Brad Miller (D-NC) asks the complement to the question I asked last night: Where’s the guy who doesn’t know shit about Wall Street to assess these bailouts?
Brad Miller asks, doesn’t Edward Liddy’s past board membership on Goldman Sachs create the appearance of conflict of interest–not to mention someone without the sufficient distance to approach this problem fairly?
Geithner doesn’t seem too troubled about any potential conflict of interest.
Brad Sherman (D-CA) predicts this is not going to work out well for the taxpayer. First, he predicts we’re going to fail to do anything to reel in Wall Street:
What I fear here is that we are doing a kabuki theater in three acts:
The first act, Washington tells the American people, "we understand your anger at Wall Street."
In the second act, we nitpick to death any proposal that actually adversely affects Wall Street.
And then in the third act, we bestow another trillion dollars on Wall Street on extremely favorable terms.
He then asks (paraphrase), Will you publish a list of all the TARP recipients and how many of the executives earned over a million in 2008 and 2009. Geithner equivocates, promising only he’ll think about it.
He then asks Geithner when he’s going to get around to writing regulations on executive compensation (reminding him that Neel Kashkari didn’t think $3 million or $30 million wouldn’t be inappropriate salary).
Gresham Barrett (R-SC) asked Tim Geithner "the $64 trillion question"–basically, what is Plan B?
Geithner’s response? Don’t worry. It’ll work.
That wasn’t acceptable when President Bush had no Plan B in Iraq, and it’s not acceptable here.
In his response to Bill Posey, Bernanke did better. But the war images don’t give me a lot of confidence.
Maxine Waters got into one key area of distrust on the bailouts: the ubiquity of Goldman Sachs in bailout plans.
Tim Geithner sure didn’t seem all that interested in Waters’ questions on the bailout.
A few days ago, this hearing might have focused on why we need to bribe the banksters to clean up their mess. Now, it will undoubtedly focus on why we’re socializing risk some more. We’ll also have William Dudley, the new head of the NY Fed.
The hearing is on CSPAN1 and the committee stream. We’ll have a long series of member statements before we get to Tim and Ben.
From Geithner’s statment, he’s still pushing regulation of "too big to fail" rather than avoiding "too big to fail."
We must ensure that our country never faces this situation again. To achieve this goal, the Administration and Congress have to work together to enact comprehensive regulatory reform and eliminate gaps in supervision. All institutions and markets that could post systemic risk will be subject to strong oversight, including appropriate constraints on risk-taking. Regulators must apply standards, not just to protect the soundness of indivdiual institutions, but to protect the stability of the system as a whole.
And here’s Timmeh playing dumb on bonuses.
In November, as part of the government’s infusion of capital, Treasury imposed the strictest level of executive compensation standards required under the Emergency Stabilization Act. When we were forced to take additional action in March, we required AIG to also apply the Treasury rules that will be promulgated based on the executive compensation provisions in the American Reinvestment and Recovery Act.
See, AIG has given out bonuses to 4,500 people since we bailed them out in September. And Treasury knew about the AIGFP bonuses (to be paid in March) when they were negotiating the most recent $30 billion. But for some reason Timmeh doesn’t want you to know about it.
Barney Frank: [Reminding the context of AIG, the Lehman collapse and the no involvement of Congress] Two examples of how not to proceed. Lehman, not help for creditors. The other one, AIG, help for all of the creditors. Contrast with Wachovia, IndyMac, WaMu. Those of us who will mourn Countrywide are a small number. Regulators that contained the damage. Neither Lehman total collapse on economy or excessive intervention. Read more →
Steven Rattner doesn’t know shit about cars.
Or at least he didn’t a month and a half ago. And then, President Obama decided he was the single best person in the country to lead the auto task force–to assess the state of the auto industry, figure out whether letting one or both of the failing companies go under, and if not, how to bring them out of their doldrums.
