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President Obama and Treasury Secretary Timothy Geithner meet with small business owners and community lenders on Monday.

President Barack Obama, trying to contain a political firestorm, instructed Treasury Secretary Timothy Geithner “pursue every legal avenue” to block $165 million in bonuses to AIG executives who were in part responsible for the company’s near collapse.

“This is a corporation that finds itself in financial distress due to recklessness and greed,” Mr. Obama said ahead of announcing a plan to rescue small businesses through a raft of new lending options. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?”

“This isn’t just a matter of dollars and cents. It’s about our fundamental values,” he added.

Meanwhile, New York Attorney General Andrew Cuomo asked AIG to provide details on who’s receiving bonuses in its AIG Financial Products subsidiary by 4 EDT p.m. on Monday or face subpoenas. He has blamed the unit for the insurer’s near collapse last year.

For the president, AIG’s announcement that it would award huge bonuses to the executives involved in the exotic financial instruments that forced the bailout has become a critical test. If anger at the bonuses consumes the electorate, any additional funds the administration might need for its financial rescue could become impossible to extract from Congress.

“All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules,” Mr. Obama said.

In Mr. Cuomo’s letter to AIG Chief Executive Edward Liddy on Monday, the New York attorney general requested a list of individuals who are to receive payments under the unit’s retention plan, as well as details of
Mr. Obama, for weeks now, has been trying to project himself as a defender of Main Street, not Wall Street, even as he tries to explain why more funding for ailing big banks might be necessary. Monday was supposed to be devoted to a small business rescue rollout.

The small business package includes raising the federal guarantee on small business loans through the Small Business Administration to 90% from the 50% to 85% traditionally covered. Messers. Obama and Geithner were also to announce that the government is prepared to purchase up to $15 billion in small business loans that are bundled into securities and sold on the open market.

SBA loan fees are also to be temporarily suspended.

The White House is saying small business owners are being crushed by a credit market that is drying up through no fault of their own. In essence, these businesses are the victims of companies like AIG, which used instruments like credit deferred swaps to insure speculation and risk.

But that message is being swamped by the furor over the AIG bonuses. Rather than tamp down that anger, Mr. Obama has decided to show his sympathy.

each individuals job description, information on their performance and copies of any contracts requiring the payments. The attorney general asked that AIG provide the information by 4 p.m. EDT Monday.

“We were disturbed to learn over the weekend of AIG’s plans to pay millions of dollars to members of the Financial Products subsidiary through its Financial Products Retention Plan,” Mr. Cuomo said. “Financial Products was, of course, the division of AIG that led to its meltdown and the huge infusion of taxpayer funds to save the firm.”

Mr. Cuomo said he’s looking into whether any of the individuals receiving payments were involved in conduct that led to the insurer’s near collapse; whether the contracts may be unenforceable for fraud or other reasons; and whether the payments may be consider fraudulent conveyances under state law.

“Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system,” Mr. Cuomo said.

“We are in contact with the Attorney General and will of course respond to his request,” Mark Herr, an AIG spokesman, said in a statement.

CONCORD, CA - DECEMBER 17: Job seekers wait in line to enter the "Put Your Talent to Work" job and resource expo

California, a state so large that its economy dwarfs most nations, now has another, less cheery, claim to fame: It is one of the states hardest hit by the country’s unemployment woes.

The California jobless rate hit 10.1 percent in January, up from 5.9 percent when the recession began in December 2007. Only Michigan, South Carolina and Rhode Island reported a higher unemployment rate for the first month of the new year, when the national average was 7.6 percent.

While other states with exceptionally high unemployment rates are suffering from severe downturns in specific sectors that power their economies — such as Michigan’s auto industry — in California, the state is dealing with a broad array of problems, more similar to the country as a whole, economists say.

If you follow the trend of our employment compared to the national employment, it tracks it pretty closely,” said Michael Bernick, former director of the state Employment Development Department and now a labor lawyer. “It’s gone up sharply just as the national rate has, and we’ve continually been higher than the national rate.”

To find one big reason why, you need look no further than the foreclosure signs that line the streets in many of the state’s suburbs and exurbs.

