AIG Bonuses Spark Outrage, Frustration
LA Times reports on conversation between Treasury and AIG chiefs:
In his initial call to Liddy, Geithner asked the AIG boss to renegotiate the bonuses, according to an Obama administration official who was not authorized to comment publicly and spoke on condition of anonymity.
AIG said there were two categories of payments: One was for senior executives, the other for 2008 retention bonuses for employees that the company agreed to pay before the federal bailout, the official said. AIG said the retention bonuses were legally required to be paid despite the bailout, a view the Obama administration concluded was correct after a review of the contracts…
…The economic stimulus legislation that President Obama signed into law last month includes strict new limits on bonuses and other compensation to executives of companies that received money from the $700-billion Troubled Asset Relief Program. But the provision specifically excludes any bonus payments “required to be paid pursuant to a written employment contract executed on or before February 11, 2009.”
Given that exemption, the administration’s hands were tied, the official said. But the government will be seeking to recover the bonus money as it restructures the terms of AIG’s bailout. The company has committed to working to develop a way to do that, the official said.
AP: “Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday … The company says in [a white] paper it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30%.”
TPM’s Josh Marshall: “what makes it such a dangerous moment for the White House — is the jarring image of the administration’s impotence.”
The Plum Line: “To be sure, the Obama administration did inherit a big mess. … But at one point do Obama advisers who are ceaselessly pointing this out start to sound overly passive and even evasive? How much longer is this gonna wash?”
Washington Monthly’s Hilzoy: “If you want to get really angry, consider that this division, whose members will be getting nearly half a billion dollars in bonuses for the remainder of 2008 and 2009, has about 370 employees. That’s well over a million dollars a person, to a group that lost over $40 billion (so far!), and bankrupted its parent company. Nice work if you can get it.”
Autumn Sandeen of Pam’s House Blend: ” if the involved AIG folk don’t resign, then the government should demand that they be fired for cause — they can join the 650 thousand Americans became unemployed just last month. They don’t need to be fired because Americans are angry about bonuses, they instead need to be fired for running their business so damn poorly. Hearing Lawrence H. Summers say that the millions in AIG bonuses is ‘outrageous’ just isn’t going to be enough.”
Rep. Barney Frank agrees. AP reports on AM “Today Show” interview: “These people may have a right to their bonuses. They don’t have a right to their jobs forever.”
AIG finally releases list of “counterparties” that were recipients of AIG bailout money, but Felix Salmon finds it not as transparent as it should be. And TPMCafe’s Jon Taplin sees “Hedge Fund Corporate Welfare.”
Next Steps: Toxic Assets and New Regs
LA Times reports on public-private plan to buy up toxic assets:
Although the formal unveiling is still a couple of weeks away, the broad outlines of President Obama’s long-delayed plan for reviving the nation’s financial system are coming clear: an ambitious but untested attempt to partner up private capital with government funds while limiting the risk to taxpayers.
Under the emerging plan, Washington would finance the creation of several investment funds charged with buying up to $1 trillion of the toxic mortgage-backed securities and other bad assets now corroding the books of huge financial institutions such as Citigroup Inc.
Money to purchase the assets would come from the government, in partnership with private investors. It’s not yet clear how large Washington’s contribution would be or the ratio of tax dollars to private capital…
…If the plan doesn’t work, the government might have to resort to one of the more aggressive remedies, such as buying the assets outright or nationalizing the banks. That could put taxpayers on the hook for substantial losses.
Those approaches would also risk damaging a broad array of investors, including the pension plans and mutual funds that tend the nest eggs of working Americans.
The effort to avoid these options drove the administration to its hybrid approach, and its complexity has delayed the announcement of a detailed plan expected more than a month ago.
FRANK: …I agree with their effort … to try and maximize a private-public intervention here, to reduce the public risk but also getting the private firms in there can help you set what would be a reasonable price. And I think, as I said, they are well along in this. If they wait a week or two more, no one ought to get all in a twitter about that. It’s very important to do it right…
ZANDI: …the private-public bank, the idea that the Treasury has, is also a reasonably good idea. Now, there’s a lot of details. We don’t know a lot about how this is going to work yet, but at least in theory, it’s quite an elegant plan, and I think there will be investors, yes.
