names of AIG employees given bonuses despite their possible roles in its near-collapse. Cuomo said his office will investigate whether the bonus payments are fraudulent under state law because they were promised when the company knew it wouldn't have the money to cover them. AIG reported this month that it lost $61.7 billion in the fourth quarter of last year, the largest corporate loss in history, and it has benefited from more than $170 billion in a federal rescue.

WASHINGTON – Cue the outrage. For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back.

Why the sudden furor, just weeks after Barack Obama's team paid out $30 billion in additional aid to the company? So far, the administration has been unable to match its actions to Obama's tough rhetoric on executive compensation. And Congress has been unable or unwilling to restrict bonuses for bailout recipients, despite some lawmakers' repeated efforts to do so.

The situation has the White House and Treasury Secretary Timothy Geithner on the defensive. The administration was caught off guard Tuesday trying to explain why Geithner had waited until last Wednesday to call AIG chief executive Edward M. Liddy and demand that the bonus payments be restructured.

Neither Obama nor Geithner learned of the impending bonus payments until last week, senior administration officials told The Associated Press late Tuesday, speaking on condition of anonymity about internal discussions.

Publicly, the White House expressed confidence in Geithner — but still made it clear he was the one responsible for how the matter was handled.

"I do know that Secretary Geithner last week engaged with the CEO of AIG to communicate what we thought were outrageous and unacceptable bonuses," White House spokesman Robert Gibbs said. Gibbs declined to provide a timeline that would show when members of the administration — including the president and others at the White House — became aware of the bonuses.

In an interview with The Associated Press, Obama's chief economic adviser Lawrence Summers said: "In the context of what we're doing, Secretary Geithner was notified, he has said, last week. As he reported to the rest of us, he moved aggressively and immediately, aggressively and immediately, to recoup whatever could be legally recouped. He recognized that you can't just abrogate contracts willy-nilly, but he moved to do what could be done."

The bonus problem wasn't new, as many lawmakers and administration officials knew only too well. AIG's plans to pay hundreds of millions of dollars were publicized last fall, when Congress started asking questions about expensive junkets the company had sponsored. A November SEC filing by the company details more than $469 million in "retention payments" to keep prized employees.

Back then, Rep. Elijah E. Cummings, D-Md., began pumping Liddy for information on the bonuses and pressing him to scale them back. "There was outrage brewing already," Cummings said. "I'm saying (to Liddy), 'Be a good citizen. ... Do something about this.' "

Around the same time, outside lawyers hired by the Federal Reserve started reviewing the bonuses as part of a broader look at retention and compensation plans, according to government officials who spoke on condition of anonymity. The outside attorneys examined the possibility of making changes to the company plans — scaling them back, delaying them or rescinding them. They ultimately concluded that even if AIG's bonuses were withheld, the company would probably be sued successfully by its employees and be forced to pay them, the officials said.

In January, Reps. Joseph E. Crowley of New York and Paul E. Kanjorski of Pennsylvania wrote to the Federal Reserve and the Treasury Department pressing the administration to scrutinize AIG's bonus plans and take steps against excessive payments.

"I at that point realized that we were going to have a backlash with regard to these bonuses," Kanjorski said in an AP interview. In a meeting with Liddy later that month, he said he told the AIG chief that "all hell would break loose if we didn't find a way to inform the public ... and that we should take every step to put that information out there so we wouldn't have the shock."

Around the same time, Congress and Obama's team were passing up an opportunity to put in place strict laws to revoke bonuses from recipients of the $700 billion Wall Street bailout. In February, the Senate voted to add such a proposal to the economic recovery bill that cleared Congress, but in final closed-door talks on the measure, that provision was dropped in favor of limits that affect only future payments.

"There was a lot of lobbying against it and it died," said Sen. Ron Wyden, D-Ore., who proposed the measure with Republican Sen. Olympia J. Snowe of Maine. He said Obama's team is sending mixed messages on what will and won't be tolerated on bonuses, with the president coming out strongly against excessive Wall Street rewards but top officials not following through.

