Outrage over AIG threatens Obama

As public outrage rises over AIG's plan to pay hundreds of millions of dollars of bonuses to top executives, the Obama administration faced a new challenge on Tuesday to get ahead of the swelling populist resentment.

President Obama said Monday that he would "pursue every single legal avenue to block" the $165 million in bonuses paid to AIG employees after the company received nearly $180 billion in federal aid in the past year. But other administration officials said later that there was not much the White House could do to stop the payments or recoup the money that had been given out, the Wall Street Journal reported.

"The confusion that seemed to mark the White House's AIG response Monday illustrates the bind that Mr. Obama finds himself in," the Journal reported.

The New York Times editorial board also expressed frustration with the administration's response to the news from AIG. "Mr. Obama's tough talk," the Times said, "contrasted with comments made by his top economic adviser, Lawrence Summers, and by the Treasury Department. They had already expressed dismay but said that legally they could do nothing to stop the bonuses, which, in fact, had already mostly been paid on Friday."

A report in the Washington Post indicated that Obama was losing political capital by allowing the AIG story to fester without a strong enough response. "President Obama's apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda," Post reporters Michael D. Shear and Paul Kane wrote.

Republican Senator Charles Grassley of Iowa told a home state radio station on Tuesday that AIG executives should step down or kill themselves. "The first thing that would make me feel a little bit better towards them," Grassley said, "if they'd follow the Japanese model and come before the American people and take that deep bow and say I'm sorry, and then either do one of two things -- resign, or go commit suicide."