Geithner Takes Responsibility, but There is Still No Evidence He Lied or Acted Improperly

To me the AIG or more accurately AIG’s Financial division bonus scandal is part detective story, part sociological phenomenon ( because of the reaction it) and has more political implications then serious  financial repercussions – what percent of the original TARP at $700 billion is $160 million. The median income in the U.S. is around $54,000 a year so one can certainly understand the average Americans disgust at the idea of using tax payer funds to pay some of the people that caused the need for a bail-out to go back and fix the problem. That’s just populism 101. Yet it has turned into a circus and while President Obama’s recent statements about taking responsibility and  realizing  that most of the bonuses will be recovered, have calmed most, the controversy and the blame game haven’t ended yet. It would be nice to know exactly who to blame, but even with some news the last 24 hours, the majority of the blame still goes back to former Treasury Secretary Paulson. This is the prime piece of evidence, quoted in several places that supposedly puts Treasury Secretary Geithner at the center of the storm, from the WSJ ( the link itself is important because at least two big name bloggers have the wrong link up),

The Obama administration had not tried to hide its concern about the moves to clamp down on executive compensation. Both Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers lobbied Mr. Dodd to make changes.

It is an an anonymous statement. Who said it and on what evidence did they make that claim. This is something that anyone of adult age should be able to relate to – have you ever been falsely accused of something. It mattered then and it should matter now, who said what, based on what facts. In the paragraph following from the same link,

Administration officials said the Treasury didn’t suggest any language or say how the amendment should be changed. They said they noted legal issues that could likely lead to challenges, but was the end of their involvement. The official said Mr. Dodd and Congress made the final changes on their own.

Senator Dodd has changed his version of events for the third time,

On Tuesday, Dodd denied that he had anything to do with adding the language.

“When I left the Senate, it was not in there. So when I wrote the language, there was no such language like that,” he said then.

But, saying his previous comments had been misconstrued, Dodd said Wednesday that he added the exemption after getting pressure from the Treasury Department.

“I agreed reluctantly,” Dodd said. “I was changing the amendment because others were insistent.”

Dodd, a Connecticut Democrat, told CNN’s Dana Bash and Wolf Blitzer that Obama officials pushed for the language to an amendment designed to limit bonuses and “golden parachutes” at those companies.

He said Wednesday that the “grandfather clause” language “seemed like innocent modifications” at the time.

But that change ultimately allowed AIG to go ahead with doling out $165 million in bonuses.

So Dodd says he put modifications to executive compensation into the bill, but took them out from some unnamed source at the Treasury, “Dodd said he did not speak to high-ranking administration officials, and the change came after his staff spoke with staffers from Treasury”.  Other then resorting to the ‘buck stops with Geithner’ because has been the boss for almost fifty days, there isn’t a smoking gun that Geithner had a hand in shaping the Senate version of the bill that specifically had to do with AIG bonuses. The House had its own ideas. The bill went to conference and irregardless of the administration’s supposed input or some “staffers” from Treasury, it came out without any retroactive changes to compensation obligations that Paulson had agreed to.

According to a transcript of the Tuesday interview, Dodd was asked about an executive-compensation provision “that exempts everything prior to February 11, 2009 — any contracts prior to that date.”

He said that language was not in the version of the bill that left the Senate and that he was not one of the negotiators who hammered out a compromise between the House and Senate versions of the plan.

“I can’t point a finger at someone who offered a change at all,” he said.

Asked whether he later had been able to figure out who added the language, he said, “I really don’t know.”

In Wednesday’s interview, Dodd never said his Tuesday comments had been misunderstood.

“Going back and looking, I apologize,” he said when questioned about his words from the day before.

Now, according to Dodd the bill did not have any modifications going into conference ( conference is where the Senate and the House work out the final version of a bill. There would have been officials and staffers from both parties looking over the final bill – Where is the media on asking them what they knew and when they knew it). Dodd, while guilty of a faulty memory, is still not the bad guy here, though through the media echo chamber that detail is likely to be lost. It is a fact at one point he wanted to modify the compensation provisions to executive bonuses that were agreed to in haste and insisted upon by Paulson and Republicans in the first TARP, GOP Opposes Pay Limits On Bailed-Out Bankers

President Obama has proposed capping compensation for executives at banks that take taxpayer bailout money at $500,000. Republicans hate the idea — a position puts them uncomfortably on the side of people currently about as popular as child-porn producers and subprime mortgage brokers.

Senate Minority Whip Jon Kyl (R-AZ) blamed the “tone deaf” bankers for creating the political environment that allows Obama to call for a cap.

