Superpost: AIG Exectutive Compensation

Dean Baker has a take on what Treasury officials knew about the AIG bonuses:

One may reasonably conclude that Geithner, as head of the New York Fed, had a good understanding of the sort of compensation packages that were used at financial institutions like AIG. It is also reasonable to assume that if he didn't explicitly take steps to change these practices following the Fed's takeover of AIG, that the practices would still be in place.

In other words, insofar as he gave the matter any thought at all, it is reasonable to assume that Geithner knew that AIG would be paying large bonuses to most-valued employees. If he did not give it any thought then it was because he did not care that a firm receiving more $160 billion worth of taxpayer dollars was paying multi-million dollar bonuses to its top executives. It is implausible on its face that Geithner was surprised by this situation. [emphasis mine]

This type of thinking lines up well with something I came across yesterday while listening to Ian Bremmer talk about his WaPo article (h/t Planet Money). Bremmer writes:

It's an utter waste of government time and money to go on the offense and direct senior government people to do something about the bonuses, no matter how distasteful. Not to mention, Congress is busy today putting AIG's senior management through the wringer, when many of those now in power at AIG were in fact not on duty when the ship went down. Edward Liddy, AIG's current CEO, for example, was appointed in September last year to help get the life boats out.

There is no shortage of blame to go around. But there is a shortage of time and political will, which should not be squandered on hopeless cases like this one.

It is important to be clear about what happened and the order of events.

1. 9/16/08 - AIG receives the first in a series of TARP money.
2. 2/11/09 - The US Senate passes the stimulus bill (also known as ARRA) including language to limit executive compensation for anyone who had received TARP money (ie AIG).
3. 2/?/09 - That language is removed, the bill is amended.
4. 2/17/09 - Obama signs the amended stimulus bill.

Some say that it was Geithner and Summers pushed to remove the language regarding the limits on compensation. I say that we need to remember the context of the ARRA Senate voting context. The Obama administration was actively trying to curry Republican support. The list of concessions to Republicans was very outsized and painful (here is such a list, see the "What's Out" heading). But those are programs and there were other changes that the Republicans wanted. Most salient here is Mitch McConnell talking about his opposition to limiting compensation:

It is a tough challenge. I think we are all appalled by these -- some of these executive salary arrangements and bonus arrangements and perks and all the rest. On the other hand, I really don't want the government to take over these businesses and start telling them everything about what they can do. Then you truly have nationalized the business. So it is a delicate dance to try to prevent blatant abuses and still not have the government as a result of taking an equity position in the government telling them, for example, you can't pay dividends or you can't -- I mean, things that are just ordinary business practices. We have to resist the temptation to basically dictate to these businesses how to run every aspect of their operation.

So let me be clear about what I believe. Wall Streeters (including Geithner and Summers) are desensitized to the meaning of these massive sums for the majority of Americans. This is a group of people who believe that $500,000/year is not enough. They craft a stimulus bill that is fraught with political compromises (compromises that they do not know will be pointless as they will not receive support for them from the opposition party). Included in the raft of concessions is a limit on executive compensation...essentially allowing for a handout to wealthy AIG employees.

I imagine that the thinking is that this concession will lead to a bigger simulus dollar figure in the end (because it wasn't actually in the stimulus package...the money came from the TARP allocations, direct bailout dollars, etc...not ARRA). Could they have substituted $165 million in, say, transportation money in exchange for the bonuses? I doubt it. I don't know if anyone had calculated how much the bonuses would be at all. I do know it was giving in to the Republicans during a contentious moment when the Obama peope thought they could get bi-partisan support. I also know that the government wanted money to be spent.

Do I think that the AIG bonuses were proper? I think they're outrageous. Do I think that Bremmer is correct? I agree that compared to the size of the whole crisis, this is small. I also agree that spending a week on this is not the best use of anyone time in light of the crisis. But I think that the public might need to be outraged in order to push forward other parts of the agenda that they may otherwise be ambivalent about (for example EFCA, whose support is growing but still needs more help).

Bloomberg may be correct, though...a currying of outrage, if this is what the administration is doing, may backfire.