WASHINGTON — In announcing Wednesday that he had asked American International Group employees to return at least half of their bonuses, Chief Executive Edward Liddy tried to defuse the public outrage over payments to people who helped cause the financial crisis.

Some employees at the insurance giant have volunteered to return the entire amount of their bonuses, he said. But Liddy’s announcement did not satisfy members of Congress.

Stephen Lynch, D-Mass., charged AIG officials with “malfeasance,” “violation of fiduciary duty,” “arrogance” and “probably illegal” behavior. “Do you have anything to say for yourself?” Lynch asked.

“I take offense, sir, at the use of —”

The congressman cut Liddy off. “Well,” Lynch said, “offense was intended, so you take it rightfully.”

Democrats and Republicans continued to fume over the $165 million in retention bonuses to employees at AIG’s Financial Products division, the unit that created the credit default swaps and other financial derivatives that brought AIG to the brink of bankruptcy in September. House Democrats announced their plans to vote today on legislation to tax the bonuses almost completely.

Releasing names

Liddy defended his decision to pay the bonuses, saying withholding them would violate employee contracts, leading to lawsuits, and would prompt staff members to resign. He said officials at the Federal Reserve knew about the bonuses beginning in November.

He called the payments “distasteful” but noted the company agreed to them before he took the job in September, when the Federal Reserve made the first installment of bailout money. The government, which owns 80 percent of the company, has made commitments for up to $182 billion in loans and other aid to AIG.

In response to a request from House Financial Services Committee Chairman Barney Frank, D-Mass., Liddy said he would turn over the names of those receiving bonuses. But he said he would do so only if the names were kept confidential, citing threats employees have received since news of the bonuses became public. “All the executives and their families should be executed with piano wire around their necks,” Liddy quoted one threat as saying.

Frank said he might subpoena the information and that he would not commit to keeping the names confidential. At the same time, he said he would take threats into consideration.

The government’s leverage in demanding details about individual employee bonuses was strengthened Wednesday when a New York judge ordered Bank of America to disclose similar information in a legal dispute with New York Attorney General Andrew Cuomo.

Obama’s response

The Obama administration has said it determined the bonuses could not be blocked because of AIG’s existing contracts to pay them. But President Barack Obama has ordered his administration to explore all legal means to recoup them, and Treasury Secretary Timothy Geithner said his department was still looking at ways to recover some of the money.

Obama, appearing Wednesday in Costa Mesa, Calif., said that he would accept blame for the bonus payments, “because it’s my job to make sure that we fix these messes, even if I don’t make them.

“I’ll take responsibility,” he said. “I’m the president.”

Rep. Connie Mack, R-Fla., on Wednesday became first member of Congress to demand that Geithner step down. “He has lost the confidence of the American people,” Mack said.

But Obama said before he departed for California, “I have complete confidence in Tim Geithner.”

Assets

Lost in all the shouting over the $165 million in bonuses paid to executives of disgraced insurer American International Group was this sober message delivered to Congress on Wednesday by a government watchdog: AIG’s ability to pay back its $170 billion in loans from taxpayers has eroded significantly. Testifying before Congress, Orice Williams, director of the Government Accountability Office’s financial markets division, said AIG has met with only limited success in restructuring itself, despite more than $170 billion in federal aid over four separate bailouts since last September.

Also disclosed Wednesday: Fannie Mae plans to pay retention bonuses of at least $1 million to four key executives as part of a plan to keep hundreds of employees from leaving the government-controlled company. Rival mortgage finance company Freddie Mac is planning similar awards, but has not yet reported on which executives will benefit. Fannie recently requested $15 billion in federal aid, while Freddie has sought a total of almost $45 billion.

Obama: New powers needed in financial area

The president seeks new powers that would allow his administration to seize troubled companies like the insurer AIG — and take ownership of their toxic assets — if their collapse would threaten the financial system. Obama said Wednesday he will soon propose new financial industry oversight that includes a “resolution authority” that would have powers similar to those of the Federal Deposit Insurance Corp., which can seize control of banks, take over their bad assets and sell the good ones to competitors. Administration officials did not provide any details on how the new resolution authority would be financed, which could be a key sticking point in Congress.

— The Associated Press