Democracy Has Prevailed.

March 22, 2009

Jack Kelly Sunday

Just a small point on this week's column. Jack Kelly tries, tries, and then tries again to clarify the AIG news in this week's column. It's not a pretty picture - as readers of this blog must surely know.

His initial target? Senator Chris Dodd (D-CT).

Jack writes:
Sen. Chris Dodd, D-Conn., the chairman of the Senate Banking Committee, wants the government to take back the bonuses. This is a change of heart for Mr. Dodd, because it was he who inserted in the "stimulus" bill an amendment which specifically protected from restrictions on executive compensation "contractually obligated bonuses agreed on or before Feb. 11, 2009." The amendment applied principally to AIG.
A couple paragraphs later Jack writes:
Mr. Dodd says the language in the stimulus bill was the treasury department's idea. Treasury is saying Secretary Tim Geithner didn't learn of the bonuses until March 10 and didn't tell President Obama about them until March 12.
Bit of a rhetorical sleight of hand, there. It IS possible that the idea was from Treasury AND that Geithner didn't know about it. So what's the story?

Let's get some background info from The Hartford Courant:
A furor erupted this week when Dodd, after first denying a role, acknowledged that he agreed to an amendment to the stimulus bill that had the effect of authorizing the much-criticized bonuses. But he said he agreed to the change only after being persuaded by the Treasury Department that they were necessary to speed a national recovery and prevent lawsuits. And he said he was not informed that the amendment would affect AIG specifically. AIG has received $170 billion in government bailout money.

After some finger-pointing between Dodd and Treasury officials, Treasury Secretary Timothy Geithner confirmed Dodd's account Thursday afternoon. In an interview with CNN, Geithner said the original legislation could have generated a flood of lawsuits because of its restrictions on executive compensation at financial institutions. Treasury officials could not be reached for comment Friday. [emphasis added]
We may be taking our collective eyes off the metaphorical ball a bit. Note the phrase Jack uses (very carefully, as it turns out) in describing Dodd's amendment. Here's how Jack put it:
...specifically protected from restrictions on executive compensation...[emphasis added]
So, regardless of what the Republicans want you to believe, the bonuses were NOT Dodd's idea. Nor did his amendment make them possible. Jack's very careful: Dodd's amendment had something to do with protecting the preexisting bonuses from being restricted by Congress.

So the bonuses came first. From where? Take a look at this this article from the Washington Post:

The payment plan had been no secret.

Beginning in the first quarter of 2008, AIG disclosed the plan to offer retention awards at Financial Products. The unit had already begun to hemorrhage money, a problem that would later grow exponentially. The unit's executives, fearing they might lose valuable employees in the tumultuous months to come, successfully negotiated more than $400 million for their workers, to be paid this month and again next year.

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.[emphasis added]

Which is basically what Dodd said and what Geithner said. The two could have been clearer and should have explained themselves much much earlier - but that's a separate issue, one different from what Jack wants you to believe.

He wants you to believe that the bonuses were all either Senator Dodd's or the this Treasury Department's fault, or both. While neither is clear of sin, I want everyone to note the date mentioned in the Washington Post article - the first quarter of 2008. As we are now in the first quarter of 2009, it follows that the first quarter of 2008 was a year ago.

Who was running the show then?

Dodd may have his own set of other issues but this ain't one of them.

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