ANALYSIS - Obama grappling with AIG bonus fallout

By Steve Holland

WASHINGTON (Reuters) - President Barack Obama is grappling with the AIG bonus furor by both accepting responsibility for the government's failure to head off the payments and blaming it on the "big mess" he inherited.

He is working to protect Treasury Secretary Timothy Geithner, who began his tenure under a cloud over unpaid taxes and is now taking heat from Republican lawmakers for not heading off the bonuses before they were paid out.

The flap over AIG's payment of $165 million in bonuses to executives after the insurance giant got up to $180 billion in government aid has inflamed Americans, already impatient with the government's billion-dollar bailouts of firms that helped pitch the U.S. economy into crisis.

The controversy is blanketing the airwaves and taking attention away from Obama's efforts to rescue the U.S. economy and the big agenda he has laid out for long-term goals, such as healthcare and global warming.

Saying Americans were "right to be angry, I'm angry," Obama has had to spend most of the week dealing with it -- condemning the bonuses and discussing options for getting the money back and preventing a repetition.

Pressed on whether he wished he had known sooner about the bonuses, Obama, a Democrat, told reporters on Wednesday that "ultimately I'm responsible," while returning to a theme he has used repeatedly, that he inherited big problems from his Republican predecessor, George W. Bush.

"We've got a big mess that we're cleaning up," he said. "Nobody here drafted those contracts. Nobody here was responsible for supervising AIG and allowing themselves to put the economy at risk by some of the outrageous behavior that they were engaged in."