California enjoyed one of the hottest housing markets in the country during the boom, and it was one of the first and hardest-hit by the housing bust. As foreclosures have mounted and homebuilding has dried up, the state has shed construction jobs at an alarming rate. It lost about 130,000 construction jobs from January 2008 through January 2009 alone, according to preliminary calculations from state officials.

But California’s economic woes have spread into other areas as well. The state’s manufacturing sector has shed more than 80,000 jobs over the same period, and its financial sector has cut more than 48,000 jobs, according to the preliminary state data. That’s creating a tough job market for every class of worker, from unskilled laborers to white-collar college graduates.

“It goes across sectors,” said Bernick, adding that it has become common for as many as 40 people to apply for one job opening.

Some argue that the state’s jobless picture may be less bleak than it appears. Howard Roth, chief economist for the state’s Department of Finance, said a change in the way the U.S. Bureau of Labor Statistics calculates the jobless rate has often meant that the state’s monthly numbers initially appear worse than they are, only to be revised later.

Still he acknowledges that California’s jobless rate is likely to remain higher than the rest of the country as it continues to feel the recession more profoundly.

In addition to the housing bust, the state’s financial sector has been hit by the banking crisis, and its many businesses are grappling with the effects of the credit crunch that has squeezed access to financing.

Other sectors of the economy, including technology and tourism, also are suffering as people pull back on spending. The manufacturing industry downturn could be problematic because California’s high cost of land, electricity and other resources make it a less attractive place to locate.

“It’s pretty expensive to manufacture something in California,” Roth said.

The state government also is suffering from a severe budget crunch, which could eventually result in public-sector jobs being cut and further the cycle of economic worries. A 3-year-old drought is hurting the agriculture industry, which Roth said accounts for 5 percent of the state’s economy.

The healthcare and education sector is one of the few bright spots in the state’s bleak jobs picture, and even that sector isn’t faring as well as some would hope.

This is a state that people come to
Steven Levy, of the Center for the Continuing Study of the California Economy, believes one major reason the state’s jobless rate comes in higher than the rest of the nation’s is because of a constant influx of new immigrants. He estimates that about 200,000 new legal immigrants come to the state each year, and in this market he says many of those workers may have immediately joined the ranks of the unemployed. The state data shows that more than 300,000 people were added to the labor force last year.

“The unemployment rate is higher because this is a state that people come to,” Levy said.

On the other hand, Levy believes unskilled immigrants who entered the country illegally are probably returning home because work is drying up.

Levy expects the state’s jobless rate to continue to edge up, and he warns that it could take some time for things to stabilize and eventually turn around.

“We’re no different than the nation — the numbers are going to get worse before they get better,” he said.

Still, he and other economists take solace in the fact that the state rebounded quickly and powerfully from other recessions including the downturn in the 1980s when it was hit especially hard because of steep cuts to its aerospace industry.

This time around, the job cuts are much more widespread, but they also have come at a much faster pace than in previous recessions.

The government stimulus package may help stem job losses, although some don’t expect it to be a major job creator. Bernick says the state should benefit from its diverse economy as well as a history of entrepreneurship.

“We do have high costs, (traffic) congestion (and) higher taxes, but we have such an entrepreneurial ethos and entrepreneurial culture — and part of that’s an immigrant culture — and that’s really what keeps the economy afloat and would be our hope for the future,” Bernick said.

California economists also note that past recessions brought on doomsday talk of permanently high unemployment rates and other long-term woes for the state, none of which came to fruition. This time around, the state is expected to recover more slowly than in recessions past, but most still see better times ahead.

“I’m pretty confident that we’ll come out of it. We’re pretty resourceful people,” said Roth, the state economist. “But for now, it’s a little hard to forecast exactly when that will happen.”

Chandler, Ariz., police officers confront residents of the Alante at the Islands apartment complex last week at a meeting called to discuss what the renters would do next.

Nicholle Krause first noticed the weeds sprouting in the usually well-manicured grounds of her 320-unit apartment complex in Chandler, Ariz., in December. Soon, signs of neglect began multiplying: Garbage spilled over from the dumpsters, the water in the swimming pool turned a slimy pea green and the grounds were infested by swarms of bees — especially alarming because Krause is severely allergic to bee stings.

“I couldn’t even go outside to enjoy where I live,” said Krause, a 21-year-old office worker who pays $827 a month for a one-bedroom apartment with garage space. “I shouldn’t have to pay $800 a month to live in a … hole.”

