In hoping to prevent a global economic collapse, Congress and the president have had to walk a fine line. On one side is bubbling populist rage at failed banks getting showered in taxpayer money. On the other, the worry that without such bailouts, the whole system could come crashing down -- a fear happily fed by the banks themselves.
AIG's decision to use $165 million in taxpayer money for executive bonuses -- after Congress begged the financial sector to act with humility to keep public rage at a minimum -- indicates it has little sympathy for the plight of the politicians.
Whether the U.S. is on the right path out of the crisis remains to be seen. But it's widely agreed that the existential threat to the global economy is still very real and needs to be dealt with rationally.
For some in Congress, it's already too late for AIG. "They best not be asking for more money, for whatever reason, for them. They just won't get it," said Sen. Patrick Leahy (D-Vt.).
The first bailout legislation passed with the support of leaders in both parties, media elites, President Bush and both presidential candidates, but it was generally opposed by the public and much of the rank and file members of Congress. House Republican leadership has since withdrawn its support, leaving Democrats to carry the financial sectors' water. And the bankers seem to have no interest in lightening the load.
Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, has been a lead castigator of the financial sector, warning them repeatedly that flagrant abuse of taxpayer dollars (lavish retreats, corporate jets and the like) would only increase the public resentment and jeopardize the long-term strategy, such as it is, to rescue the financial system.
Does this latest move by AIG undermine the effort?
"Yes," said Frank. "That's not the reason to fix it, but of course."
Senate Majority Whip Dick Durbin (D-Ill.) said that the issue of AIG's bonuses needed to be dealt with quickly. "I think doing something decisive to put an end to this will help us have a more rational policy when it comes to dealing with these financial institutions," he said. "The level of public anger over this bonus issue is important to deal with directly. We're fed up with these bonus babies."
The AIG bonus scandal "undermines the type of support that we need in order to give confidence to the economic policies of the administration," said Sen. Ben Cardin (D-Md.).
Whatever moral reasons might exist to recover AIG's bonus payments, the top reason is to soothe public anger. "We are at risk of losing [the public's] trust, and that's why we need to fix this," said Sen. Byron Dorgan (D-N.D.).
House Majority Leader Steny Hoyer (Md.) approvingly cited President Obama's inclination not to make decisions out of anger and told the Huffington Post that while the "rage is fair," Democrats need to keep the bigger picture in sight.
"I think it's just outrageous that these guys don't say, 'You're right, we're going to give the money back,'" he said. "Having said that, we need to be very careful. We need to handle this matter in a way that assures the country that we're clearly not going to allow them to be gamed. On the other hand, we need to make sure we continue to try to stabilize a very, very volatile and dangerous situation for the economy."
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