The Blame Game: AIG, Dodd, Geithner and How to Play Circular Firing Squad

AIG, the bonuses, The Obama administration, Senator Chris Dodd, Tresury Secretary Geithner. Who said or did what. Who is responsible for what and who isn’t. While the story got its boost into the major headlines from a few bloggers, it really seems to have taken off with this story from the NYT, A.I.G. Planning Huge Bonuses After $170 Billion Bailout

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

Firedoglake zeroed in on one paragraph as Glenn Greenwald at Salon echoed some simlar sentiments,

As Geithner tries to get out of the way of the AIG bonus train wreck, it looks like the designated sin eater is going to be Chris Dodd:

The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place. (NYT)

So Treasury says Chris Dodd did this? In a word. . . no.

As both FDL and Glen note Dodd has tried to place limits on bonuses and compensation regardless of when they were promised as a condition of receiving bail-out money. One can understand the rabid Right throwing Dodd (and Barney Frank’s name) around, they’re both the Right’s scapegoats for the housing crisis. Dodd makes an especially prime target of right-wing spin and media duplicity because Republicans see him as vulnerable. Dodd has apparently received political donations from AIG in the past, as have many Republicans. Its the oldest political propaganda game in town, try and tie things together, label it clearly a case of corruption, but in fact there is no connection to date. Dodd’s political donations didn’t influence his decisions toward AIG and bail-out restrictions. That is a very obvious and verifiable part of the Congressional Record. Has Senator Dodd acted inappropriately in other AIG matters previous to the TARP bail-out requested by the previous administration – maybe, but the Right has been long on accusations and innuendo while short on facts – once again the Right believes if they repeat accusations enough that magically become the truth.

The other is this phrase in the report, ” administration official said the Treasury Department” – that is the take off point for accusing the administration of throwing Dodd under the proverbial bus. That seems a little thin. If the report has actually identified the spokesperson as Geithner or some other official by name it would make the administration blames Democratic Senator meme much more damning then it seem to appear as I write this, anyway. Even if the administration, not some low ranking office flak, is laying blame off on Dodd, the story is framed in such a way that while Dodd shouldn’t be taking the blame, the administration per se hasn’t acted badly – more an annoying and perplexing lack of communication. This timeline from Jake Trapper shows why,

How the Obama administration was caught flat-footed by this controversy dates back to last Fall, when the New York Federal Reserve Bank — then run by Geithner — stepped in to give AIG a high-interest loan for $85 billion to help prevent the company from going under — which Lehman Brothers was doing at the time. As part of the deal, AIG CEO Robert Willumstad was replaced by the new CEO, Liddy.

In late October, the $700 billion Troubled Assets Relief Program passed Congress, which includes rules about executive compensation but nothing about retention bonuses.

In November, the Fed and Treasury Department soon began pumping more money into AIG — $40 billion, to take down the $85 billion credit facility set up by the Federal Reserve Bank of New York.

At this point, an Obama administration official says, Treasury officials generally became aware that AIG had put retention programs in place, but whom they were for and the extent of them were unknown. The New York Fed began studying the compensation policies on the books — while also making efforts to save banks and rescue the economy. But by then Geithner’s nomination was pending and he had recused himself from dealings with AIG.

[   ]…AIG provided information about the company’s myriad compensation packages to the New York Fed, but officials described the information as extremely complex and not easily understood. AIG had more than 100 compensation policies for more than 116,000 employees throughout the world.

In January and February, officials of the Federal Reserve Board, and the Federal Reserve Bank of New York began working on an additional $30 billion support package to prevent an AIG downgrade. On February 23 and 24, government officials were finalizing the details of the USG support package for AIG

Three days later, on March 5, New York Fed officials forwarded to the Treasury Department a summary of AIG’s bonus and retention payment issues, including details of the retention program for officials of the Financial Products. This information included that $165 million in payments were expected that very month, as well as the fact that the contracts were in place in the first quarter of 2008, and so not covered by the limitations in the stimulus bill as articulated by an amendment to the stimulus bill offered by Sen. Chris Dodd, D-Conn.

