Barack Obama has endured a difficult few days. Anger rumbles on after the revelation that American International Group (AIG) paid millions in bonuses to employees at the unit that broke the giant insurer, which required a $173 billion bail-out. The Senate is poised this week to debate a “compensation fairness” bill, which would impose a 70 percent tax on bonuses given by any company that gets public money. This follows approval by the House, last week, of a 90 percent tax on the bonuses of many of those who work at companies that receive a bail-out of more than $5 billion.
It is a measure of how deep the anger runs that most press attention at the weekend focused on the government’s new proposal to increase its scrutiny of executive pay rather than on leaks of the Treasury’s long-awaited plan to tackle toxic assets. The administration’s proposal is likely to stipulate that executive compensation be linked directly to performance in future and will probably apply to all financial institutions, not just those receiving state aid. But the presentation of this policy will need to be astute, as it softens punitive action on bonuses being prepared in Congress.
State governments have also entered the febrile fray. Connecticut’s attorney-general accused AIG of understating the amount it paid in bonuses. Andrew Cuomo, New York’s attorney-general, obtained a list of the luckless AIG employees that were given a bonus, but has backed off from naming and shaming.
With politicians venting their spleen, the heads of financial companies are voicing worries about the consequences of bad legislation. Herbert Allison, the boss of Fannie Mae, says he is “deeply concerned” at calls for the mortgage agency to take back authorised payments it made to retain staff when it and Freddie Mac were seized by the government. Punitive measures could prompt important workers at Fannie and Freddie to leave, hindering programmes that stem home foreclosures. Vikram Pandit, chief executive of Citigroup, reassured his employees that he is working to inform Washington about the “real facts” on pay.
Bankers are not the only ones feeling the heat, however. The Treasury knew about the bonuses before it gave AIG its most recent shot of state aid. And Senator Christopher Dodd, who faces a tough re-election bid, has come under pressure to explain why he did not try to stop such bonuses when he helped to write the bail-out legislation.
Mr. Obama has been trying to catch up. On Sunday he came out swinging in defence of Tim Geithner, telling “60 Minutes” that he would refuse to let his embattled treasury secretary go if he offered his resignation. But the president’s critics say that, once again, he has let Democrats in Congress define an issue in such a way that it makes the administration’s job of winning the public’s trust more difficult. Indeed, Mr. Obama did little to quell the outrage last week. In an appearance on the Jay Leno show he sang along with the chorus of disapproval and maintained that America had to get back to “an attitude where people know enough is enough” and a “sense of responsibility.” It was left to Mr. Leno to say he thought it a “little scary” that the government could impose a tax on someone it doesn’t like.
Recessions produce economic insecurity and are ripe for populist politics. The danger is that Mr. Obama risks being seen to be pandering to populism. Worse, some are wondering how well the relatively inexperienced Mr. Obama would fare with a full-blown crisis given his wobbles over a minor issue such as bonuses. Others maintain he is still running last year’s presidential campaign, and that he needs to show himself as more presidential, by using his position to calm and explain, rather than merely echo the public’s frustrations at Wall Street. To be fair, Mr. Obama did take a stab at that when interviewed by Mr. Leno, but the call for more regulatory “common sense,” perhaps a plea to Congress, got lost amid the rage and the gags.