“Because of their excesses, very bad things begin to happen, like the United States government telling a company what it can pay its employees. That’s not a good thing in America,” Kyl told the Huffington Post.

“What executives have done is troubling, but it’s equally troubling to have government telling shareholders how much they can pay the executives,” said Sen. Mel Martinez (R-FL).

Sen. James Inhofe (R-OK) said that he is “one of the chief defenders of Obama on the Republican side” for the president’s efforts to reach across the aisle. But, said Inhofe, “as I was listening to him make those statements I thought, is this still America? Do we really tell people how to run [a business], and who to pay and how much to pay?”

Going back to that oft quoted WSJ paragraph, anyone else notice a stark difference. Obama was publicly on the record for capping compensation, yet suddenly in 2009, WSJ’s unnamed sources are saying the administration – the White House itself and Treasury lobbied against Dodd. The media, pundits and many bloggers are pratically snarling when they quote Secretary Geithner saying,

“I was stunned when I learned how bad this was on Tuesday [March 10],” Geithner said. “I shouldn’t have been in that position, but it’s my responsibility and I accept that.”

Conflicting reports from WSJ that involve anonymous sources versus what probably has happened in the rush for an understaffed Treasury department’s boss says. I’ve worked for large companies and while I cannot know exactly what is going on in Senator Dodd’s office or at the Treasury Department, I can understand how a particular subset of issues – exact bonuses – would be handled by staffers and some fine print would not be on the tip of the boss’s brain. It certainly is now – Geithner has always been a financial wonk –  he is now on the front lines fully aware of the political implications side of his new job; so all the outrage maye have had a positive effect in that regard. Thsi WaPO article manages to both damn and praise Geithner, thus strange in being one of the best defences of Geithner,

Paulson left for Washington. But Geithner stayed up all night with officials at the New York Fed to examine AIG’s situation. He discovered not only an enormous number of complicated trades, estimated at $2 trillion, but that AIG had backed retirements funds across the nation. He also realized that a collapse of AIG was imminent, and that the fallout would ripple across the banking system, sources familiar with the episode said.

[  ]…During this period, Geithner’s primary concern was keeping the financial system from collapsing, not what firms were paying their employees, a source said. Other staff members at the Fed and Treasury were in charge of the compensation issues and only briefed Geithner, two sources said. Once nominated for the Treasury post in December, Geithner recused himself from affairs related to specific firms.

At least we have “two” whole unamed sources here. The New Republic writes in a blog post,

I mean, however you feel about what Geithner knew about the bonuses and when he knew it, you have to concede that his far bigger concern throughout this time was preventing the global economy from self-immolating. As a substantive proposition, how much would we even want a Treasury secretary to focus on $165 million in bonus money while there were hundreds of billions of dollars in bailout money flowing to AIG and other companies? Doesn’t seem like that would be a particularly good use of his time beyond a certain point.

The more I read about the chronology of events and who said what it keeps coming back to a kind of blanket of condemnation based primarily on the original WSJ story that claimed Obama and Geithner both pressured Dodd to leave executive compensation alone and simply disbelief that Geithner couldn’t have known about the bonuses until the end of February or March 10th – those 10 days are pretty meaningless sans actual proof otherwise. people generally lie for a reason. In this case it would be to avoid responsibility, but geithner is taking responibility anyway, so that angle on the story does not work out. What Paulson did and why he did it is not getting enough attention, but neither is  Federal Reserve Chair Ben Bernanke,  Bernanke Dodges the Bullets

First, let me remind you of the facts. Governor Bernanke served on the Academic Advisory Panel at the Federal Reserve Bank of New York from 1990-2002. In other words, Ben Bernanke was there as the Federal Reserve presided over, and, I would argue encouraged, the inflation of the biggest Credit Bubble in history.

If he had challenged the dominant orthodoxy of the Fed at the time, then I vouch he would not have become a member of the Board of Governors of the Fed from 2002 to 2005.

In June, 2005 he was appointed chairman of President Bush’s Council of Economic Advisors. In 2006 he was appointed by President Bush as Governor of the Federal Reserve with these words: ‘he is the right man to build on the record Alan Greenspan has established”.

In other words over the period 2002 to 2009, Governor Bernanke has had a key and highly influential role as one of the ‘guardians of the nation’s finances’ on the board of the Federal Reserve.

Over this same period, and under the watch of the Federal Reserve, AIG accumulated massive, and historically unprecedented liabilities — a truly incomprehensible $62 trillion of liabilities.

