Barack Obama was outraged yesterday over the AIG bonuses. He was OUTRAGED. He said yesterday:
This is a corporation that finds itself in financial distress due to recklessness and greed.
Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, AIG has received substantial sums from the US Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.
That was yesterday. That was after the public outrage grew over the news that AIG gave out huge bonuses to its employees while receiving massive taxpayer money.
Now, let’s go back to February when the Obama administration was resisting congressional efforts to curb compensation and bonuses at companies that received federal bailout money. This is how the Obama administration felt about curbing bonuses back then:
Facing a stricter approach to limiting executive bonuses than it had favored, the Obama administration wants to revise that part of the stimulus package even after it becomes law, White House officials said Sunday
Mr. Obama’s press secretary, Robert Gibbs, appearing on ”Face the Nation” on CBS, also said the administration would seek to ”strike the right balance” on compensation. Asked if Mr. Obama would enforce the bill and was satisfied with it, Mr. Gibbs replied, ”We will sign this bill into law on Tuesday.”
Under the administration’s proposal, compensation restrictions would apply only to banks that received ”exceptional assistance” from the government. Top executives could be paid no more than $500,000, with bonuses or other compensation coming as stock that could be claimed only after the federal money had been paid back.
The bill passed by Congress set executive bonus limits on all banks that receive bailout money. The amount of assistance will determine the number of executives affected, though top executives will be prohibited from getting bonuses or incentives except as restricted stock that vests only after bailout funds are repaid.
The Obama administration “adamantly” opposed strict restrictions on bonuses:
Top economic advisers to President Obama adamantly opposed the pay restrictions, according to Congressional officials, warning lawmakers behind closed doors that they went too far and would cause a brain drain in the financial industry during an acute crisis. Another worry is the tougher restrictions may encourage executives to more quickly pay back the government’s investments since, in a compromise with the financial industry, banks no longer have to replace federal funds with private capital. That could remove an extra capital cushion, further reducing lending.
The biggest difference between Mr. Dodd’s provision and the Treasury rules is that the new stimulus provision would apply to any company that either has received money or will receive money in the future under the Treasury’s financial rescue program. By contrast, the plan announced by Mr. Geithner would apply only to companies that receive federal money in the future.
If the argument from the Obama administration about pay restrictions causing a “brain drain” sounds familiar, it should. It is exactly the argument Edward Liddy, AIG’s Chairman and CEO, used to defend the bonuses in his letter to Treasury Secretary Timothy Geithner over the weekend.
Now, with Democrats and the Obama administration in Outrage Overload, it is worth reflecting on what the administration’s actual position is on corporate bonuses funded by taxpayers. So, color me skeptical when I hear all this outrage.