It wasn’t until early March that Krause and other residents learned why the complex – the alluringly named Alante at the Islands — was rapidly going to seed. The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.

As panicked renters in Arizona began holding public meetings to explore whether they could walk away from leases, recoup security deposits or sue, it became clear that the scale

of the mess was far larger than they had realized. Companies under the Bethany umbrella owned at least 60 — and possibly many more — large residential complexes across the nation, all of which are now believed to be in bankruptcy or receivership, potentially affecting tens of thousands of renters.

The Bethany Group meltdown highlights how few protections exist for renters caught in the foreclosure crisis. That’s a situation that some experts say is becoming much more common.

“People were paying attention to the single family resident market, the 100 percent, no-down loans,” said West Coast real estate investor and broker Virgil Hobbs, who is bidding on some of the distressed Bethany properties on behalf of clients. “And then beyond that wave is the commercial market, which is what you’re now seeing now.”

When commercial residential properties change hands, tenants typically don’t feel much impact. But in this case, where properties were simply abandoned, the situation was chaotic.

Threats of utility shut-offs
In one abandoned Bethany property — the 500-plus-unit Granite Bay in Phoenix — tenants were served notice by the water company on March 6 that their water would be shut off in five days because of an outstanding $64,000 bill. Alarmed residents only found out shortly before the deadline that a Las Vegas company, 707 Management Services Inc., had been appointed as receiver for the property and would see that the water remained on.

Other Bethany complexes were threatened with gas or electricity shut-offs due to non-payment of bills. And staff at many of the Phoenix area properties said they had not been paid for a month or more before courts began appointing receivers to assume control of the complexes.

The precise size of the Bethany rental empire is difficult to establish because the company owns apartment complexes both under its corporate name and numerous affiliated companies.

At least 18 related entities — limited liability corporations, or LLCs, registered in Delaware that own properties in Texas — filed for Chapter 11 bankruptcy this month, leaving open the possibility that they will reorganize and try to pay creditors.

But many other Bethany properties are now in the hands of court-appointed receivers, indicating that Bethany has essentially abandoned them. The receivers — appointed to represent creditors —are charged with preserving any remaining value of the assets, managing them during foreclosure and recovering whatever they can for lenders, typically by selling at a deep discount.

Bethany CEO Greg Garmon could not be reached for comment. Answering services at Bethany’s main line and Garmon’s office said voicemail boxes were full. The Bethany Group’s Web site no longer works, though the cached version of its introductory page still asserts that “It’s all about people and their homes.” The main office number at Alante at the Islands no longer works.

San Diego company handling 24 properties
San Diego based Trigild Inc. has been appointed receiver for 24 of the Bethany properties, including seven in the Phoenix area. Just 13 of the properties under Trigild’s supervision represent more than $500 million in loan defaults, according to Trigild President Bill Hoffman. Those cases are being handled by five different courts in Arizona, California, Colorado and Florida. Five other large properties in Phoenix are in receivership under 707 Management.

Hobbs, the real estate broker, said he approached Bethany several months ago to inquire whether the company was interested in selling some of its properties after hearing rumors that the company was in trouble. He said he was told that the company’s portfolio contained more than 80 properties. But he said the company denied it was experiencing any financial difficulty.

“We walked away scratching our heads, saying they either got their heads in the sand … or they don’t care about (thousands of) tenants,” he recalled. “Don’t tell me they are just going to let the ship sink.”

Hoffman, the president of Trigild Inc., which is now responsible for Alante at the Islands among other Bethany properties, said the appointment of receivers by the courts should be seen as good news by tenants.

“The tenants are going to be better off with us,” Hoffman promised. “They will see improvements very quickly. The properties will be clean, and functioning properly within a few days.”

As a practical matter, a receiver has a strong incentive to keep tenants happy. They are the source of a property’s cash flow, and occupancy rate is a key factor in determining value. And by the second week of March, some upkeep issues had been addressed at the Bethany complexes. The Alante swimming pool was cleaned and trash pickup resumed. Trigild also is paying former Bethany employees who stayed on in the complexes, according to Hoffman.

But by law, Hoffman said, the receiver is not liable for security deposits from renters who signed leases before the receivership went into effect.

