Senator Dodd takes the heat on AIG bonuses

Nearly a week into what's inevitably being called "AIG Bonus-gate," Capitol Hill still seethes with the question: Who knew what, when -- and what did they do with that knowledge and why?

The “who” is now clear. But the "why" of the story is now a sore point for Democrats leading the Congress and the Obama White House.

After first denying a role, Sen. Christopher Dodd (D) of Connecticut confirmed to CNN on Wednesday night that he had added language to last month’s $787 billion stimulus bill that allowed American International Group to give $165 million in “retention bonuses” to employees.

On Thursday, Treasury Secretary Timothy Geithner confirmed, also to CNN, that his department had asked Senator Dodd to include the enabling language in the bill.

The Connecticut-based insurance giant, now owned 80 percent by the federal government, has been on the receiving end of $182 billion in taxpayer funding.

Uproar gives G.O.P. political ammo

News of the bonuses set off a roar of public disapproval this week and gave Republicans their strongest talking points since President Obama took office.

Already facing a difficult battle to hold his seat in 2010 elections, Dodd took a bashing from hometown newspapers, who played the story big and above the fold with headlines such as “Dodd’s Flip Flop” and “Dodd Takes Bonus Blame.”

“What this really does is give some substantive credibility to a Republican argument that not only was he asleep at the switch at the Banking Committee [which Dodd chairs] that allowed this to happen, he was not even there,” says Jennifer Duffy, who tracks Senate races for the Cook Political Report.

"It's unfortunate this situation has reached the point that it has reached," said Sen. Richard Durbin (D) of Illinois, the Democratic whip. "[Senator Dodd] is working hard in an extremely tough assignment dealing with the Banking Committee in the midst of one of the worst recessions. He's a very competent, honest person, and at the end of the day I think he'll be just fine."

Democrats on the defensive

On Capitol Hill, Democrats parried questions on the issue all week. After launching legislation in both the House and Senate to claw back the bonuses, they tried to move the conversation beyond why they had agreed to changes in the legislative language allowing AIG bonuses, but to little avail.

"First of all, I think we need to understand that, but for Senator Dodd, there would be nothing in this legislation," said Senate majority leader Harry Reid at a press briefing on Thursday.

"Rather than trying to say: 'Who did it? When did they do it? Why did they do it?', I think we should look at the fact that the bill we passed -- the economic recovery package -- was a good piece of legislation, considering the time lines we were working under. It is already stimulating the economy," he said.

Pressed by reporters to name who is to blame, Reid said:  "I not only don't want to talk in the rear view mirror, I'm not going to."

Move to take back most of the bonuses

On the House side, Democratic leaders rushed to the floor a bill to tax away 90 percent of the AIG bonuses. The bill, which applies only to companies accepting federal bailout aid, would not affect employees with household adjusted gross incomes below $250,000.

"Today with this resolution, I think that we are making two important statements," said Speaker Nancy Pelosi on the House floor before the vote. "One is that the administration should continue in its efforts to recoup, recover the money and prevent these bonuses from going forward. And the other is that we want our money back and we want our money back now for the taxpayers."

Noting public outrage over the bonuses, House Republicans dubbed the bill a sham and called on Democrats to give up the names of those responsible for the bonus loophole. Some called on Treasury Secretary Geithner to resign.

"This language protecting AIG bonuses was put in the bill because of a request from the White House. We deserve to know who asked this language to be put in," said freshman Rep. Steve Scalise (R) of Louisiana, who voted against the bill.

But in the end, the bill passed 328-93, with 85 Republicans voting for the bill and 87 opposed.