"The president goes out and says this is not acceptable, and then some backroom deal gets cut to let these things get paid out anyway," Wyden said. "They need to put this to bed once and for all."

Last Wednesday, an apparently tense conversation between Geithner and Liddy brought the matter to a head. Geithner had learned of the bonus payments the previous day, said a Treasury Department official familiar with the government's dealings with AIG.

Liddy, in a letter to Geithner on Saturday, referred to their "open and frank conversation" over the retention payments on March 11. "I admit that the conversation was a difficult one for me," Liddy wrote.

On Thursday, as Treasury lawyers scrambled to find a way to cancel the payments, Geithner informed the White House of the situation, and senior aides there relayed it to Obama, the administration officials said.

Meanwhile, the administration moved to get ahead of what was certain to be an embarrassing story.

Unprompted, officials leaked news of the bonuses to select reporters late Saturday afternoon, highlighting what Geithner had done to try to restrain the payments. The story quickly became fodder for the Sunday news talk shows.

Then on Monday, the president himself came out strongly on the issue, calling the payments "an outrage" and publicly directing his team to look for ways to cancel the payments.

Questioned repeatedly to explain this in light of the fact that the administration had already scoured its options and come up empty — and that the bonuses had already gone out the door to their recipients — Gibbs said that the president wanted his aides to make sure "to exhaust all legal remedies."

That's done little to quell the expressions of outrage that were blasting about by Tuesday.

"It's shocking," said Sen. Mitch McConnell, R-Ky., the minority leader, that "the administration would come to us now and act surprised."

Around the same time, Congress and Obama's team were passing up an opportunity to put in place strict laws to revoke bonuses from recipients of the $700 billion Wall Street bailout. In February, the Senate voted to add such a proposal to the economic recovery bill that cleared Congress, but in final closed-door talks on the measure, that provision was dropped in favor of limits that affect only future payments.

"There was a lot of lobbying against it and it died," said Sen. Ron Wyden, D-Ore., who proposed the measure with Republican Sen. Olympia J. Snowe of Maine. He said Obama's team is sending mixed messages on what will and won't be tolerated on bonuses, with the president coming out strongly against excessive Wall Street rewards but top officials not following through.

"The president goes out and says this is not acceptable, and then some backroom deal gets cut to let these things get paid out anyway," Wyden said. "They need to put this to bed once and for all."

The problem here is that AIG has no other choice. It's largely because of government mandates that AIG must fulfill contractual obligations that involve bonuses or they'll be in trouble with the law anyway. They're screwed whatever route they take.

Forcing them to circulate money how the government sees fit just ends up undermining the principles behind private business.

Since there's no way to interact with the private enterprise without violating their fiscal independence, they should never have involved government with AIG at all. But I'm sure we all knew that.

Sen. Chris Dodd (D-Conn.) looks like he may be facing a fresh political firestorm.

Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision. .

“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon.

“But for that language, there would have been no language to deal with this at all.”

Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill. As late as today, Dodd’s spokeswoman denied the senator’s involvement.

The AIG bonuses have caused a political firestorm, with Republicans and Democrats alike looking to lay blame for who’s responsible, and leading lawmakers looking to revoke the bonuses.

Dodd’s role in the legislation will likely come up as he faces the likelihood of a tough re-election. Former GOP congressman Rob Simmons announced he was running this week, and has already taken issue with Dodd’s stewardship as chairman of the Senate Banking Committee.

WASHINGTON – For a while, the disappearance of an executive bonus restriction from last month's economic stimulus looked like sleight of hand worthy of a Las Vegas stage. No one could explain how the provision faded into thin air. On Wednesday, Sen. Chris Dodd, D-Conn., acknowledged that his staff agreed to dilute the executive pay provision that would have applied retroactively to recipients of federal aid.