“There is no obligation for the receiver or the lender to give (tenants) deposits that they don’t have,” said Hoffman. If the deposits had been handed over to Trigild it would be different, he said, “but that owner (Bethany) has obviously spent that money or done something with it.”

Chances that tenants will get back the deposit are slim, said Ed Valenzuela, executive director of the Arizona Fair Housing Center.

‘Most of the time, the tenant is out of luck’
“They could go to court and sue (Bethany) for it but if the property is in foreclosure where is the money going to come from?” he said. “Most of the time, the tenant is out of luck.”

That’s especially true in Arizona.

A recent report by the National Law Center on Homelessness and Poverty ranked the state among the worst in the nation for renters living in a property that is foreclosed upon.

For example, in Arizona and at least 30 other states, there is no legal requirement to notify tenants that the property is going through foreclosure, it said. And only New Jersey and the District of Columbia explicitly preserve tenants’ rights in the lease after a foreclosure.

The report, co-sponsored by the National Low Income Housing Coalition, warned that renters affected by foreclosure are at greater risk of homelessness, and called for federal and state governments to beef up protections. Legislation to do that has been introduced in Arizona, but it has not yet been acted upon.

Until now, the biggest problem facing renters has been summary eviction following a foreclosure. But the demise of the Bethany group raises different problems, since the new owner would have a wide range of options with a commercial property.

“The real issue is who is going to take over the property and what are they going to do with it?” said Ken Volk, who runs the Arizona Tenants Advocacy and Association in Tempe and has been advising some of the Bethany renters. “These tenants, if they leave, they could be held to the lease if the new owner wants to run it as a rental. If they don’t want to, the landlord could terminate the lease and say you have to get out, very often within five days.”

Volk has been organizing residents at the Bethany complexes to press for better treatment and has helped others legally break leases — a service for which he charges a fee.

That incenses Hoffman, who argued that such activities could amount to illegal interference.

“If he’s going to advise people to break the lease I’ll have him before the judge,” he said. “He’s certainly not going to interfere in any way with our possession and control of the asset.”

A confrontation with police
Trigild called Chandler police last week to alert them to a meeting at which Volk and about 100 Alante at the Islands residents were discussing possible next steps on property adjacent to the apartment complex. According to witnesses, eight or nine officers pushed their way into the crowd to disperse it, prompting a shouting match among tenants, police, the apartment manager and Volk before the meeting broke up.

“It was intimidating,” Volk said of the confrontation. But he said he will continue working with the tenants and dismissed Trigild’s criticism that he is intervening simply to profit off the tenants’ fears.

“I might make a little,” he said. “But the motivation is to help people. It’s what I do.”

He said the primary service he provides it to help renters understand how to legally break leases.

“By and large tenants … have no clue what to do,” he said. “They figure the morality of their situation will carry them over into the legality, and it doesn’t. There are very precise legal requirements. Unless you address them very carefully, a lawyer on the other side will get in your way.”

Nicholle Krause, the Alante resident, found that out the hard way. She threatened to withhold her March rent when her complaints about the poor condition of the property were ignored. That prompted the complex manager to threaten her with eviction, which would make it harder for her to rent elsewhere. She backed down, and paid.

She then sent the manager a letter stating that she would move out in 10 days because of the landlord had not fulfilled its obligations to keep the property in livable condition. But an attorney for the company responded that her letter did not meet legal requirements for breaking the lease.

“I want to leave … but I would need an attorney,” said Krause, explaining that even with order returning to Alante, the uncertainty of not knowing what a new owner might do with the property continues to plague her. She said she intends to move out when her lease expires in June, if not sooner. “I don’t know if the cost and the exhaustion (that it would entail) are worth it.”

As the foreclosure crisis continues to expand, many other renters around the country are likely to find themselves in the same situation as Krause.

“We have a bunch of apartment complexes around the country,” said Hoffman, the president of Trigild, Inc. “We haven’t got anywhere near the bottom. … If I look at our pipeline, it would normally be about 12 (to) 15 properties. We’re looking at a couple hundred at this stage.”

WASHINGTON – The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda.

The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger.

“We’ve got enormous problems that need to be addressed,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “And it’s hard to address because there’s a lot of anger about the irresponsibility that led us to this point.”

“This has been welling up for a long time,” he said.