HuffPo has a video up that Geithner did with CNN about what, once again, who knew and did what when, Geithner: Treasury Pushed For Bonus Loophole (VIDEO)

GEITHNER: On Tuesday I was informed about the full scale and scope of  these specific bonus problems. And again, as soon as I did — but, you  know, it’s my responsibility, I was in a position where I didn’t know    about those sooner, I take full responsibility for that. The people doing this, the Fed and the Treasury people, are working  very closely together. They’re doing — dealing with an enormous set of complicated problems.

Tuesday would be March 10th. Treasury staff obviously knew about the bonuses before then. He speaks up for Dodd which kills the administration throwing Dodd under any buses meme.

GEITHNER: Let me just start by saying that Chairman Dodd has played an enormously important leadership role in this and he’s doing the right  thing in trying to make sure that the assistance we provide don’t go to benefit people that shouldn’t benefit from these things. And I am  enormously impressed by the importance of what he’s trying to do in this case.

Notice there is no Bush administration/ FEMA blame shifting. Geithner is in take responsibility mode. He’s not saying his staff, he is saying we including himself.  For eight years many Americans ranted about the lack of truthfulness and accoutibilty in the White House. This is what it looks like – though I reserve some caveats in regards to the DOJ and civil liberites issues.

VELSHI: Do we know who in Treasury had this conversation with whomever on the banking committee?

GEITHNER: Treasury staff were working Senator Dodd’s staff throughout  this process. Again, that’s part of the legislative process.

VELSHI: But you weren’t involved in that directly?

GEITHNER: I did have with other officials some conversations with    Chairman Dodd as he was going through this process but other  provisions.
VELSHI: So not about this particular one. It wasn’t you telling …
GEITHNER: No, but I’m not sure that’s relevant because Treasury staff did express concern about whether this provision was vulnerable to legal challenge.

This is the part where, thoroughly trained in cynicism courtesy the Right’s antics for eight years, we’re all supposed say yea sure. The original TARP did have negotiated provisions in it for compensation – obviously no one was expected to work for free. This is part of a Treasury Department news release for October 14, 2008, Treasury Announces Executive Compensation Rules Under the Emergency Economic Stabilization Act

Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury is issuing interim final rules for these executive compensation standards.

Those are very general terms, but still enough to see where the compensation language could get deep fast and thus a very sensible that Treasury staff express concerns that legislation be passed that would not get snarled up in legal challenges. How would the villagers feel if there would have been a legal way for those recipients of AIG bonuses to sue for them plus legal costs.

Update: The NYT just filed this report, Many in Government Knew Weeks Ago About A.I.G. Bonuses

The question was direct and prescient. Representative Joseph Crowley, Democrat of New York, asked the Treasury secretary in an open hearing what could be done to stop American International Group from paying $165 million in bonuses to hundreds of employees in the very unit that had nearly destroyed the company.

Timothy F. Geithner, the Treasury secretary, responded by saying that executive pay in the financial industry had gotten “out of whack” in recent years, and pledged to crack down on exorbitant pay at companies like A.I.G. that were being bailed out with billons of taxpayer dollars.

The exchange took place before the House Ways and Means Committee on March 3 — one week before Mr. Geithner claims he first learned that the failed insurance company was about to pay a round of bonuses that have since caused a political uproar.

A Treasury spokesman, Isaac Baker, said in a statement on Thursday night, “Although Congressman Crowley raised the issue of the bonuses two weeks ago, Secretary Geithner was not aware of the timing or full extent of the contractual retention payments or the other bonus programs until his staff brought them to his attention on March 10.”

Let’s say that Geithner is just determined to lie about that now seven day gap. He really did know every dot and dash detail on March 3rd rather then a general knowledge that AIG and other bail-out recipients were getting bonuses( as noted in the TARP news release from last year). So what. This isn’t missing e-mails to cover up anything. This isn’t using the Department of Justice as a wing of the Republican party. This isn’t talking about fashion choices while people were dying in New Orleans. This not lying us into a war based on trumped threats to our national security. Or letting veterans of Iraq be sentenced to squalid conditions at Walter Reed Hospital .

Obama: DC can point fingers, I’ve got a job to do

I know Washington’s all in a tizzy, and everybody is pointing fingers at each other, and saying it’s their fault, the Democrats’ fault, and the Republicans’ fault. Listen: I’ll take responsibility. I’m the President.

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 that stuff doesn’t happen like this, so we’re going to do everything we can to fix it.

So for everybody in Washington who’s busy scrambling to try to figure out how to blame somebody else, just go ahead and talk to me, because it’s my job to fix these messes even if I don’t make them.

But what’s just as important is that we make sure we don’t find ourselves in this situation again, where taxpayers are on the hook for losses in bad times, and all the wealth that’s generated in good times goes to those who are at the very top of the income ladder.