Wednesday, March 18, 2009

Buying Trouble A Few Billion At A Time

If you want to see an example of the combination of fecklessness and tin-eared incompetence with which the Obama Administration is handling the AIG bailout scandal, this is as good as it gets. In a New York Times article on Sunday, after having declared that they'd done everything they could do to stop AIG from paying outrageous bonuses to the division that broke the company, an anonymous Administration official went on to say:

[T]he Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.

A.I.G. Planning Huge Bonuses After $170 Billion Bailout

Since this is an unidentified Administration official talking to the New York Times, I know this is going to shock you, but this turned out not to be true. Jane Hamsher connects the dots:

But the bill that passed the Senate actually made the compensation limits retroactive, according to the Wall Street Journal:

The most stringent pay restriction bars any company receiving funds from paying top earners bonuses equal to more than one-third of their total annual compensation. That could severely crimp pay packages at big banks, where top officials commonly get relatively modest salaries but often huge bonuses.

As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.

Who pushed back against Dodd, and told him to neuter the provision? The WSJ says Geithner and Summers:

The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.

Treasury Attempts to “Blame Dodd” for AIG Bonuses

Jane's article is well worth a read, by the way. I just quoted the punch line.

I got really tired of this mendacity via anonymous government officials who turned out to be lying through their teeth on behalf of the Administration in the first couple of years of the last Administration. Why are Obama and his people of the opinion that we're just fine with them doing it? The last thing they need right now is for people not to trust them. At least, that's the last thing they need if they want to do anything good for the country.

What's worse, they pissed off a senior member of their own party, not to mention a Senator who chairs the Banking, Housing and Urban Affairs Committee, an important committee under the circumstances. Do they really want to try to stick him with the blame for something they should have known better than to do? Does the phrase don't buy trouble mean nothing to the Obama Administration?

This isn't rocket science. Don't lie anonymously. It only pays if you're trying to pull something over on us. We know that now. What they appear to be trying to pull over on us this time is to let those outrageous bonuses go through. They also appear to be trying to distract us from other important issues, like where the rest of the money, the part that isn't going into the pockets of current and former AIG employees, is going.

Don't pointlessly piss off people you might need later. That never pays under any circumstances. Here's a quote from The Economist that explains why:

Mr Obama may have to go back either for a second stimulus package, as is constantly being rumoured, though the whispers are firmly denied by the White House, or for a third round of the TARP. If so, he could face not just angry Republicans, who are opposed to bail-outs, but Democratic ones infuriated by the thought of Wall Streeters being paid bonuses while ordinary Americans are losing their jobs and homes. Christopher Dodd, a senior Democratic senator and the chairman of the Senate's Banking Committee, for example, has already spoken to the administration of an "unprecedented level of outrage".

Sound And Fury Over AIG

[bold emphasis mine]

Personally, I'd go with the truth. As I wrote once upon a time, people trust you more and it's a lot easier to remember.

If that doesn't work, just shut the hell up and listen.

(By the way, I love The Economist's photo. I wish I could have used it.)

UPDATE (March 19): Thanks to a tip from commenter Pro, I found out that a Bloomberg article from January revealed that AIG was handing out huge bonuses:

Jan. 28 (Bloomberg) -- American International Group Inc., the insurer saved from collapse last year by government money, may have committed more than $1 billion to employees to keep them from leaving the company.

About 400 workers at New York-based AIG’s financial products unit may get $450 million in two installments, said two people familiar with the situation who declined to be identified because the plan is confidential. That is in addition to about $619 million in retention pay going to 4,200 executives and employees at subsidiaries including life insurance.

AIG Said to Offer $1 Billion in Retention to Workers (Update1)

I missed this, but then I'm not shoveling billions of dollars into this company, either. It seems extremely unlikely that Geithner only found out about this last week. If he did, he has only himself to blame.


lotus said...

I've just been reading James K. Galbraith's new piece No Return to Normal: Why the economic crisis, and its solution, are bigger than you think at Washington Monthly (the magazine, not Benen's blog) and hope you will too so we can chew on it together (either here or at NMC's, where I just cross-commented this).

Like some of us, he fears that the Rubinistas around Obama are and will probably remain psychically unable to see the problems and solutions clearly. After laying all that out in scary detail, he proposes where O needs to head instead -- warning that, even at the best, we may well be looking at 20 years from here to a completed recovery ("recovery" NOT meaning what "normal" has looked like before). In his view, it'll have to be based in no small part on -- get this -- expanded Social Security.

All depends, he says, on whether Obama's imagination and character match FDR's. (You know I've long harbored suspicions that they do. But the fact that far-from-all the signs are pointing in that direction is scaring me these early days. And I don't see how we Boomers are in for anything but harder-than-we-expected old ages.)

Pro said...

You are right, it's a big mess.

If you thought it couldn't get any worse than Bush. The dems are spending more and making mistakes of the grossest incompetence. Here is the latest
(quite shocking) of their trillion dollar blunders:

By the way the bonuses are not new. Obama is only getting mad because now the public knows. It was widely reported in January. Do a google search for 'AIG Said to Offer $1 Billion in Retention to Workers' and you will see time stamps from January.

Cujo359 said...

I need to read that, Lotus, thanks for the link. Unfortunately, I have very little time today. And yes, I agree in principle that government assistance to individuals will need to be expanded. I'm not quite as pessimistic as Galbraith is yet, but then I don't know as much as he does, either.

Thanks for that tip, Pro. I've updated with a note about it. As for competence, I'm going to wait a little while before making a judgment about whether the Bush Admin was less incompetent than any other presidential administration. For now, I'm just going to observe that it usually takes a lot more competence to clean up a mess than it does to make one in the first place, and the Bush Administration made the mess (with some help from earlier Administrations, of course).