Mr. Obama’s aides said any surge of such a sentiment could complicate efforts to win Congressional approval for the additional bailout packages that Mr. Obama has signaled will be necessary to stabilize the banking system.

As it is, there have already been moves in Congress to limit compensation to executives at banks and Wall Street firms that are receiving government help to survive.

Beyond that, a shifting political mood challenges Mr. Obama’s political skills, as he seeks to acknowledge the anger without becoming a target of it. A central question for Mr. Obama is whether his cool style — “in a time of crisis, we cannot afford to govern out of anger,” he said in his address to Congress last month — will prove effective when the country may be feeling more emotional.

Even as Mr. Summers was denouncing A.I.G. for the bonuses, he suggested that there was little if anything the government could do to stop them, seconding the conclusion of Treasury Secretary Timothy F. Geithner. But even if their reasoning was legally sound, they also risked having the administration look ineffectual in the face of what Mr. Summers said was the worst financial abuse of the last 18 months, since the economy began turning down in earnest.

“Never underestimate the capacity of angry populism in times of economic stress,” said Robert Reich, a professor of public policy at the University of California, Berkeley, and labor secretary under President Bill Clinton. “A big challenge for President Obama will be to maintain a rational and tactical public discussion in the midst of this severe downturn. The desire for culprits at times like this is strong.”

In a further development, A.I.G. on Sunday named dozens of financial institutions that benefited from its huge rescue loan from the Federal Reserve last fall. The list included Goldman Sachs, Merrill Lynch and Wachovia.

On Monday, the White House is expected to unveil proposals to help small businesses, an effort to make clear that the administration is not only focusing its attentions on Wall Street and big corporations like the automakers.

But the financial crisis is the most acute problem facing the administration, one it will not be able to play down. Christina D. Romer, the White House’s chief economist, said Sunday on “Meet the Press” on NBC that the administration was close to unveiling details of its plan to remove the worst of the bad assets from the books of banks, a move sure to refocus attention on winners and losers from bailouts.

Unquestionably a strong populist surge

The disclosure that A.I.G., which has received $170 billion in government assistance to remain afloat and avert a cascade of failures in the financial system, is paying bonuses to its executives is the latest in a series of episodes that Mr. Obama’s aides said seemed to be feeding a resurgence of public anger.

The public responded angrily to previous disclosures of large bonuses on Wall Street, to auto executives who flew on corporate jets to Washington for Congressional bailout hearings, and to last week’s face-off between Jon Stewart of “The Daily Show” and Jim Cramer, the CNBC financial commentator, over the network’s reporting on the crisis.

“There’s unquestionably a strong populist surge out there,” said Joel Benenson, Mr. Obama’s pollster, citing his own polls and focus groups. “It’s been brewing for close to four years. For the last two years, Americans were clearly indicating that they believe that one of the biggest obstacles to progress on America’s toughest challenges — notably health care and energy independence — was the influence of special interests and corporate interests on the agenda in Washington.”

A New York Times/CBS News Poll in February found that 83 percent of respondents said the government should cap the amount of compensation earned by executives of companies that are getting federal assistance.

Mr. Obama’s advisers argued that to at least some extent, this was a sentiment they could tap to push through his measures in Congress, including raising taxes on the wealthy. They pointed out that in his speech to Congress, Mr. Obama denounced corporations that “use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet.”

“The president has been very clear about this,” Mr. Axelrod said. “There is reason for anger, but we also have to solve the problem. We need a functioning credit system. That’s our responsibility, and he intends to meet it.”

Still, aides acknowledged the risks of a backlash as Mr. Obama tries to signal that he shares American anger but pushes for more bail-out money for banks and Wall Street.

For all his political skills and his capturing of the nation’s desire for change in the 2008 election, Mr. Obama, a product of Harvard Law School who calls upscale Hyde Park in Chicago home, has shown little inclination to strike a more populist tone. The danger, aides said, is that if he were to become identified as an advocate for the banks and Wall Street, people could take out their anger on him.

“The change now is you have a free-floating economic anxiety that has expressed itself in a kind of lashing out at those being bailed out and people who are bailing out,” Michael Kazin, a professor at Georgetown University who has written extensively on populism. “There’s not really a sense of what the solution is.”

“I do think there’s a potential for a ‘damn everybody in power’ kind of sentiment,” Mr. Kazin said.