Dodd Under Fire Over AIG Bonuses

AIG’s big bonuses have Congress in a fury. Senate Banking Committee Chair Chris Dodd admitted his staff agreed to water down executive pay provisions, essentially preserving the loophole that allowed the bonuses to go forward. But, the Democratic senator of Connecticut is pushing back hard, placing the blame on the Obama administration, saying that it is the Treasury Department that insisted on the inserting the loophole. Dodd also added that at the time he supported the action, he was not aware of any pre-existing AIG bonuses.

The longtime senator, first elected to Congress in 1974, has consistently been one of the safest, most popular Democratic incumbents, but currently he’s in trouble not only because of the AIG mess, but also in the polls. Two recent polls found Dodd trailing a theoretical challenger in his state.

ABC News’ Senior congressional correspondent Jonathan Karl weighs in with the facts on Thursday’s edition of Politics Live.

Dodd: Nationalizing Banks May Be Needed

ABC News’ Teddy Davis and John Hendren report:

Senate Banking Committee Chairman Chris Dodd, D-Conn., told Bloomberg News on Friday that banks may have to be nationalized for “a short time.”

“I don?t welcome that at all, but I could see how it?s possible it may happen,” said Dodd. “I think that?s unfortunate, but it may come to that. I think the administration is resisting it; they prefer not to go that way for all of the reasons that we?re familiar with in terms of the symbolic notion of nationalization of major lending institutions.”

“But I listened to what Alan Greenspan had to say and what others have said and I?m concerned that we may end up having to do that, at least for a short time,” said Dodd.

Bank of America and Citigroup, which have received $90 billion in government aid over the past four months, fell by as much as 36 percent on Friday as investors worried that they might be nationalized.

Dodd made his comments to Bloomberg Television’s “Political Capital with Al Hunt”. The interview will be broadcast on Friday evening at 6:30 pm ET.

At his Friday briefing with reporters, White House press secretary Robert Gibbs was asked about fears that Bank of America and Citigroup might be nationalized.

Gibbs sought to beat back those concerns, saying the Obama administration stands by the private banking system.

“This administration continues to strongly believe that a privately held banking system is — is the correct way to go, ensuring that they are regulated sufficiently by this government,” said Gibbs. “That’s — that’s been our belief for quite some time, and we continue to have that.”

“The president believes that the bank — a privately held banking system regulated by the government is — is what this country should have,” he added.

Although the Obama administration continues to stand by the private banking system, some prominent economists, including Nobel prize-winner Paul Krugman and New York University’s Nouriel Roubini, have told ABC News that they believe after Treasury Department auditors begin their “stress tests” of banks, auditors will be forced to conclude that temporary nationalization of up to half a dozen major banks is inevitable.

ABC News’ Sunlen Miller contributed to this report.