News of American International Group’s decision to make good on executive bonus contracts of up to $165 million has been met with negativity, from President Obama and his economic team at the White House to rank and file Republicans calling for AIG to immediately cease such activities.

White House officials said that the administration is not looking to take AIG to court to stop the company from paying out the bonuses. But, reports the New York Times,  the President has told Treasury Secretary Timothy Geithner to figure out what the Treasury Department can do to block AIG from making the payments within the legal confines of AIG’s contractual obligations to the executives.

The President made his displeasure clear in a speech delivered in the White House East Room this morning to small business owners, calling AIG “a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses at all, much less $165 million in extra pay,” the President said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Within the past several weeks, AIG reported that it had lost $61.7 billion for the fourth quarter of last year. To date, AIG has benefited from more than $170 billion in federal rescue funds. Upon receiving a letter from AIG CEO Edward Liddy explaining the move to pay out bonuses, Geithner is reported to have confronted Liddy, demanding a reduction in the amount of cash the company was due to outlay on Sunday, March 15.

"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," said Austan Goolsbee, staff director of President Barack Obama's Economic Recovery Advisory Board, according to an Associated Press report.

In recounting the meeting, Obama’s top economic advisor Lawrence Summers said Geithner used all his power, "both legal and moral, to reduce the level of these bonus payments."

Yet Goolsbee appeared bewildered at the idea that AIG planned to honor the contracts in question. "I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people, and we've done exactly what we can do to prevent this kind of thing from happening again," Goolsbee said.

AIG, meanwhile, defended its position, stating that the contracts had been in place for some time and would act as an incentive to keep talent in place. As reported by INN, AIG has lost several members of its executive team since early on its financial crisis.

Summers added: "The easy thing would be to just say ... off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."

The Obama administration's argument about the sanctity of contracts caused Senate Republican leader Mitch McConnell of Kentucky to voice his outrage. "For them to simply sit there and blame it on the previous administration or claim contract — we all know that contracts are valid in this country, but they need to be looked at," McConnell said. "Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place? I think it's an outrage."

AIG has agreed to Obama administration requests to restrain future payments.

Summers appeared on CBS' "Face the Nation" and ABC's "This Week," along with McConnell. Goolsbee appeared on "Fox News Sunday."

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