Rep. Sherman: Treasury Could Easily Get Back Those AIG Bonuses
Rep. Brad Sherman (CA), a senior Democrat on the House Financial Services Committee, told TPMDC today that the Obama administration could have prevented excessive bonuses from being paid out at AIG -- but it missed the chance.
Sherman told me in an interview today that the Treasury Department wouldn't have to be withholding $30 billion in aid from AIG until the company restructures its bonus payments, because Congress already had given Treasury the authority to prevent those bonuses from being paid.
Referring to the original bailout Congress passed in October, Sherman told me:
We had a provision in there that said Treasury was supposed to establish, by regulation, standards for executive compensation. We required that to be done -- had it been done, it would have been binding, whether [or not] these contracts had been signed earlier. It's entirely within the power of the federal government to have contracts modified [at companies receiving public aid]. Nixon had contracts modified by the federal government. We gave a similar power to Treasury.
Sherman voted against the bailout, he explained, because he didn't believe that Treasury would use the power given to it by Congress. As it turned out, the department ultimately exercised its executive compensation powers last month, but the final regulations were riddled with loopholes -- and only applied to companies receiving "extraordinary" assistance from the government in the future, a standard that no company has officially met so far.
Sherman has been at the forefront of the debate over executive compensation since the earliest days of the bailout. It was Sherman who first sounded the alarm to TPMDC over efforts to remove CEO pay caps from the stimulus bill, sparking a flurry of public attention that kept the caps (somewhat) intact.
The California Democrat believes that the solution to AIG's woes is outright government receivership, a prospect that Rep. Alan Grayson (D-FL) raised with me earlier today.
But Sherman also counseled wariness, as the nation gives in to expend anger over AIG's bonuses and largely ignores the weekend disclosure of the large banks who benefited because of their status as AIG counterparties in credit default swaps deals.
"Arguably, this thing with bonuses is a red herring they're throwing at us [to distract from what AIG] did with the $170 billion" they've received from the U.S. government, Sherman said. "The bonuses are chump change compared with what's going to the uninsured counterparties."
Josh
Elana
Matt
Eric
Also NY Attorney General Cuomo is calling for some heads--but why does it take Cuomo to do this? Why didn't someone in the federal government, the ones issuing the money, do this?
http://dealbook.blogs.nytimes.com/2009/03/16/cuomo-to-subpoena-aig-for-bonus-information/?hp
March 16, 2009 6:02 PM | Reply | Permalink
One speculation might be that since the Treasury Department is filled with bankers, many of whom already have Wall Street experience and further down many who want jobs on Wall Street when they leave government, they already agree with Wall Street that government has no business interfering with what happens on Wall Street.
This is a speculation, but I don't think it is much of a stretch from reality.
If that feeling dominates the Treasury Department, then the Justice Department is not going to want to step on any Treasury toes. Treasury, and banking in general, are considered a set of very rare skills, so that outsiders are not very likely to interfere with them. That would especially be true so early in a new administration with no one really knowing very many of the people in their own department let alone outside them.
March 17, 2009 1:54 AM | Reply | Permalink
AIG has a large vacuum hose attached to the federal treasury and the sucking sound can be heard by anyone. It's beyond hopeless. Receivership is inevitable, so the sooner we get started the sooner we finish. I don't understand what they're waiting for.
March 16, 2009 6:04 PM | Reply | Permalink
Hear, hear! Forget about nationalizing the banks. If AIG is too big to fail and the government is going to have to make good all it's bad debt anyway, then the Feds may as well own it outright and restructure it the way it needs to be restructured.
March 16, 2009 9:18 PM | Reply | Permalink
According to Barney Frank (just now on Rachel), AIG was bailed out by the Fed back in Sept (on their own authority-1932 Hoover law) NOT TARP. Congress was merely "informed"...
March 16, 2009 9:38 PM | Reply | Permalink
I am also concerned that Barney Frank and Brad Sherman are telling two completely different stories.
It seems as though both knew this was coming, but waited till it got to this point before stepping up.
Not my idea of leadership at all. To reactive.
March 17, 2009 8:52 AM | Reply | Permalink
This bonus mess is Obama's failure and is directly tied to his poor choice of a Treasury Secretary.
You didn't need to have a crystal ball or be a financial expert to know that some conditions should have been attatched to this bailout money.
Why didn't Geithner or Obama attatch any?
And it's taken a gigantic public uproar to get them to TRY to prevent the bonus payments?
What the hell is wrong with them?