But HuffPost’s Robert Kuttner strongly criticizes: “Geithner hopes to enlist hedge funds and private equity companies to purchase bonds from banks, using loans and loan guarantees from the Treasury and the Federal Reserve, and thereby restart the very system that failed. This approach gives far too much power and taxpayer subsidy to the least transparent and least regulated parts of the financial system. On Saturday, the Wall Street Journal reported that the announcement of the details of the plan had to be delayed yet again, because two of the biggest firms wanted even sweeter terms before they came to the table.”
The Obama administration, moving with increasing speed, has inked the main contours of its plan to revamp financial-market oversight — changes that will ripple through the economy, affecting everything from the operations of international banks to consumer protection.
The principles include giving the Federal Reserve new powers that include authority to monitor and address broad risks across the economy, say people familiar with the matter. The proposals are expected to include tougher capital requirements for big banks and authority for regulators to take over a large financial firm that is failing.
“We want to accelerate the pace of change on the reform agenda,” Treasury Secretary Timothy Geithner said in an interview after a meeting of the Group of 20 finance ministers and central bankers over the weekend. Mr. Geithner was pressed for action on the regulatory front at the meeting, held just outside London. The administration’s goal is to unveil its proposals before G-20 heads of state meet April 2, to wrest leadership of the thorny topic.
Conservatives Teeing Up To Whack Broad Health Care Tax
On MTP, Obama econ adviser Christina Romer criticizes Baucus suggestion to tax employer benefits to fund health care reform but doesn’t flatly rule out compromise:
MR. GREGORY: The administration signaling that the president is now open to taxing employer health benefits for employees. This was something that John McCain proposed in the election and President, then-candidate Obama was opposed to it. Is he changing his view?
DR. ROMER: He is still opposed to it. He certainly was very critical and very skeptical of it. It is certainly not in our proposal. And we have proposed other ways to, to deal with health care and to fund it. And so no, it is not something that he supports.
MR. GREGORY: So the reports about him now considering this being open to it are wrong?
DR. ROMER: His skepticism from the campaign absolutely is, is still there.
MR. GREGORY: So he’s opposed to it. It’s off the table.
DR. ROMER: He is absolutely opposed to it and skeptical and –
MR. GREGORY: You’re not saying it’s off the table.
DR. ROMER: I’m not going to say one way or the other that –
MR. GREGORY: But he, he might consider it, in other words?
DR. ROMER: I think what he has said from the beginning is there are no such thing as Democratic and Republican ideas, there are just good ideas. He will listen to good ideas. This is not one that he has, has ever supported.
MR. GREGORY: OK, but he’s not ruling it out.
Conservative talking points already cued up. Jonah Goldberg: “Does Obama Support Largest Middle Class Tax Increase in History?” And Sen. Bob Corker on Fox News Sunday: “No doubt they’re very open to taxing benefits of Americans on health care because that’s how they’re going to fill the gap.”
The Hill reports Blue Dogs backing off criticism of Obama’s health care plan: “Blue Dogs have made pay-as-you-go, or paygo, rules their rallying cry, but they are not demanding strict offsets for healthcare reform. The Blue Dog endorsement of President Obama’s approach is a significant boost to the chances of health reform passing the House this year.” BUT “In its letter to budget legislators, Blue Dogs stress that they want to be convinced of the long-term savings of health reform.”
Time looks at two Dems still peddling McCain-style health care: “[Sen. Ron] Wyden and [Rep. Jim] Cooper continue to lobby the committee chairmen and ranking members of the five panels that have jurisdiction over the issue on Capitol Hill. “We want to be team players,” Wyden says. But they also note that time is quickly running out if lawmakers are to meet their self-imposed deadline of having a bill passed out of both chambers before the August recess. So they are watching the informal negotiations that are underway on both sides of the Capitol carefully. All they need, they say, is the right opening. Or at least a seat at the table. ”
Insurance lobbyists looking to buy off Dems. AP:
In a big change from three or four years ago, insurers are writing bigger campaign checks to Democrats, now the party of power in Washington. The insurance industry gave $10.7 million to Democratic candidates for federal office in the 2006 elections, according to OpenSecrets.org. Last year, it was $20.7 million.
The stakes are high. If the industry’s pitch succeeds, insurers will be guaranteed many more customers. The industry wants all people in the United States to be required to carry medical coverage, with government providing financial help for those who cannot afford it. Even if insurers end up making less per customer because of anticipated consumer safeguards, they still could come out ahead.
But if the overhaul that President Barack Obama has promised goes against them, insurers could find themselves trying to compete against a new government-run health plan offering cut-rate premiums to middle-class families. That’s exactly what many liberal Democrats want, and Obama hasn’t taken the option off the table.
