White House chief of staff Rahm Emanuel just had to scratch that itch. Speaking for the President and to the New York Times yesterday, he called the contretemps over the AIG news a "distraction" from the "main priority of getting the financial system stabilized." It is worth unpacking these words. Emanuel did not mean to betray an ambivalence about the outrage of the bonuses. Remember: the chief is supposed to be the longest-term thinker in the White House. He knows that the White House either rolls back on its heels, becomes defensive, and yields to the diversion, or Obama uses AIG as an example to catalyze public support for significant regulatory reform.
Secretary Tim Geithner, his deputies and other administration officials have been working with corporations to craft these proposals. Indeed, Geithner's gotten a lot of guff for allegedly being too friendly with the banks; the administration has vacillated between tough anti-Wall Street rhetoric and prudence (or excessive caution) when it comes to asserting its domain. Today, Obama seemed to indicate the Era of Good Feeling is over. "Just as outrageous," he said, is the "culture that these bonuses are a symptom of a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag." He addressed Wall Street directly: "As we get out of this crisis, as we work towards getting ourselves out of this recession: I hope that Wall Street and the marketplace don't think we can return to business as usual."