March 16, 2009 9:40 PM | Reply | Permalink
This happened in September. Remember who was President then? Lots of folk are blaming things on Obama after 50 days, but it's a stretch to blame him for stuff before January 20, 2009
March 16, 2009 11:06 PM | Reply | Permalink
Uhm, not quite.
AIG just shuffled up to the trough for ANOTHER $30B just 2 weeks ago. Timmy G and Obama could have nixed these bonuses then, if they wanted to. Which they of course don't. These rich pricks will ALWAYS protect each other and now Obama is just another one of them.
Timmy G and Obama have known about these bonuses for months, indeed the treasury gave them the go-ahead. Yesterday was kabuki, plain and simple. All political theater all the time.
And there are enough suckers to buy it, everytime....
March 17, 2009 8:57 AM | Reply | Permalink
As much as I would like to defend Obama, he made the shitty choice of Geitner for Treasury, which is proving to be a huge mistake.
March 17, 2009 11:02 AM | Reply | Permalink
Since nominated, I've seen Geithner as a place-marker. He should be gone soon.
Summers as well.
One problem with hearing all sides -- as Obama is properly about doing -- is that it can include sides which are poisonous nonsense spewed by the apparently-credible.
March 18, 2009 10:15 AM | Reply | Permalink
"arguably, this thing with bonuses is a red herring they're throwing at us [to distract from what AIG] did with the $170 billion" they've received from the U.S. government, Sherman said. "The bonuses are chump change compared with what's going to the uninsured counterparties."
Can we get back to the 170 billion and what happened?
Maybe Burson Marsteller, AIG's PR agency, would rather us focus on the bonuses than the major stuff that came out over the weekend.
We can investigate both, but is one more important at this moment than the other?
March 16, 2009 9:59 PM | Reply | Permalink
Maybe I'm being obtuse here, but don't we now own (as taxpayers) 80% of AIG? If we own 80% of a company, why cannot we establish compensation standards? Why can we not simply call a special board meeting to rescind the bonuses?
March 16, 2009 10:26 PM | Reply | Permalink
And while we are at it, why don't we fire the entire executive team and disband the derivatives department. Fire the asses of all those guys who have been given undeserved bonuses. Send a message. You will be rewarded if you do good. You will be punished if you take unwise risks.
March 17, 2009 9:31 AM | Reply | Permalink
Let's not kid ourselves. The current Secretary of the Treasury is just like the last one. He is nothing more than a bag man for Goldman Sacks. AIG is a Goldman Sacks front group. The SOBs will get their bonuses. Nothing stands in the way of Wall Street greed. Regardless of political party, those guys hang tight.
March 16, 2009 10:27 PM | Reply | Permalink
According to this mornings headlines Obama has backed off any effort to stop the bonuses. I told you the Wall Street gang hangs tough. If the assholes get to keep their bonuses, and the US taxpayers own 80% of AGI, why don't we just fire the current board and install a board that will fire the current management team and every recipient of one of the undeserved bonuses.
March 17, 2009 10:36 AM | Reply | Permalink
I heard on KO that these bonuses were supposedly a fait accompli because they were contractually set with AIG execs in April '08 - that to renege now would have engendered lawsuits against the Fed.
Reich brought up an interesting point, though - why weren't these provisions revealed/asked about when the bailout was struck. The latter notion seems to be the one Geitner missed the boat on.
Future deals need to be made with the surety that concupiscence is at the root of it all, so how would a greedy slick be thinking of leaping with a platinum parachute no matter what happens to anyone else.
As long as unconscionable behavior is recognized as a major bit of the scheming mind, it can be cut off at the pass.
March 16, 2009 11:10 PM | Reply | Permalink
Strange, spreading meme here. Find things -- events, not policies -- to blame on Obama. Seems to work well for everyone. On the right, it continues the well-practiced standard m.o. unchanged. In the middle, the journalists now have an algorithm to generate the articles that they have to produce daily. On the left, we have various heroes showing their proud intellectual independence.
None of it shows the least sense of how administration takes place, how problems are addressed, or what causes what out there in the real world.
March 17, 2009 5:57 AM | Reply | Permalink
I don't know where you are coming from. Are you claiming the folks working for Obama should get a free pass? If so you are way too partisan.
Obama was elected, in part, because Americans believe that we needed competent hard working government.
So far, probably because the same Wall Street Masters of the Universe gang remains in charge, Obama has been as ill served by his economic team as Bush was by his. The clearest message that has been conveyed over the last weeks is that there are no consequences for Wall Street fat cats.
If Obama doesn't start kicking ass and taking names with the Larry Summers crowd he is going to deserve criticism.
