CNN) -- Senate Banking committee Chairman Christopher Dodd told CNN Wednesday that he was responsible for language added to the federal stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored.
Sen. Chris Dodd, D-Connecticut, appears on CNN's "The Situation Room" on Wednesday.
Both Dodd and a Treasury Department official who asked not to be named said the administration pushed for the language because it was afraid the government would face numerous lawsuits without it.
Dodd, a Democrat, told CNN's Dana Bash and Wolf Blitzer that Obama administration officials pushed for the language to an amendment designed to limit bonuses and "golden parachutes" at those companies.
"The administration had expressed reservations," Dodd said. "They asked for modifications. The alternative was losing the amendment entirely."
On Tuesday, Dodd denied to CNN that he had anything to do with adding the language, which has been used by officials at bailed-out insurance giant AIG to justify paying millions of dollars in bonuses to executives after receiving federal money.
He said Wednesday that the "grandfather clause" language "seemed like innocent modifications" at the time. Watch Dodd's interview with CNN's Dana Bash »
"I agreed reluctantly," Dodd said. "I was changing the amendment because others were insistent."
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Dodd said he did not speak to high-ranking administration officials and the change came after his staff spoke with staffers from Treasury.
The White House did not immediately respond to CNN's request for comment.
On Capitol Hill on Wednesday, AIG chief executive Edward Liddy called the roughly $165 million in bonuses "distasteful" but necessary because of legal obligations and competition.
"We have to continue managing our business as a business -- taking account of the cold realities of competition for customers, for revenues and for employees," Liddy told a House Financial Services subcommittee. "Because of this, and because of certain legal obligations, AIG has recently made a set of compensation payments, some of which I find distasteful."
Pennsylvania Rep. Paul Kanjorski, the hearing's chairman, responded to Liddy's statement by arguing that AIG should have refused to pay all the bonuses -- regardless of its contractual obligations with the bonus recipients.
"Let them sue us," said Kanjorski, a Democrat.
Liddy, who joined AIG after the bailout, said some employees have returned their bonus money.
Senators and representatives have vowed to get the bonus money back, but questions have arisen about why Congress didn't act to prevent the bonuses in the first place.
"Well, the only lever we have in this is the fact that these corporations have come to the Congress of the United States and want a taxpayers' bailout," Sen. Chuck Grassley, R-Iowa, said Wednesday on CNN's "American Morning."
"If it weren't for that, we would not have any leverage on how any individual corporation is being run, and we don't pretend to have any leverage on any corporation today in the United States that's not seeking federal help," said Grassley, the top Republican on the Senate Finance Committee. Related: Grassley defends 'suicide' comment
AIG, an ailing insurance giant, has received more than $170 billion in federal assistance. Taxpayers now own nearly 80 percent of the company.
In a letter to Congress on Tuesday, New York Attorney General Andrew Cuomo confirmed that AIG paid 73 employees bonuses of $1 million-plus each this year after it received federal bailout money.
AIG will have to return the $165 million it paid in executive bonuses to the Treasury Department, Treasury Secretary Timothy Geithner said Tuesday.
Grassley and Sen. Max Baucus, D-Montana, on Tuesday introduced a plan that would impose a hefty tax on retention bonuses paid to executives of companies that received federal bailout money or in which the United States has an equity interest. Watch Grassley describe how the tax would work »
Other lawmakers, such as Rep. Charlie Rangel, D-New York, said it would be unfair to use the tax code as punishment, but Grassley said it's not a question of being fair.
"It's unfair what they did to the taxpayers by paying bonuses when they don't have the money to pay bonuses," he said. iReport.com: Sound off on AIG
AIG Chairman and CEO Edward Liddy has defended the bonuses, saying the company needed them to retain top talent and because of contractual rights. He has pledged to reduce 2009 bonus payments, which AIG refers to as "retention payments," by at least 30 percent.
Libby is testifying Wednesday on Capitol Hill. He's likely to face tough questions from lawmakers despite not being at the helm of AIG when the financial fiasco happened. He took over about six months ago.
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