The Note, 3/18/09: Boiling Points — Washington plays blame game — and can furor subside without claiming a scalp?

By RICK KLEIN Whose seat is warmer — Chris Dodd’s, Tim Geithner’s, or Edward Liddy’s?

Are we in a political climate that can cool down without claiming a scalp? What happens if the party of no starts saying yes to the president’s call for budget suggestions?  When and where might 44 ask 43 to break his self-imposed silence? In this new era of responsibility, who among our leaders is willing to take some blame? What’s a better political shelter in the AIG bonus story — ignorance or incompetence? (What didn’t our leaders know, and when didn’t they know it?) Washington prepares for one of those ritualized, televised drubbings on Wednesday, as a House Financial Services subcommittee hosts AIG chief Edward Liddy at a hearing starting at 10 am ET.  In a flash, the AIG story has become about far more than lavish bonuses to executives of a failed company. This was a tipping point — the excess that drew the right mix of outrage and practicality to shake Washington into more action than it anticipated taking. That’s why, for all the muscle-flexing going on right now in the White House and Congress, this is a dangerous time to be in power. The politicians who are purporting to play offense — filing bills and amendments and making floor speeches denouncing Wall Street excesses — are actually playing defense.  (Maybe AIG-type money should be awarded to whoever can identify how bonuses of this scale weren’t stopped in any of the bailout or stimulus legislation to date.)  Now, Congress, the White House, and New York’s attorney general are in a race with themselves and each other to strip AIG executives of their bonuses. Somebody’s liable to get trampled. Wait — were you looking for more outrage? “Some of the billions of dollars that the U.S. government paid to bail out American International Group Inc. stand to benefit hedge funds that bet on a falling housing market, according to people familiar with the matter and documents reviewed by The Wall Street Journal,” Serena Ng writes in The Wall Street Journal. “AIG has put in escrow some money for at least one major bank, Deutsche Bank AG, whose hedge-fund clients made bets against the housing market, according to a person familiar with the matter. The money will be released to the bank if mortgage defaults rise above a certain level.” Of the political race: “New York’s efforts against A.I.G. have overshadowed those of the Treasury secretary, Timothy F. Geithner, the official who is responsible for the financial bailout, along with the Federal Reserve,” Jackie Calmes and Louise Story write in The New York Times. “The White House and Treasury have been besieged by questions about why Mr. Geithner did not know sooner about the bonus payments due this month, and whether he could have done more to stop them, prompting White House officials to assert President Obama’s continued confidence in Mr. Geithner.” “He more than has the president’s complete confidence,” said Rahm Emanuel, the White House chief of staff. Said David Axelrod: “He’s a brilliant and committed guy with a great deal of experience in this area, and we’re standing with him.” (Did he need that last clause?)  “The bonuses have crystallized public anxiety over the economic downturn and frustration at the government bailouts, creating a firestorm for the White House,” Jonathan Weisman, Naftali Bendavid, and Deborah Solomon write in The Wall Street Journal.  Is this good or bad? “An administration official said that despite having engineered the first two rescues of AIG while president of the New York Fed, Mr. Geithner didn’t know about the pending bonuses until last week,” they write.  “Administration officials did not know until a couple weeks ago that the officials of the controversial AIG Financial Product Division were set to receive $165 million in bonuses on March 13,” ABC’s Jake Tapper reports. “It wasn’t until Thursday, March 5, 2009, administration sources told ABC News, that officials of the Federal Reserve Bank of New York informed officials of the Treasury Department of the full extent of the $165 million in bonuses pending for the controversial Financial Products Subsidiary. This was three days after the Obama administration had already announced a new commitment of an additional $30 billion for AIG.”  Does this strike anyone as full confidence? “Senior White House officials said last night that President Obama did not learn that bonuses worth $165 million were to be paid to executives of American International Group until Thursday, one day before they were issued and two days after his Treasury secretary was informed that the payments were going forward,” Shailagh Murray, Paul Kane and Michael D. Shear report in The Washington Post. “The bonus scandal has inflamed lawmakers in both parties and could have broad repercussions, and lawmakers warned that it could serve as the death knell for further aid to the ailing sector. . . . A company official said Liddy is expected to issue a letter today to AIG employees asking them to return the bonus payments they received.”  (Good luck with that: “AIG’s new management team last year proposed that its employees give up their “retention” bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010? Take a hike,” The Hill’s Ian Swanson reports.)  “Congressman [Elijah] Cummings, for one, says that Liddy informed him about the coming bonuses on Jan. 15. So why didn’t the Secretary of the Treasury, with all the resources of a government department at his command, know about it UNTIL Mar. 10, according to a White House timeline? If it was simple ineptitude, it has nevertheless cost his boss the President considerable political and popular embarrassment.,” Jay Newton-Small writes for Time.  “Why didn’t Geithner know about this situation earlier? That’s likely to be at the center of the questions today for Obama both before he boards Air Force One and after he lands in Costa Mesa, Calif. for a town hall,” Washingtonpost.com’s Chris Cillizza writes on “The Fix” blog.  “The White House expressed confidence in Geithner — but still made it clear he was the one responsible for how the matter was handled,” the AP’s Julie Hirschfeld Davis writes.  (ABC’s Jake Tapper remembers this quote, from Jan. 31: “The president has confidence that Sen. Daschle is the right person to lead the fight for health care reform.”)  Feel that heat? “[Sen. Chuck] Grassley, the senior Republican on the Senate Finance Committee, asked Treasury Inspector General Eric Thorson to open an inquiry into the AIG bonus payments and determine whether top Treasury officials had some role in approving the payments, according to Grassley’s office. The inquiry could turn the heat back on the Obama administration, which has expressed outrage over the payments and wants to challenge them,” Jim Puzzanghera and Janet Hook report in the Los Angeles Times.  Geithner defends himself, in a letter to congressional leaders where he says Treasury will subtract the value of the bonuses from the next cash infusion: “I registered my strong objections to Mr. Edward Liddy, the CEO of AIG, last week when I was first informed by my staff about the pending payment obligations. “I demanded of Mr. Liddy that he scrap or cut hundreds of millions of dollars in additional payments due this year and beyond.  He has committed to do this on terms that are consistent with the executive compensation provisions of ARRA, the administration’s executive compensation guidelines, and the interests of the American taxpayers.” And Edward Liddy defends himself, and (sort of) the company he runs, in a Washington Post op-ed: “My annual salary is $1. My only stake is my reputation,” he writes, vowing to repay the tax dollars that have flowed toward AIG.  But others have (and will) make more: “To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high,” Liddy writes.  They made a lot more: “The Financial Products Subsidiary may be largely to blame for the near collapse of insurance giant AIG last year, but that did not stop seven executives at that department from taking home bonuses of over $4 million each, with the top bonus recipient earning more than $6.4 million, according to numbers released today by New York Attorney General Andrew Cuomo in a letter to the Chairman of the House Financial Services Committee Barney Frank (D-Mass.),” ABC’s Maddy Sauer reports.  Can we get a bailout for the bailouts?” If you didn’t like reading about A.I.G. brokers getting millions in bonuses after their company — 80 percent of which is owned by U.S. taxpayers — racked up the biggest quarterly loss in the history of the Milky Way Galaxy, you’re really not going to like the bank bailout plan to be rolled out soon by the Obama team,” Tom Friedman writes in his New York Times column. “That plan will begin by using up the $250 billion or so left in TARP funds to start removing the toxic assets from the banks. But ultimately, to get the scale of bank repair we need, it will likely require some $750 billion more. . . . The only person with the clout to sell something this big is President Obama.”  “Officials at the Federal Reserve and the Treasury Department are increasingly worried that the controversy could discourage investors from joining a new government effort to revive consumer lending as well as a separate plan that relies on private money to buy toxic assets from banks, sources familiar with the matter said,” reports The Washington Post’s David Cho and Binyamin Appelbaum.  This meme won’t help: “Barack Obama even needs a teleprompter to get mad,” Maureen Dowd writes.  The fallout: “President Barack Obama’s attempt to harness public anger over bonuses paid by American International Group Inc. may backfire on him as Republicans try to redirect that anger toward his administration,” Bloomberg’s Hans Nichols writes. “The public furor over the $165 million in bonuses AIG handed out to employees gives administration critics a new weapon to thwart Obama’s agenda, from his budget to plans for financial-market regulation.”  And more fallout: “During late-night, closed-door talks last month, negotiators for the House, Senate and White House stripped out a measure to the stimulus bill that could have restricted the AIG bonuses,” ABC’s Jonathan Karl reports. “The provision was stripped out during the closed-door conference negotiations involving House and Senate leaders and the White House. A measure by Sen. Chris Dodd, D-Conn., to limit executive compensation replaced it. But Dodd’s measure explicitly exempted bonuses agreed to prior to the passage of the stimulus bill.”  “Congressional Democrats careened between the circular firing squad and the three-ring circus Tuesday as they struggled with their new reality: playing defense on the economy,” Lisa Lerer and Victoria McGrane write for Politico. Said House Minority Whip Eric Cantor, R-Va.: “It seems like an administration in disarray.”  On the budget — he asked for it: House Minority Leader John Boehner, R-Ohio, has a YouTube response to the president’s call for ideas on the budget, with a promise to offer an alternative.  “Mr. President, with all due respect: your budget spends too much, taxes too much, and borrows too much, and that’s going to do further harm to our economy at a time when it desperately needs our help,” Boehner says in the video, according to an advance excerpt provided to The Note. “We believe there’s a better way — better solutions to restore some fiscal sanity here in Washington while encouraging more job creation and more investment. Our alternative, which is being drafted as we speak by Congressman Paul Ryan of Wisconsin and others, will reflect core principles that should guide us as our nation works to emerge from this crisis stronger than ever.” This might have been the big fight of the week: “Senior members of the Obama administration are pressing lawmakers to use a shortcut to drive the president’s signature initiatives on health care and energy through Congress without Republican votes, a move that many lawmakers say would fly in the face of President Obama’s pledge to restore bipartisanship to Washington,” Lori Montgomery writes in The Washington Post.    “Members of Congress are bracing for a political donnybrook should the Democrats use the reconciliation process to sidestep the Republicans and their power of the filibuster in the Senate. Under normal Senate rules, it requires 60 votes in the 100-member Senate to shut off debate and force a final vote. Democrats currently have 58 Senate votes. Under reconciliation, 51 votes can force anything through,” McClatchy’s Steven Thomma writes.  One fewer critic: Former President George W. Bush makes his vow, in his first speech as an ex-president. “I’m not going to spend my time criticizing him,” he said in Calgary Tuesday, ABC’s Karen Travers reports. “There’s plenty of critics in the arena. I think it’s time for the ex-president to tap dance off the stage and let the current president have a go at solving the world’s problems. . . . He deserves my silence. And if he wants my help, he can pick up the phone.”  Also holding back (for now): Sen. John McCain. From the Twitterview, with ABC’s George Stephanopoulos: “GStephanopoulos@SenJohMcCain Cheney said on CNN that Obama putting US at risk of new terror attack Agree?”  "SenJohnMcCain@GStephanopoulos too early to draw that conclusion.” Alex Conant uses his time at the RNC to explode some Obama myths, in a Politico op-ed: “1. Obama is bold. . . . 2. Obama is a great communicator. . . . 3. Obamaland is a team of rivals. . . . 4. Obama is smooth.”  And: “5. Obama has a good relationship with the media. Working with the hundreds of reporters who covered the Obama campaign last year, I was struck by how many of them would quietly complain about Obama’s borderline disdain for the press. Sometimes it is readily visible — like when he scolded a reporter for asking a question during a presidential visit to the White House briefing room. Other times it’s more passive, like long gaps between press conferences, or it’s reflected in his staff’s attitude.” Obama chooses his Final Four: Louisville, North Carolina, Memphis, and Pittsburgh. That’s three No. 1′s and a No. 2 — with UConn left out in the cold. (Chris Dodd can’t buy a friend these days.)  Before he heads out of town for two days on the Left Coast, the president filled out his brackets with ESPN’s Andy Katz. The interview/college basketball seminar airs at noon ET. The president has Arizona out in the first round: “Has nothing to do with McCain — I think Arizona’s a great state, I love playing golf there. But they just squeaked in, based on reputation.” So that’s ESPN Wednesday, Leno on Thursday, and “60 Minutes” Sunday. “Despite early predictions that Obama would largely bypass the mainstream media and conduct a YouTube presidency, he has repeatedly made himself available to traditional news organizations,” The Washington Post’s Howard Kurtz writes.  Will Arlen Specter pull a Joe Lieberman? “”It’s pretty hard to run without a party,” Specter, R-Pa., told The Hill’s Aaron Blake. “It’s always something that could be a possibility. But then I wouldn’t be in the Republican caucus — wouldn’t have quite the standing as a Republican.”  The Kicker: “Frankly, it was such a rush, talking about the stimulus bill right now, to get it passed, I did not have time — other conferees did not have time to address many of the provisions that were modified significantly. We do the best we can, but we missed that stuff as a result.” — Sen. Max Baucus, D-Mont., on the stripping of a provision that would have prevented the AIG bonuses.  “I wasn’t in the room — I can’t answer the question.” — Sen. Chris Dodd, D-Conn., on the same provision.  Follow The Note on Twitter: http://twitter.com/thenote For up-to-the-minute political updates check out The Note’s blog . . . all day every day:

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