Frankly, I’m unconvinced Rattner was the guy to assess and guide the auto restructuring–mostly though because he seems to have gotten picked because he’s a schmoozy insider with a great talent for self-promotion. But I do appreciate this qualification of Rattner’s:
"What I bring to this is the advantage of no preconceived notions. I don’t come with an embedded view," Rattner said in an interview, calling the job "the most complex challenge I’ve ever had to deal with."
And here’s another "qualification," pitched by his buddy Steven Weisman:
"He may not have had a particular history of interest in the auto industry, but he would bring the ability to ask basic questions and try to get basic answers and drive toward the agreement on a solution."
Sean McAlinden, who does know the auto industry, reports that at least Rattner has been learning quickly.
Now like I said, I’m not convinced having someone who is totally ignorant about an industry is the best person to come in and try to rescue it. But at the very least, having someone as ignorant as Rattner go through the process of learning about the auto industry may help Obama to rethink his significant preconceived notions about why the auto industry is in trouble and what to do about it.
I realized today–as I was doing a radio interview about AIG bonuses with Nancy Skinner, also in MI–how dramtically different Obama’s approach to assessing and resolving the finance industry (the folks who, after all, caused many of the more urgent woes of the car companies).
Obama’s first instinct in assessing the auto industry was to bring in someone who was completely ignorant of the industry, to ask questions. Read more →
The WSJ has a detailed chronology of when the Fed started looking at AIG’s bonuses. I think it, at times, confuses the AIGFP bonuses that were negotiated in March 2008 with the bonuses that were negotiated after AIG got bailed out (AIG gave retention bonuses to a group of employees that has expanded from 130 to 4700 since September–which I’ll return to in a later post). And it makes an even larger error, misrepresenting the main reason AIG kept the AIGFP bonuses, which was that they really felt they needed those employees to stick around (the WSJ focuses only on the legal question, which Edward Liddy has made clear was secondary to the perceived need to keep these people around).
But the WSJ story makes one thing clear: the Fed deliberately avoided discussing bonuses in the context of new bailout negotiations.
In late January, news outlets reported that AIG planned a total of $450 million in bonuses to help retain employees winding down the complex trades in the unit at the heart of the company’s collapse. In the weeks that followed, Mr. Liddy and other AIG officials briefed some lawmakers about the retention payments and other aspects of the AIG rescue.
On Feb. 28, as government officials worked on a fourth AIG bailout, the New York Federal Reserve Bank emailed Stephen Albrecht, a Treasury lawyer, laying out the AIG bonus issues and promising further detail, according to two people familiar with the email. Mr. Albrecht did not return a call seeking comment.
It was an intense weekend, as Treasury and Fed officials frantically prepared to close the AIG deal. "When we heard there was this executive compensation thing floating out there, we thought, ‘We’ll deal with this later,’" said one Treasury official.
On March 2, AIG announced both record losses and $30 billion in fresh Treasury aid.
This is appalling not just because the Fed and Treasury put off dealing with the question of bonuses at the same time as they were forcing the UAW to renegotiate its contract as a condition of new aid.
But it also seems to strongly suggest that neither the Fed nor Treasury have ever really questioned AIG’s representation that it needs to keep these finance guys around by bribing them. We learned on Friday that the guy receiving the biggest bonuses–Doug Poling–was the lawyer who crafted the CDS contracts. Don’t you think we ought to determine whether we ought Read more →
Apparently, Tim Geithner is about to go on CNN and admit he was the one who put the bonus loophole in the stimulus bill. But he’s still telling the "afraid of lawsuit" story that Larry Summers already spun.
Treasury Secretary Timothy Geithner told CNN Thursday his department asked Sen. Chris Dodd to include a loophole in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses.
In an interview with CNN’s Ali Velshi, Geithner said the Treasury Department was particularly concerned the government would face lawsuits if bonus contracts were breached.
