Barack Obama says he accepts ultimate responsibility for the failure to stop $165 million (£115 million) worth of bonuses being paid by bailed-out insurance giant AIG.

The insurer – dubbed “Arrogance, Incompetence and Greed” by a Democratic congressman this week – has provoked outrage after insisting it was legally obliged to pay out the bonuses despite receiving $170 billion (£119 billion) of US taxpayers’ money.

Speaking in California, President Obama said he “took responsibility” for the bonuses.

“We didn’t draft these contracts. We’ve got a lot on our plate. But it is appropriate when you’re in charge to make sure stuff doesn’t happen like this,” he said.

“For everybody in Washington who is busy scrambling trying to figure out how to blame somebody else, just go ahead and talk to me, because it’s my job to make sure that we fix these messes even if I don’t make them.”

Appearing before Congress last night, AIG chief executive Edward Liddy said he agreed with criticism of the bonuses but insisted they had been paid due to the “cold realities of competition”.

“Americans are asking quite simply, why pay these people anything at all?

“I’m trying desperately to prevent an uncontrolled collapse of that business.

“This is the only way to improve AIG’s ability to pay taxpayers back, quickly and completely, and the only way to avoid a systemic shock to the country that the US government [bailout], was meant to relieve,” he said.

Mr Liddy, who was brought into AIG when the insurer appeared on the brink of collapse last year, revealed that he had asked employees to “do the right thing” and return the bonuses.

The House of Representatives has begun legislating on a new law that would force 90 per cent of additional pay for AIG executives to be returned.