Bill to appease public without peeving investors

[March 26, 2009]  WASHINGTON (AP) -- Democrats are looking for a way to respond to the public's outrage over taxpayer money being used to bankroll big bonuses for financial executives without alienating an industry whose cooperation is crucial to the nation's economic recovery.

The House Financial Services Committee planned to endorse on Thursday a bill that would let Treasury Secretary Timothy Geithner and financial regulators decide whether an institution was spending too much money rewarding its employees.

The measure would exempt institutions that agree to participate in a government-sponsored program aimed at buying up $1 trillion of bad debt, or "toxic assets," sitting on the books of major banks. Geithner proposed the new investment program on Monday.

"We cannot solve this crisis without making it possible for investors to take risks," Geithner wrote in an editorial published in The Wall Street Journal.

Rep. Barney Frank, D-Mass., the panel's chairman, said Democrats decided to exempt firms willing to participate in the effort because "we do want to encourage wide participation."

Democrats are walking a fine line. For Geithner's bank-rescue plan to work, private investors will have to trust that the government will keep up its end of the bargain. But as a recent flap over employee bonuses paid by American International Group Inc. has shown, Congress will intervene if it thinks the rules are unfair.

Last week, the House voted to tax away 90 percent of any bonuses agreed to in 2008 and paid this year by AIG or other recipients of bailout money.

"Private investors need certainty that Washington will not change the rules of the game while the game is being played," said Rep. Spencer Bachus of Alabama, the committee's top Republican, who opposes the latest committee proposal.

AIG had paid out $165 million in bonuses this month, after the government committed more than $182 billion to keeping the company afloat.

The payouts ignited a firestorm of outrage from Obama, lawmakers in both parties and the public. But Obama later said he didn't think the House tax bill was constitutional and warned against trying to "demonize every investor or entrepreneur who seeks to make a profit."

Obama's comments and Republican opposition threw cold water on the House tax bill's momentum in Congress. A Senate version of the bill stalled, and Majority Leader Harry Reid, D-Nev., said senators were reviewing their options.

[Associated Press; By ANNE FLAHERTY]

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