Bonuses, Budgets and Bailouts

Three topics will dominate Obama's press conference tonight.

WASHINGTON, D.C.--President Obama's to-do list for Tuesday night's press conference is daunting: sell his $3.6 trillion budget to the public, explain the public-private partnership he's proposed to save the banking system and convey that despite rising unemployment and a shaky stock market, he remains the man who can safely return America to prosperity.

Making things harder: the lingering furor over $165 million in bonuses paid to executives at American International Group (nyse: AIG - news - people ) and concern that his budget is $2.3 trillion further in the red than expected. He'll likely be peppered with questions about whether he would veto a bill to impose a 90% excise tax on some bonus income and how the administration plans to win over skeptical lawmakers if it needs to prop up the financial system with more bailout cash.

Want an example of what Obama's up against? Look no further than what Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke faced at a House of Representatives committee hearing Tuesday.

Geithner and Bernanke went to the Hill with a basic message: The government needs to establish a regulatory mechanism to allow for the orderly unwinding of non-bank financial firms like AIG, should they fail.

Instead, they faced a barrage of questions from lawmakers: What constitutional right does the Treasury Department have to keep dumping taxpayer money into failed companies? What role has Goldman Sachs (nyse: GS - news - people ), an AIG creditor, played in government bailouts? Should the issuance of credit default swaps be grounded until further notice? Who know what about AIG's bonuses and when?

The administration is keen to put in place part two of its response to the economic crisis: its budget and a new set of guidelines to revamp the regulation of the financial services industry. President Obama has conceded that "the specific details and dollar amounts in this budget will undoubtedly change." But he wants it to contain at least four elements: investment in clean energy, commitment to education, reform of health care policies and a reduction in the federal deficit.

As for a financial services overhaul, the administration wants to, in part, plug a hole in the current regulatory system by allowing the government to act as a "receiver" for all financial institutions, taking on a role similar to the Federal Deposit Insurance Corp. in dealing with failed banks. This would allow Uncle Sam to sell a business' assets and liabilities and renegotiate contracts with employees and counterparties.

 

Tuesday night, also expect the president to talk about fiscal responsibility, stressing the market's 500-point gain Monday in reaction to Geithner's plan. He'll likely mention the need for broad fiscal stimulus worldwide, as he prepares to meet with leaders from other G-20 nations in London in less than two weeks.

But before he does any of these things, President Obama will first need to regain control of the dialogue.