March 17, 2009 8:42 AM | Reply | Permalink
It is astounding. I'll admit I was never overwhelmed by Obama, but I did vote for him and was guardedly optimistic that he might do things differently. However, his administration is now complicit in the greatest systemic theft of our lifetimes. This will catch up to him politically. I expect at least a minor GOP resurgence in 2010 as a result of nothing more than diminished enthusiasm for Democrats. Hopefully that will be a wakeup call and embolden some Democrats in Congress to start upholding their Constitutional obligations. Arguing that "no matter how bad we are, we're still better than the other guys" will only sustain you for so long.
March 17, 2009 9:13 AM | Reply | Permalink
That's bullshit. The Democrats are struggling, and at times clumsy, in cleaning up the mess that the GOP made.
But no one wants to hand the car keys back to the drunk idiots who ran us off the road in the first place. The whole culture of deregulation and greed is a republican project for three decades. Never forget that, despite the GOP/MSM spinmeisters.
March 17, 2009 9:44 AM | Reply | Permalink
March 17, 2009 11:44 AM | Reply | Permalink
@ observer2: Struggling and clumsy or bought off and disinterested in performing competently?
@ 714Day: Keep in mind I said "minor" which you clipped from your citation. It would only take a minor drop off in D enthusiasm to switch a handful of governorships, a dozen House seats, several state assemblies, and put 60 Senate seats out of reach. That's what's at stake, not the majority status.
I think you both underestimate the potential for a populist backlash that would come in the form of a Ron Paul libertarian GOP swing. Many Americans will reasonably come to the conclusion that, if they're going to get screwed by Bush and then Obama, they'd just as soon have a few guys who will go up there and at least raise some hell. Ron Paul Republicans are the only ones who can credibly run against both Bush and Obama.
That's all it would take.
March 17, 2009 12:33 PM | Reply | Permalink
May I ask how the use of the word "minor" changes the gist of your statement? You act as though I've somehow twisted your comment by the deletion.
A debate team would suggest 't'isn't so.
The upshot of your comment is that the GOP will enjoy a gain (however teensy weensy) that will tip the balance of power because Obama has participated in the greatest theft ever perpetrated in our "lifetimes." (I'm old and Obama's actions in 50 days and change are hardly curling my hair...)
I'd say you're being hysterical after a White House tenure of less than two months by the Obama administration.
The guy is dealing with more than a one trick pony here.
It's less than two months.
I'm not bringing out the fire brigade for his faulty initial stride and predicting the fall of the Democratic empire as a high likelihood.
"Minor" makes no difference. I still disagree with what you say and think it silly.
March 17, 2009 3:55 PM | Reply | Permalink
According to this morning's WaPost ("Rage at AIG Boils Over, but Bonuses are Old News"), the bonus situation was first disclosed over a year ago. The growing brouhaha over who knew what when and what they should have done with this information is verging on the comical. Real systemic reform and competent regulatory enforcement is where we should be focusing our energy.
Yeah, the AIG bonuses are unconscionable at this point in time but steps had already been taken before this erupted over the weekend to reduce or eliminate bonuses for the top 50 execs at AIG. And now the public outrage and comments from pols of all stripes will likely lead to further reductions that may not have been possible on strictly legal grounds. AIG is just the poster child du jour for a system that has long encouraged excessive and opaque risk as well as obscene personal greed.
March 17, 2009 9:24 AM | Reply | Permalink
Geithner is a Wall Street club member first and a Treasury Secretary second. He is a product of that corrupt system and reflects it's values, and it values it's members needs far above any others.
To expect this man to be able to serve the interests of the people was a gigantic blunder on Obama's part and things are only going to get worse until he is shown the door.
March 17, 2009 11:11 AM | Reply | Permalink
I have to say, as a big Obama fan, I'm very disappointed with Geithner. He is too deeply enmeshed in Wall Street culture and society. Too compromised. Too unwilling to stand up the the banksters.
March 17, 2009 5:10 PM | Reply | Permalink
Also, I want to very clearly say "I told you so."
When this Cabinet was being picked many of us protested the picks of centrists and conservatives. We were attacked, in these pages and elsewhere, by Obama backers saying the Cabinet doesn't matter, just the President. Oh, and we should STFU.
Now we have a Treasury Secy screwing the pooch because he has a blind spot in his deference to Wall St privilege. No way Obama would go along with this to begin with, but (some of) his economic advisers are definitely not on board and are definitely not conforming to the boss' priorities.
Predictable and predicted!
March 17, 2009 5:19 PM | Reply | Permalink