Obama aide: big Wall Street bonuses "offensive"

WASHINGTON, Oct 18 (Reuters) - A top White House aide lashed out on Sunday at Wall Street firms that are handing out huge bonuses while the rest of the economy struggles and small businesses cannot create jobs because of a lack of credit.

Highlighting a disconnect between Wall Street and Main Street that has caught the attention of the Obama administration, Goldman Sachs Group Inc's (GS.N) was on a pace to hand out more than $20 billion in bonuses, which could make this year a record.

Compensation is also soaring at several other big firms, which are raking in higher trading revenues amid a recovery in the stock market that lifted the Dow Jones industrial average above 10,000 last week.

But the economy remains weak elsewhere and the U.S. unemployment rate, now at 9.8 percent, is widely forecast to climb above 10 percent.

"The bonuses are offensive," David Axelrod, a senior adviser to President Barack Obama, said on the ABC News program, "This Week."

"The most offensive thing is, we haven't seen the kind of increase in lending that ... we should," Axelrod said. "There are a lot of small businesses, credit-worthy businesses around this country who still can't get the capital they need to grow, which is important for our economy.

Axelrod and other U.S. officials emphasized on television talk shows that they were considering a variety of options to boost the economy and rekindle job growth.

But they also said they wanted to be mindful of the budget deficit.

WHITE HOUSE PRODS WALL STREET ON REFORM

White House aides pushed Obama's proposals for a broad rewriting of financial regulations aimed at preventing a repeat of Wall Street's worst crisis since the Great Depression.

The Obama administration has become increasingly vocal about what it sees as efforts by the financial industry to water down or block the reforms.

Axelrod and White House chief of staff Rahm Emanuel said Wall Street, which was saved from the brink of collapse by a $700 billion bailout from the U.S. government, had a duty to get behind the financial reforms.

Emanuel told CNN's "State of the Union" that many firms were now enjoying normalcy but "they're now back trying to fight consumer offices and the type of protections that will prevent another type of situation where the economy is taken over the cliff by the actions taken on Wall Street and the financial market."

Emanuel also said it was "frustrating to the American people" that financial firms are doling out big bonuses while incomes of other people are stagnating or falling.

A bill approved by the House of Representatives would impose new limits on executive pay, but the Senate has not yet acted on the issue.

For firms that still owe the government money under the bailout program, Treasury's pay czar, Kenneth Feinberg, has leeway to crack down on compensation packages.

But Axelrod said the administration is seeking to use "moral suasion" with some firms. Those such as Goldman Sachs that have already paid the government back are not subject to the Treasury's oversight of compensation.

Obama has faced criticism over the financial bailout program and his $787 billion stimulus plan enacted earlier this year. The financial bailout program was begun by the Bush administration in September 2008 and continued under Obama.

Republicans have labeled the stimulus package wasteful and say the high jobless rate is evidence it has not worked.

Obama administration officials say the stimulus plan helped save the economy from disaster.

They say they are still considering whether to propose additional steps to give the economy a jolt, but they have been reluctant to use the label "stimulus" to describe the possible further measures.

Asked on NBC's "Face the Nation" if a second stimulus was under discussion, White House adviser Valerie Jarrett said that Obama was "willing to look at all possibilities." But she said the original stimulus bill needed to be given time to work.

Axelrod said the administration was determined to prevent the economy from "cascading backward into a recession." But he also said Obama was paying close attention to the U.S. budget deficit, which hit a record $1.4 trillion in the just-ended 2009 fiscal year.

He said that Obama would address the issue of the deficit "at some length" in his "State of the Union" address to Congress in January.