Obama & Geithner Deliver The Sermon Then Get Down With The Devil
We've all seen the faux Obama 'get tough with AIG' speech, when the administration knew about these bonuses since last Fall. It's Slick Willie, specious populism and extremely disconcerting for the sheeple paying attention (you and me). The transparent rub is talk a good game and then find a crafty manner of doing the opposite. Witness the following: from the Washington Post:
The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.
Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.
The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.
Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.
The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.
This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.
Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, said the congressional conditions should apply to any firm benefiting from bailout funds. He said he planned to review the administration's decisions and might seek to undo them. "We have to make certain that if they are using government money in any sort of way, there should be restrictions," he said.
A Treasury spokesman defended the approach. "These programs are designed to both comply with the law and ensure taxpayers' funds are used most effectively to bring about economic recovery," spokesman Andrew Williams said.
In one program, designed to restart small-business lending, President Obama's officials are planning to set up a middleman called a special-purpose vehicle -- a term made notorious during the Enron scandal -- or another type of entity to evade the congressional mandates, sources familiar with the matter said.
In another program, which seeks to restart consumer lending, a special entity was created largely for the separate purpose of getting around legal limits on the Federal Reserve, which is helping fund this initiative. The Fed does not ordinarily provide support for the markets that finance credit cards, auto loans and student loans but could channel the funds through a middleman.
At first, when the initiative was being developed last year, the Bush administration decided to apply executive-pay limits to firms participating in this program. But Obama officials reversed that decision days before it was unveiled on March 3 and lifted the curbs, according to sources who spoke on condition of anonymity because the discussions were private.
Obama's team is also planning to exempt financial firms that participate in a program designed to find private investors to buy the distressed assets on the books of banks. But Treasury officials are still examining the legal basis for doing so. Congress has exempted the Treasury from applying the restrictions in a fourth program, which aids lenders who modify mortgages for struggling homeowners.
Congress drafted the restrictions amid its highly contentious consideration of the $700 billion rescue legislation last fall. At the time, lawmakers were aiming to reform the lavish pay practices on Wall Street. Congress also wanted the government to gain the right to buy stock in companies so that taxpayers would benefit if the firms recovered.
The requirements were honored in an initial program injecting public money directly into banks. That effort was developed by the Bush administration and continued by Obama's team. The initiative is on track to account for the bulk of the money spent from the rescue package. All the major banks already submit to executive-compensation provisions and have surrendered ownership stakes as part of this program.
Yet as the Treasury has readied other programs, it has increasingly turned to creating the special entities. Legal experts said the Treasury's plan to bypass the restrictions may be unlawful.
"They are basically trying to launder the money to avoid complying with the plain language of the law," said David Zaring, a former Justice Department attorney who defended the government from lawsuits involving related legal issues. "They are trying to create a loophole to ignore Congress, and I think the courts will think that it's ridiculous."
The federal watchdog agency overseeing the bailout is looking into the matter, trying to determine whether the Treasury's actions are legal.
Of the two major restrictions imposed by Congress in the bailout legislation, the limit on executive pay has been the most politically explosive issue.
Obama himself has called for these limits. "We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," he said earlier this year.
But officials at the Treasury and the Fed said they worry harsh pay limits will undermine critical bailout programs by discouraging financial firms from participating. Although many of these companies could survive without government help, they might lack money to ramp up lending, which officials consider critical to turning the economy around.
In private meetings with officials in both the Bush and Obama administrations, firms' leaders have pushed back against pay limits.
A major test of whether the Treasury would apply the congressional restrictions was a $1 trillion program developed last fall to revive consumer lending. The initiative, known as the Term Asset-Backed Securities Loan Facility, or TALF, will be seeded with up to $100 billion from the financial rescue package, with the rest coming from the Fed.
The program set up a special entity providing low-cost loans to hedge funds and other private investors so they can buy securities that finance consumer debt from banks and other lenders. This would free these companies to make more loans.
When the Bush administration announced the program in November, officials directed the Fed to apply the pay limits to the lenders because they stood to benefit the most from the program. "There was a public hunger for executive-compensation restrictions, and we knew we couldn't be tone-deaf to the politics there," a former Bush administration official said.
In February, Obama administration officials at the White House and the Treasury began reviewing that decision. Treasury officials consulted with Department of Justice attorneys, who said they could legally avoid the pay restrictions, according to a government official. The requirements were removed just before the initiative was launched.
The concerns persisted as the administration crafted other initiatives. Some private investors said, for instance, that they would not help the government buy toxic assets from banks if the congressional restrictions were applied to them. And every major provider of small-business loans has said that it will not participate in the government's program if it has to surrender ownership stakes to the government or submit to executive-pay limits.
Apr 7, 2009 at 3:05 AM
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