Now Secretary, Geithner was probably aware of the general direction the bail-out was taking, but he seems to be telling the truth when he says he did not learn of the bonus package specifics to be paid out until March 10 and called Liddy the next day. In exchange for the next payment of TARP funds, Liddy has agreed to reduce compensation for the top 47 company executives, to tie any future bonuses to performance and try to recoup the money. There is something a little bizarre to the recovery funds from AIG – we, the government own about 80% of the company. This bonus fiasco is relatively small compared to other issues involving AIG’s financial arm – the one that created these very creative derivatives. There has been plenty of things done by the government and the private sector over the last eight years to be outraged about. AIG bonuses deserve to be on the list, but not anywhere near the top , Pin AIG woes on Brooklyn boy: Joseph Cassano walked away with $315 million while company staggered

In our fury over the bonuses at AIG, we should not forget the PIGs there who pocketed millions while endangering the global economy.

At the top of the list is 54-year-old Joseph Cassano, a Brooklyn cop’s kid made good who went oh so bad.

As head of the Financial Products unit, Cassano racked up billions of losses while assuring investors it was nearly impossible for his unit to lose.

“It is hard for us, without being flippant, to even see a scenario within any kind of [rhyme] or reason that would see us losing one dollar in any of those transactions,” he told investors.

Before he was finally fired last March, Cassano pocketed $280 million in cash and an additional $34 million in bonuses.

Under a “retirement” agreement marked “confidential,” Cassano also got a $1 million-a-month “consulting fee.”

AIG subsequently cut off these payments, but Cassano still walked away with more than $315 million while the company staggered under $440 billion in liabilities. Taxpayers had to pour in $170 billion in bailout money.

Putting the AIG bonuses a little lower on my outrage list is worlds away from new right-wing  they deserves bonuses dammit tho Glenn Beck who is reminding people of both the old Right John Birch Society and the original kool-aid drinker Jim Jones. Beck will not be the first quasi-populist Rightie with a Messiah complex.

Eliot Spitzer almost has some thoughts about AIG, It’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall.

Spitzer’s major thesis is solid enough, but its ironic both on a political and personal level that he is looking for and thinks there is someone in the world of finance at this point who is as pure as the driven snow. Right now, regardless of who was president, the best one could hope for on thier economic team is the lighter shades of guilt. I’m not an apologist for Geithner, but out of the people mentioned he does belong in the least objectionable category. Geithner had to answer to Paulson and Bernanke, both of whom he had differences with, but Tim has been painted with the same degree of guilt, May 26, 2008 NY Fed’s Geithner: substantial financial reforms needed

“The most fundamental reform that is necessary is for all institutions that play a central role in money and funding markets — including the major globally active banks and investment banks — to operate under a unified framework that provides a stronger form of consolidated supervision, with appropriate requirements for capital and liquidity,” Geithner said.

[  ]…”I do believe, however, that we can make the system better able to handle failure by making the shock absorbers stronger,” Geithner said.

Its well known that Paulson was anti-regulatory, as was his boss a guy named George. How many of us get a veto over what the boss thinks is best. From a CNN transcript,

It’s an interesting question how soon Tim Geithner will leave the New York Fed because he has been one of the prime architects with Paulson and with Bernanke of this bailout effort. And so that seemed to be a cloud over his head at one point but then over time we’ve learned that he actually was the one who wanted to step in and save Lehman Brothers and he was overruled on that; it turned out that he was right.

He early on was blowing the whistle against lax regulation of these derivatives.
That He is more anxious and, I think, much closer to the Obama point of view is to step in and save on housing, he’s more of an interventionist as it’s called.

Geithner was prescient in his view of the financial derivatives – insurance against losses ( too bad America’s working class couldn’t have bought those) Who predicted the credit crunch abyss?

But what about the New York Federal Reserve Bank president, Timothy Geithner, who has also been very active in handling the crisis. On Sept. 15, 2006, Geithner gave a long speech titled “Hedge Funds and Derivatives and Their Implications for the Financial System.” How the World Works noted it at the time, but it bears revisiting, especially by those who would like to believe that no one could possibly have seen this mess coming.

“The changes in credit markets that have accompanied the latest wave of innovation in derivatives and the large role played by leveraged financial institutions in those markets may exacerbate some of the traditional sources of challenges in financial markets…

The effectiveness of market discipline in constraining the risk-taking behavior of financial firms, however, may be compromised by the presence of market failures of the type mentioned above.”

Anyone that works in the real world – private industry, the military – knows that you can only give your boss your opinion and hope for the best. I’m rather low on the blog hierarchy so if I’ve ruffled any feathers in pushing for a more nuanced view of who to blame, to what degree of blame they deserve and what amount of outrage belongs where – lighten up, I have very little influence.