Aside from the fact that the White House just made the Democrats’ most endangered Senator, Chris Dodd, take the fall for this in two media cycles, I gotta say I’m utterly disgusted that Geithner is still using Larry Summers’ already-discredited excuse about lawsuits.
We own these companies.
We saved them from bankruptcy.
We can demand–as we’re demanding of the car companies–that they forgo their bonuses.
But instead, in an apparent still half-assed charade of coming clean, Geither still wants to pretend that’s why he’s bribing these banksters to stick around the collapsing house of cards.
I’m with Jane.
I do not think that anyone understands that some Rube Goldberg model, where we pay out a billion in bonuses, and then try to get the money back in taxes, is going to be a winner. But that appears to be what the administration wants, because both Nancy Pelosi and Barney Frank are saying the same thing. Then again, we’re talking about a bunch that thought this wouldn’t be a big problem in the first place, at least not one they couldn’t solve with faux "outrage" and blaming Chris Dodd.
I’m fairly confident they’ll have a chance to rethink this in the near future — somewhere around the time Tim Geithner’s "I knew nothing" story crumbles. The only question is how much public rage they’ll have to suck up before they face that reality. [my emphasis]
The Administration is shortly going to be dealing with the uncomfortable job of admitting Tim Geithner knew a lot more about bonuses a lot earlier than he has let on.
And while news outlets like Time are chasing down precisely when Geithner learned the details of AIGFP bonuses, I’m more interested in an earlier round.
As Elijah Cummings described in the waning moments of yesterday’s hearing, Edward Liddy approved a round of retention payments back in September.
On September 18, 2008 AIG’s compensation committee of the Board of Directors approved retention payments for 168 employees.
Cummings’ point is important, because it shows that, however distasteful Liddy may find paying off the banksters who broke the world economy, he’s willing to pay retention bonuses himself, even at a time when AIG was engorging itself on the federal teat.
But the retention contracts negotiated in September also put them squarely in the time when Tim Geithner was intimately involved in bailing AIG out. We learned yesterday that he recused himself from matters pertaining to AIG once he was picked to be Treasury Secretary (that nomination was announced on November 24). But back on September 18, when this round of bonuses was approved, Obama hadn’t even won the election yet, much less picked Geithner to be Treasury Secretary. Back on September 18, Geithner was in charge of the well-staffed (his current excuse–that he’s not staffed up yet, doesn’t work here) NY Fed, and in charge of negotiating this bailout. Read more →
I wanted to make one more point about the revelation from Andrew Cuomo’s letter to Barney Frank that some of those getting "retention" bonuses are gone from AIG.
Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million;
"Retention" bonuses for those who left? That’s even nuttier than paying the guys who broke the global finance system millions for staying!
Here’s what AIG said about the purpose of those bonuses.
In the first quarter of 2008, AIGFP adopted a retention plan for about 400 employees that provided guaranteed payments to employees if they worked through specified payment dates (or either resigned for good reason or was terminated without cause before the relevant dates). At the time, AIGFP was expected to have a valuable, on-going role at AIG. The plan was implemented because there was a significant risk of departures among employees at AIGFP, and given the $2.7 trillion of derivative positions at AIGFP at that time, retention incentives appeared to be in the best interest of all of AIG’s stakeholders.
Now, we still don’t know shit about these contracts–even Cuomo, who has at least seen the contracts, doesn’t know who got them. But assuming this white paper is not lying (which I wouldn’t guarantee), then the people who have left AIG but got the "retention" bonuses fall into one of three categories:
In other words, either they’ve got the retention bonuses tied to dates that mature long before the bonuses themselves do (which seems unlikely, but so do these bonuses more generally), some of these 11 people were terminated without cause even knowing they’d get humongous bonuses anyway, or they resigned "for good reason." Since the first two seem so stupid, I’m going to guess that these 11 people fall into the last category (but that’s just a wildarsed guess).
So what does "for good reason" mean?