The battered insurance giant AIG returns to Capitol Hill Wednesday facing another frosty reception in Congress – where three AIG trustees appointed by the U.S. government will make their public debut amid growing skepticism over their role at the company.

House Oversight Committee Chairman Edolphus Towns (D-N.Y.) is questioning whether the Federal Reserve Bank of New York – which installed the handpicked trustees in January – is doing enough to protect taxpayers footing the bill for the $182.5 billion bailout.

And POLITICO has learned that one of those trustees has another role – as chairwoman of a Bermuda-based firm that administers hedge funds based in the Cayman Islands and other global tax havens.

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Associated Press – President Barack Obama is trying to dampen a fire he once stoked, urging a more tempered response to public furor over bonuses paid to executives of the publicly rescued insurance giant American International Group.

Obama is virtually certain to use Tuesday’s prime-time news conference to continue an effort that began over the weekend: cooling the anti-AIG ferocity, now that it threatens to undermine his efforts to bail out the nation’s deeply troubled financial sector.

Obama’s tone changed dramatically after the House voted last week for targeted taxes to take back most of the $165 million in bonuses paid to AIG executives. Many lawmakers felt Obama had encouraged their step, because he called the bonuses reckless, outrageous and unjustified.

In the White House, however, the situation seemed to be spinning out of control. Some fellow Democrats questioned the constitutionality and wisdom of the House’s action. Executives of other troubled companies signaled they would not make deals with a federal government that revises agreements after they are signed.

On Sunday, Obama told CBS’ "60 Minutes" the House’s plan to slap a special tax on the AIG executives would be unconstitutional. Borrowing a line from his Feb. 24 speech to Congress, he said he would not "govern out of anger."

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New York (HedgeCo.Net) – As the national outrage over bonuses paid to AIG execs reaches epic proportions, U.S. Treasury Secretary Timothy Geithner promised the government will recoup the $165 million that was shelled out using bailout money.

“We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of retention rewards just paid,” Geithner wrote, after claiming it would be difficult to physically take back the bonuses.  “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.”  

Arguing that the U.S. government essentially owns a majority of the failed insurance giant, Chairman of the House Financial Services Committee Barney Frank said, “I think the time has to exercise our ownership rights, and then say, as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’”

House Speaker Nancy Pelosi agreed, saying she would urge members to draft legislation this week that could recoup frivolous spending from taxpayer-funded aid.

“Most appallingly, while millions of Americans struggle through this economy, those who have received the largest measure of taxpayer assistance from the Treasury Department have shown no restraint,” Pelosi said.

New York Senator Charles Schumer warned that if those bonuses were not returned to their “rightful owners,” then Congress would pass laws to tax those bonuses “at a very high rate.”  Senate Finance Committee members agreed, proposing taxes as high as 70 percent on those payments.

While disdain over the issue may have caused Barack Obama to act swiftly, the nearly decimated public opinion on bailouts may pose a problem for institutions seeking government funds going forward.  AIG has so far received $173 billion of taxpayer-funded federal assistance.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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