geithner-sm.thumbnail.jpgTim Geithner needs to get his story straight. Yesterday he told CNN’s Ali Velshi that in fact he did ask Chris Dodd to insert language in the stimulus bill that allowed the AIG bonuses to be paid:

The Treasury Department was concerned that legislation that would restrict contractual bonuses would not hold up to legal challenges, Geithner said in an interview with CNN’s Ali Velshi.

"We expressed concern about this specific version. We wanted to make sure it was strong enough to survive legal challenge," Geithner said.

Really? He was afraid of lawsuits? So why didn’t he tell anybody at the time?

Here’s the New York Times on February 10, 2009. Geithner’s first excuse for neutering Dodd’s executive compensation limits was that they were overly burdensome, meddling and bureaucratic:

[O]fficials said Mr. Geithner worried that the plan would not work — and could become more expensive for taxpayers — if there were too much government involvement in the affairs of the companies. Mr. Geithner also expressed concern that too many government controls would discourage private investors from participating.

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In internal discussions, Mr. Geithner is said by officials to have raised the lessons of countries that forced banks to make loans and adopted other, more interventionist measures. Those strategies, he said, wound up costing more and undermining their governments’ credibility. He concluded the wiser course would be to provide economic incentives to encourage lending.

A few days later, the story changed. Now Geithner was opposed to limits because small banks would return the money and not take future assistance. Why that was a problem was anyone’s guess. Here’s the Wall Street Journal, February 14 2009:

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.

Robert Gibbs toed the line on Face the Nation on February 15, after the exception language was inserted and the stimulus bill passed:

“I would say that many of the provisions that are in the bill are modeled after things that the president outlined in his plan,” Gibbs replied. “We’re looking forward to working with Congress to institute some of these regulations that will ensure that taxpayer money isn’t wasted, but we also have to make sure that it doesn’t hurt smaller regional banks that want to participate in this program.”

Here’s The Hill, February 15:

Administration officials worry the strict compensation limits will impede lending because smaller banks won’t want to take the bailout money, or won’t keep it for long.

And here’s the Washington Post from February 15:

Dodd’s original plan called for restrictions on bonuses paid to the top 25 employees at all 359 financial institutions receiving government funds. Administration officials said they worried that such a sweeping rule could dissuade smaller community banks from taking government aid.

So Treasury Secretary Timothy F. Geithner and White House economic adviser Lawrence H. Summers quickly got in touch with Dodd.

Dodd declined to honor the administration’s first request to remove the language that made it easier for banks to return the money. But he accommodated them on the second, administration officials said.

And just for good measure, here’s the Washington Times, February 15:

The White House worried that would dissuade smaller banks from taking — or keeping for long — the bailout money, which would slow their lending rates.

I can’t find Geithner — or anyone else in the administration at the time — expressing concern about lawsuits, or the fact that Dodd’s amendment might invite litigation.

The first time I saw this was in the white paper that AIG wrote to defend the payout of the bonuses (PDF):

AIG has been advised by outside counsel that a breach of the retention plan would subject it to claims for not only the contractually owed payments, but also penalties and fees under the Connecticut Wage Act.2 The Wage Act provides for the recovery of double damages and attorneys’ fees when wages are improperly withheld and the employer’s refusal to pay wages lacks a good faith basis. (Conn. Gen. Stat. §31-72.)3 In addition, individual managers who decide to withhold wages that are due are individually liable for violation of the Wage Act.4.

I cannot find any evidence that Geithner was concerned about legal challenges before AIG told him to be, shortly before the payout on March 15, 2009.

I’m not quite sure why he’s so afraid of these suits, anyway — we’re told all these bonus recipients fear for their lives as they are plagued by death threats. Are they going to want to file very public lawsuits that expose their names and salaries? That doesn’t make a whole lot of sense. They are government employees at this point and by all rights should have to do that anyway, but they appear extremely reluctant to do so.

So, the question arises — exactly who is it that’s running the Treasury?