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AIG CEO Edward Liddy told the House Financial Services Committee today that the Federal Reserve had okayed his company's planned bonuses in advance -- and now Time magazine reports that the Treasury Department also knew about the ticking political time-bomb earlier than it has acknowledged.

As the magazine reports:

"Treasury staff was informed about the new bonuses in a Feb. 28 memo that the March 15 [bonus-payment] date was upcoming," a Federal Reserve source tells TIME. A Treasury Department source, speaking on background, confirmed the e-mail memo and its contents, saying, "Everybody knew that [AIG] had a retention issue."


When the debate comes down to a Nixon-style "what did he know and when did he know it," things aren't looking good. And we may have just reached that point for Treasury Secretary Tim Geithner.

Racked by negative coverage of its new chairman and its de facto talk-radio leader, the GOP is in need of a cause to rally around -- and it's found one in the storm of public anger over AIG.

Rep. Connie Mack (FL) today became the first Republican to call for Treasury Secretary Tim Geithner's resignation over the AIG bonuses controversy, a call quickly seconded by Rep. Darrell Issa (R-CA). House Minority Leader John Boehner (R-OH) took the middle ground by warning ominously that Geithner is "on thin ice."

Of course, Republican outrage at Geithner is to be expected. It's the lukewarm support coming from Democrats that should most concern the Obama administration.

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AIG chief Edward Liddy endured his anticipated ritual flaying today by Capitol Hill lawmakers angered by those bonuses. But, as Josh has been writing about over at TPM, there's mounting evidence that some current and former AIG execs could have much more to fear than angry questions from Gary Ackerman when all is said and done.

Since at least June 2008, the Justice Department has been investigating (sub. req.) whether AIG intentionally -- and criminally -- overstated the value of its credit default swaps, hiding its dire position from investors and government regulators. Joseph Cassano -- who during the period at issue ran AIG's financial products unit, AIGFP, which made those disastrous swaps, out of a London office -- has reportedly hired a lawyer in connection with that investigation. Britain's Serious Fraud Office is said to be on the case as well.

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While Congress was focused today on grilling AIG over the executive bonuses, the two parties' House campaign committees have been doing their own back and forth over which party deserves the blame for it.

The NRCC today sent out a press release to the districts of targeted Democrats, accusing them of supporting the AIG bonuses by having voted for the stimulus bill. This goes back to the fact that an 11th-hour amendment to the stimulus bill limited executive compensation on financial institutions receiving bailout money, but didn't apply the limitation retroactively to prior contracts.

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TPMDC first reported last week on the Obama administration's plans to consider charging veterans' private health insurance for injuries suffered during their service. The proposed move ignited a firestorm on the right in recent days, with the Drudge Report picking up on a critical press release from the American Legion and sparking a letter of protest to the administration this morning from 61 House members.

The scandal abruptly cooled this afternoon, however, when House Speaker Nancy Pelosi (D-CA) told a gathering of veterans' groups that the White House had agreed to kill the idea of charging third parties for service-related veterans' health care. Pelosi said:

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Republican candidate Jim Tedisco, who is running in the March 31 special election for Kirsten Gillibrand's old House seat, has found a foothold from which he is basing his opposition to the stimulus bill. Yesterday evening, Tedisco's campaign sent out a press release attacking Democratic candidate Scott Murphy, entitled: "MURPHY ENDORSES AIG BONUSES WITH HIS SUPPORT FOR STIMULUS PACKAGE."

The issue here is that the stimulus bill had an amendment setting restrictions on executive pay for financial institutions receiving bailout money, but explicitly did not make the restriction retroactive -- thus the AIG contracts fall under an exception as the stimulus restrictions only applied going forward.

The question here is whether one issue that is reasonably popular, the stimulus, can be dragged down by associating it with something that is incredibly unpopular. If the answer turns out to be yes, the Republicans will be yelling this message loud and clear from now on -- and if not, it's back to the drawing board.

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This new Gallup poll shouldn't be too shocking: An overwhelming majority of Americans don't like the AIG bonuses.

The poll finds that 76% of respondents want the government to block or recover the bonuses, compared to only 17% who say the government shouldn't intervene. Also, 59% described themselves as "outraged," 26% were "bothered," and only 11% were "not particularly bothered."

In the party breakdowns: 83% of Democrats wants the government to block the bonuses and 70% are outraged; 67% of Republicans want to stop the bonuses and 56% are outraged; and 77% of independents want to block the bonuses and 54% are outraged.

Unfortunately, there is no polling out there on Chuck Grassley's comments.

Arguing that disclosing the names of the AIGers who got bonuses could put them at physical risk, CEO Ed Liddy reads some of the angrier mail he's been getting lately:



Barney Frank appears unimpressed.

While everyone watches the AIG spectacle unfold in the House, the Government Accountability Office (GAO) is laying some shocking truths on the Senate Banking Committee in a little-noticed report.

The GAO, Congress' independent investigative bureau, spent three months probing the performance of government financial regulators in advance of a hearing today on "lessons learned in risk management oversight." What investigators found -- summarized in a 35-page report that's not yet available on its website -- was a system held captive by the banking industry.

The GAO's report concluded that "regulators had identified numerous weaknesses in the institutions' risk management systems before the financial crisis" -- but did nothing "until the crisis occurred because the institutions had strong financial positions and senior management had presented the regulators with plans for change."

Here are some of the distressing conclusions uncovered by the investigation (emphasis mine):

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