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White House Scolds AIG On Bonus Payout

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. The economic news has not prevented Americans from feeling more optimistic or at least less pessimistic. That's one finding of a new NPR survey about two months after President Obama took office. We'll have more on that poll in a moment.

INSKEEP: First, we'll report on a political challenge for the new president. It's news that the insurance firm AIG paid big bonuses to executives after receiving a federal bail-out. The president delivered a public scolding to the company, which does not mean the executives will give the money back. Here's NPR's Scott Horsley.

SCOTT HORSLEY: President Obama says it was AIG's own recklessness and greed that brought the insurance company to its knees last fall and forced the government to step in with a rescue package that so far totals more than $170 billion. Given that history, the president asked, why should AIG executives get any reward, let alone $165 million in bonuses?

President BARACK OBAMA: I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat? In last six months, AIG has received substantial sums from the U.S. Treasury, and 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.

(Soundbite of applause)

HORSLEY: It makes for a good applause line. Although it's not clear whether the government can actually do anything about the bonuses. Over the weekend, the president's own advisors seem to agree with AIG's chief executive that the company is contractually obligated to make the payments, having committed to them before this financial collapse. White House spokesman Robert Gibbs said the president told his staff: go back and look again. Mr. Obama said yesterday, people across the country are working hard without bonuses or government bail-outs. All they want, he said, is to see that everyone plays by the same rules.

President OBAMA: What this situation also underscores is the need for overall financial regulatory reform, so we don't find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions so that we've got greater authority to protect American taxpayers and our financial system in cases such as this.

HORSLEY: As an insurance company, AIG was not subject to the same kind of government regulation that a bank is. Lawmakers in Washington and in other countries are looking to change that. The thinking is that any company like AIG, with the potential to threaten the whole financial system, should be subject to stricter government oversight. The rattling of the financial system has made it harder for consumers and companies to get the credit they need. The government is already working to expand consumer credit, and yesterday the administration announced new steps to help small businesses get loans.

The government is planning to use $15 billion from its bank rescue fund to finance the effort. It's waiving up-front fees to make small business loans more affordable. And it's offering bigger government guarantees to encourage banks to lend more. Treasury Secretary Timothy Geithner told community bankers yesterday, he wants lenders to make regular reports so the government can make sure money is getting where it's needed.

Secretary TIMOTHY GEITHNER (Department of Treasury): We need our nation's bank to go the extra mile in keeping credit lines in place on reasonable terms for viable businesses. Many banks in this country took too much risk, but the risk now to the economy is that you will take too little risk.

HORSLEY: Boosting lending to small businesses is a way for the Obama administration to encourage job growth, since small businesses had been among the biggest job creators before the downturn. It's also a way for the president to show his populist side, like his broadside against the bonuses at AIG.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.