NYT’s John Harwood on using Senate budget rules to pass health care without fear of filibuster: “Mr. Obama has consistently demonstrated his desire for movement. He may ultimately decide that [the budget] reconciliation [process] as a means of enacting new health and energy policies is worth the risk of angering Republicans who almost unanimously opposed his economic stimulus package. ‘He strongly believes that sustainable economic recovery depends on major action,’ said John D. Podesta, who directed Mr. Obama’s presidential transition. ‘He’s not going to give that up to make people feel the process is somehow sweeter.’”
NYT also looks at the initial failure of Massachusetts’ health care program to control costs, a state program which (unmentioned by NYT) does NOT include President Obama’s campaign proposal of a public insurance plan that competes with private plans.
Global Stim or “Cheap Talk”?
BBC on the results of the G-20 Finance Ministers meeting: “Finance ministers from the G20 group of rich and emerging nations have pledged to make a ‘sustained effort’ to pull the world economy out of recession … BBC economics editor Stephanie Flanders said that the outline agreements represented ‘cheap talk’, and differences remain. The outline agreements will now provide the basis for more concrete pledges at next month’s meeting of G20 leaders in London … [they] include a commitment to fighting all forms of protectionism, and the restoration of bank lending. The finance ministers have also pledged to continue with economic stimulus packages and low interest rates, and to increase IMF funding.”
Baseline Scenario’s Simon Johnson rips European ministers: “Secretary Tim Geithner this week proposed an additional $500 billion for the IMF–this would constitute a bold and long overdue tripling of its loanable resources. But the West Europeans are, inexplicably, digging in around the idea that there should be only another $250 billion for the Fund (and they haven’t actually offered to pay anything themselves) … Without significant money for the IMF from European countries with deep pockets, though, there is no hope of attracting large-scale resources from emerging markets. And if the IMF is short of funds, it has no alternative but to negotiate tougher lending programs with countries that need external financial assistance. To you and me, the implications are simple and stark: a longer recession and a more difficult recovery … European policy towards the IMF is a masterpiece of misdirection and disinformation.”
NYT’s Paul Krugman laments that Europe’s political structure is hamstringing its ability to act in bold, coordinated fashion.
CNN: “Unemployment concerns triple over past year”
NPR’s Day To Day: “Unemployment numbers are bad for everyone, but worse for African-Americans. Black wealth is declining during the recession.”
Salon.com: “America’s food banks need a bailout”
Budget: Rise of the Moderate Obstructionists?
McClatchy concludes: Greatest threat to Obama spending plan? Moderate Dems”, and reports: “Dissident Democrats won’t say yet where they would cut; the Blue Dogs hope to have their own budget blueprint out this week.”
Who needs policies? GOP may not bother with budget alternative. ThinkProgress: “McConnell Bumbles When Asked For GOP Alternative To Obama’s Budget: We’re ‘Getting Down In The Weeds’”
Booman Tribune on Obama’s grassroots mobilization: “President Obama is going to unleash his grassroots army this week in support of his budget proposal. This is the moment when we will discover the power and effectiveness of community organizing, and whether it can compete with mere rhetoric and traditional activism. Democrats that do not respond to this grassroots push will be easy to identify. And they will become the targets of the next generation of progressive organizing.”
Auto Rescue Update
While administration officials say that no final decisions have been made, they appear to be giving more consideration than they were two months ago to a quick, managed bankruptcy. Mr. Obama has said he wants avoid that option, because it could further unnerve investors and radiate out through the company’s network of suppliers and dealers.
But the threat of a bankruptcy filing may be the only way to force concessions from bondholders, who hold $27 billion of the company’s unsecured debt. So far, the bondholders have shown little willingness to negotiate over a G.M. proposal that would give them a fraction of the face value of the bonds — as little as 16 cents on the dollar for some bonds in a deal that could leave them holding what may turn out to be worthless equity in G.M…
…“The union is wary of negotiating with themselves,” said one senior official involved in the talks. “They have been asked to give blood four times, and they want to see the bondholders give some before they do anything more.”
Another senior administration official, who declined to speak on the record because he was not authorized to talk about the negotiations, described talks with the bondholders as “the drama that will play out for the next two weeks,” as each side waits for the other to blink. “Is Obama willing to go the bankruptcy route?” the official asked. “He might be, if he thinks it’s the best way to save the most jobs, but we don’t know yet.”
Terrance Heath contributed to the making of this Breakfast.