A.I.G. Bailout And Bonus

Treasury Secretary Timothy Geithner is a train wreck.This supposedly brilliant man, so brilliant and so critical to solving the economic crisis that his tax cheating ways were excused, is a screw-up. He's a bungler. He's in way over his head.Example: The $165 million in bonuses that A.I.G. plans to pay out after it received the $170 billion taxpayer bailout.From the New York Times:
Obama administration officials and Republicans alike were nearly universal in condemning the $165 million in bonuses that the American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, is to pay executives in the business unit that brought the company to the brink of collapse last year.“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” said Lawrence H. Summers, President Obama’s chief economic adviser, during an appearance Sunday on ABC’s “This Week With George Stephanopoulos.” “What that company did, the way it was not regulated, the way no one was watching, what’s proved necessary — is outrageous.”The bonus plan established for the financial products unit before the federal government stepped in called for $220 million in retention pay for 400 employees for 2008. About $55 million of that was paid in December and the remaining $165 million was paid on Friday.The retention plan also calls for another $230 million in bonuses for 2009 that are due to be paid by March 2010. Combined with the 2008 bonuses, that would bring the total retention pay for financial products executives to $450 million. But in response to pressure from Treasury Secretary Timothy F. Geithner, A.I.G. agreed to reduce its 2009 bonuses for the financial products unit by 30 percent.The payments to executives in that 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. Last week, Mr. Geithner 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 will almost certainly fuel a popular backlash against the government’s efforts to prop up Wall Street.Word of the bonuses last week stirred such deep consternation inside the Obama administration that Mr. 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.Austan Goolsbee, staff director of the president’s Economic Recovery Advisory Board, on Sunday detailed Mr. Geithner’s reaction.“He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this,” Mr. Goolsbee said on “Fox News Sunday.” “I don’t know why they would follow a policy that’s really not sensible, is obviously going to ignite the ire of millions of people, and we’ve done exactly what we can do to prevent this kind of thing from happening again.Mr. Summers suggested that the government’s ability to require the bonuses be scaled back was restricted by preexisting contracts, even though he did not specify what those restrictions may be.“We are a country of law,” said Mr. Summers, one of several economic officials to hit the Sunday-morning talk show circuit. “There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”People seem to be forgetting Geithner's role in bailing out A.I.G.From The American Spectator, November 24, 2008:
Geithner became the go-to guy for failing financial firms, and was at the "center of action" for the AIG bailout, according to the New York Post. He "quarterbacked and advised" the government's "taking control of tottering insurance giant AIG for a bailout deal," the Post wrote. But more and more, it looks like [Henry] Paulson and Geithner "quarterbacked" with a flawed playbook with AIG that moved the meltdown much further down the goal line. Geithner was the architect of the A.I.G. bailout.He hammered out the deal. He was at the "center of the action."Complaints about contractual obligations for millions in bonuses to be dispensed after A.I.G. was saved thanks to the $170 billion taxpayer bailout should be submitted to Geithner.His fingerprints are all over the A.I.G. bailout.From the Los Angeles Times:
[Lawrence] Summers said Geithner used all his power, "both legal and moral, to reduce the level of these bonus payments."But one leading academic in the national policy debates said Geithner should have reined in AIG compensation when, in his former role as the head of the New York Federal Reserve Bank, he was working with Bush administration Treasury Secretary Henry M. Paulson to negotiate the first round of bailouts.Geithner "should be embarrassed," said Peter Morici, a University of Maryland business professor and former chief economist for the U.S. International Trade Commission."When the Bush White House agreed to bail out General Motors and Chrysler, it required those companies to renegotiate their labor contracts," Morici said."Why did Secretaries Paulson and Geithner not require the same at AIG? The threat was the same with AIG and GM. If either shut down, the economy would plummet into chaos and depression, we were told," Morici said.Robert Gorges, a retired Ralphs grocery worker from Highland, near San Bernardino, agreed.Auto workers, he said, "had a contract but they did the right thing, knowing their company was in bad financial trouble. They changed their contract," he said. "Not the same can be said about AIG," Gorges said in his e-mail to The Times. "Something is wrong here."Yes, something is wrong here.Geithner is part of the problem. He bears responsibility for this mess. He "should have reined in AIG compensation when, in his former role as the head of the New York Federal Reserve Bank, he was working with Bush administration Treasury Secretary Henry M. Paulson to negotiate the first round of bailouts."He should have reined in compensation as part of the deal, but the genius Geithner failed to do so.I agree with Morici. Geithner "should be embarrassed."I think Barack Obama should be embarrassed as well, for assembling a team of incompetents.