Image: Rep. Jim Himes, D-Conn.,
Christopher Capozziello  /  Getty Images file
Rep. Jim Himes, D-Conn., is joining with Rep. Alan Grayson, D-Fla., to propose legislation that would not force employees of insurance giant AIG to give back bonus money already paid to them.
updated 3/25/2009 3:58:23 PM ET 2009-03-25T19:58:23

House lawmakers are softening their stance on denying bonuses to employees of bailed-out financial institutions after President Barack Obama warned them against alienating the industry.

Less than a week after pushing through legislation to impose a 90 percent tax on the bonuses, the House Financial Services Committee planned to advance a considerably milder proposal that would let Treasury Secretary Timothy Geithner block any payments he considers "unreasonable" or "excessive."

The proposal, sponsored by Democratic Reps. Alan Grayson of Florida and James Himes of Connecticut, would not force employees of insurance giant AIG to give back money already paid to them. But it would empower Geithner to stop future payouts by financial institutions even if employees have been promised the money.

The plan is aimed at putting to rest a flap over lofty bonuses paid by American International Group Inc. after the government committed more than $182 billion to keeping the company afloat.

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The company paid out $165 million in bonuses March 15, igniting a firestorm of outrage from Obama, lawmakers in both parties and the public. Since then, many of the biggest receivers of AIG bonuses have returned them or donated them to charity.

Obama's latest plan to restore the financial system relies on private investors' willingness to partner with the government to buy up to $1 trillion of bad debt, or "toxic assets," sitting on the books of major banks and clogging credit lines.

For the plan to work, the government must persuade investors to trust the government to live up to its end of the bargain — a challenge made harder by the House's vote to tax away 90 percent of any bonuses agreed to in 2008 and paid this year by AIG or other recipients of bailout money.

Over the weekend, Obama tried to tone down the anti-Wall Street rhetoric. In an interview on CBS's "60 minutes," he said, “let's see if there are ways of doing this that are both legal, that are constitutional, that uphold our basic principles of fairness."

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.

The latest House proposal would also apply to Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

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