05/06/2009 05:12 am ET Updated May 25, 2011

Axelrod Defends Circumventing Executive Pay Caps: Don't Want To Create "Disincentives" (VIDEO)

One of President Barack Obama's closest advisers defended on Sunday moves to help executives at major banks avoid restrictions on lavish pay, saying the administration did not want to "create disincentives" for these banks to participate in bailout initiatives.

"Understand that we are very committed, the president has a tough set of standards that we are refining to deal with this question of executive compensation," David Axelrod told Fox News Sunday. "It is an issue he talked about long before the crisis. But here is the point: on some of these programs we are asking financial companies to come in and help solve this problems by providing more lending, by buying up toxic assets and so on. We don't want to create disincentives and undermine the program. So we have to look very closely at this, making sure we are not rewarding people for irresponsibility, that firms that are getting extraordinary help aren't giving out huge bonuses. But we do need financial companies that aren't in great distress to help lead us out of this and partner with tax payers to help lending get going again."

The remarks come several days after the Washington Post reported that administration officials were "engineering its new bailout initiatives" in a way that would allow participants in the program "to avoid restrictions imposed by Congress, including limits on lavish executive pay." Legally, the administration says it is in the clear. Congress' restrictions apply to those receiving money from the government. But the bailed out firms are actually receiving money through special entities ("middlemen") set up by the government to funnel the money to these institutions.

Politically speaking, the administration has a tougher case to make. There is, as Axelrod acknowledged, a real populist anger with the salaries and bonuses of officials at these firms. And it seems unlikely to be diminished by the need to get other firms to help invest in the administration's toxic asset purchasing program.

UPDATE: A bit of mixed messaging on this front. Treasury Secretary Timothy Geithner, appearing on CBS' Face The Nation, seems to deny reports that the administration was trying to circumvent executive compensation rules passed by Congress.

"Our obligation is to apply the laws that Congress just passed on executive compensation and we're going to do that," said Geithner.