Obama Calls Wall Street Bonuses in Crisis ‘Shameful’ (Update1)

Jan. 29 (Bloomberg) -- President Barack Obama said bonuses dealt out by Wall Street firms are “shameful” while the U.S. economy is in recession and companies are asking for help from taxpayers.

Distributing bonuses now “is the height of irresponsibility” Obama said at the White House, where he held a closed-door meeting with Treasury Secretary Timothy Geithner and Vice President Joe Biden. Firms need to “show some restraint and show some discipline and show some sense of responsibility.”

Obama also said his administration will be unveiling a plan to stabilize financial markets and overhaul Wall Street regulations in the coming weeks. He and other members of the administration said support for action to will depend on public confidence in what the government is doing and that companies will act responsibly.

The president’s comments followed a call by Senate Banking Committee Chairman Christopher Dodd for the government to examine ways of forcing executives to repay the bonuses.

The New York state comptroller reported that Wall Street firms disbursed $18.4 billion in bonuses last year as the U.S. sank into a recession. While the figure represents a decline of 44 percent from the previous year amid record losses in the securities industry, the bonus pool was the sixth-largest ever, the comptroller said in a yearly report.

‘Big Hole’

“There will be times for them to make profits and there will be time for them to get bonuses -- now is not that time,” Obama said. “The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of, but they don’t like the idea that people are digging a bigger hole even as they’re asked to fill it up.”

He also made a reference to Citigroup Inc.’s reversal, under government pressure, of its decision to buy a $50 million corporate jet as it was getting money from the Troubled Assets Relief Program.

“Secretary Geithner already had to pull back one institution that had gone forward with a multimillion-dollar jet plane purchase at the same time as they’re receiving TARP money,” Obama said. “We shouldn’t have to do that.”

The report on bonuses also was drawing fire in Congress. Dodd, a Connecticut Democrat, said he will look for “every possible legal means” to get the money returned.

Demand for Return

“I’m going to be urging -- in fact not urging, demanding - - that the Treasury Department figures out some way to get the money back,” Dodd said. “This is unacceptable.”

News about the bonuses comes as Obama is seeking to maintain public support for his economic stimulus plan and as his economic advisers are developing a proposal to stabilize the financial system, including how to spend the second half of the $700 billion.

Obama has said the rescue plan is a key component of his administration’s efforts to pull the U.S. out of a recession, along with overhauling financial market regulations.

One of the options under consideration is setting up a so- called bad bank, managed by the Federal Deposit Insurance Corp., to buy up the toxic assets clogging banks’ balance sheets, according to people familiar with the matter.

The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators as the government seeks to provide a shield to taxpayers.

Next Phase

Obama said a plan to overhaul the regulation of Wall Street will be rolled out “in the coming weeks.”

Economic data released today may provide more urgency for action by the administration and Congress. Sales of new homes in the U.S. fell to the lowest level on record and orders for durable goods slumped for a fifth month in December. The Labor Department reported a record number of Americans were collecting jobless benefits in the week ending Jan. 17.

Obama also is seeking to keep up momentum for an economic stimulus. The U.S. House last night passed a version of Obama’s $819 billion package without a single Republican vote. Action now shifts to the Senate, where Republicans have more power to demand changes.

White House press secretary Robert Gibbs said earlier that public confidence is key to supporting an economic stimulus plan and a financial-markets rescue.

“We’re not going to be able to do what is needed to be done to stabilize our financial system if the American people read about this type of outrageous behavior,” Gibbs said.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net