Dodd, the chairman of the Senate Banking Committee, told CNN that the request came from Obama administration officials whom he did not identify.

The provision was the subject of new attention this week because, had it survived, it would have prevented the American International Group Inc. from granting $165 million in bonuses to employees of its financial products division.

While the House and Senate reconciled their different stimulus bills last month, the Treasury Department expressed concern with a Senate restriction on bonuses, noting that if it applied to existing compensation contracts it could face a legal challenge.

"The alternative was losing, in my view, the entire section on executive excessive compensation," Dodd told CNN. "Given a choice, this is not an uncommon occurrence here, I agreed to a modification in the legislation, reluctantly."

An administration official said Treasury made Dodd's staff aware of the potential for litigation but did not demand that the provision be removed from the final bill. The official spoke on the condition of anonymity because he was not authorized to discuss the matter in public.

The legislation does include a provision that allows Treasury to examine past compensation payments to determine if they were "contrary to the public interest." Treasury Secretary Timothy Geithner on Tuesday said he was using that provision to determine whether the government could somehow recoup the AIG bonuses.

Over the years, Dodd has been the top recipient of campaign contributions from AIG employees. During 2007-2008, when he ran for president, he received nearly $104,000 from AIG employees and their families, according to the Center for Responsive Politics, a nonpartisan group that monitors money in politics.

In a statement, his office said Dodd only became aware of the AIG bonuses in the past few days. "To suggest that the bonuses affecting AIG had any effect on Sen. Dodd's action is categorically false," Dodd spokeswoman Kate Szostak said.

Mortgage finance giants Fannie Mae and Freddie Mac plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs at the government-controlled companies.

The retention awards for more than 7,600 employees were disclosed in a letter from the companies' regulator released Friday by Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. The companies paid out nearly $51 million last year, are scheduled to make $146 million in payments this year and $13 million in 2010.

"It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year," Grassley said in a statement. "It's an insult that the bonuses were made with an infusion of cash from taxpayers."

Fannie and Freddie declined to comment on Friday. Fannie had disclosed that it plans to pay four top executives at least $1 million each in retention payments that run through February. Freddie has yet to report on which executives are in line for the awards.

The two companies, hobbled by skyrocketing loan defaults, were seized by regulators last fall and operate under close federal oversight with new chief executives installed by the government. Since the takeover, Fannie Mae has received $15 billion in federal aid, while Freddie Mac has received nearly $45 billion.

The companies' federal regulator, James Lockhart of the Federal Housing Finance Agency, defended the bonuses in a March 27 letter to Grassley, noting that the collapse of the company's stock prices "destroyed years of savings for many" workers. The companies' stocks now trade below $1, down from more than $60 in fall 2007.

Lockhart denied a request Grassley made last month to release names of employees receiving at least $100,000 in bonuses, citing "personal privacy and safety reasons."

More than 70 percent of new loans in recent months have been backed by Fannie and Freddie. They own or guarantee almost 31 million mortgages worth about $5.5 trillion, more than half of all U.S home loans.

Keeping the companies "operating at full speed was best for the housing markets and best for the economy," Lockhart wrote. "That would only be possible is we retained the Fannie and Freddie teams."

But many lawmakers have little sympathy for that argument amid a public outcry over roughly $165 million in bonuses paid out last month by bailed-out insurance giant American International Group.

Earlier this week, the House passed a bill that aims to keep bailed-out financial institutions from paying their employees hefty bonuses after lawmakers had second thoughts about their vote two weeks ago to tax the bonuses away. The bill would allow the bonuses if the Treasury Department and financial regulators determine they are not "unreasonable or excessive."

Initially after the AIG flap, President Barack Obama had said he would "do everything we can to get those bonuses back." But the White House later backed down as it worked to ensure any restrictions on bonuses didn't alienate the banks and investors needed to help clean up the financial mess.