AIG Bonuses: What Did Obama Know and when Did He Know It?

The bonuses being paid out to AIG executives, apparently with government bailout money, is causing outrage and consternation across the political spectrum. The AIG bonus kerfuffle is illustrating one of the dangers of willy nilly bailing out ailing firms.

The Washington Post is reporting that President Barack Obama knew about the AIG bonuses the day before they were paid out last week. However, President Obama did not publicly express outrage over the AIG bonuses until they were disclosed on Sunday.

As it turns out, President Barack Obama should have known that something like the AIG bonus payout was going to happen long before he was informed. For one thing, as early as May 2008, AIG disclosed that it intended to pay the bonuses in a routine securities filing, according to the Wall Street Journal. The payment of such bonuses was specifically authorized in President Obama's own stimulus bill, thanks to an amendment inserted by Senator Chris Dodd.

The reason for President Obama's somewhat belated outrage over the AIG bonuses is somewhat obvious. But making undeserving Wall Street fat cats demons worthy of public ire, President Obama is able to distract attention from some of the more unsavory aspects of the AIG bailout.

Pajamas media is reporting that while AIG was paying millions of bonuses out of bailout money to executives, it was also paying $100 billion to banks, including $58 billion to foreign banks, the rest of American banks, many of which were campaign contributors to President Barack Obama.

The list of banks receiving AIG bailout money that also gave Barack Obama campaign cash include, Goldman Sachs, Citigroup, JP Morgan Chase & Co, Morgan Stanley, Bank of America, and Wachovia. Lehman Brothers, which collapsed before the AIG bailout, also gave substantial sums to the Obama campaign. Furthermore, "Individuals identifying themselves as working for the banks above gave Barack Obama's presidential campaign $3,617,724."

The entire situation has the odor of an appearance of impropriety. Now, having dropped the ball concerning the AIG bonuses, President Obama and the Congress are stuck with figuring out ways to try to recover the money. One rather cute idea, advanced by Senator Chuck Schumer, was to pass a law simply taxing away the bonus money. Unfortunately the idea is constitutionally suspect. Passing a law that applies to a small group of people could be interpreted as a Bill of Attainder, specifically forbidden by the Constitution. Passing a broader law concerning executive bonuses might have the effect of damaging a financial industry that is already reeling from the current economic crisis.

Of course the whole mess might have been avoided by not bailing out AIG and allowing the firm to be reorganized in a bankruptcy court. But fears of a ripple effect that would have caused through the world economy plus the will of the government to do something, anything, to address the economic crisis ruled that option out.

Sources: Obama Knew About AIG Bonuses Day Before They Were Paid, Scott Wilson, Washington Post, March 17th, 2009

Treasury Will Make Grab to Recoup Bonus Funds, Jonathon Weisman, Naftali Bendavid, and Deborah Solomen, Wall Street Journal, March 18th, 2009

Amid AIG Furor, Dodd Tries to Undo Bonus Protections in the 'Dodd Amendment' Rules, Rod Edson, Fox Business, March 17th, 2009

Contributions to Obama Campaign Track Bailout Money>, Bob Owens, Pajamas Media, March 17th, 2009