Melissa Bean proved she’s a worthy successor to Ellen Tauscher as head of the Wall Street-friendly New Democrat Coalition when she led the effort to insert a huge loophole in a bill that would have forced TARP recipients to stop paying "retention bonuses" as long as they were being supported by taxpayer dollars.

The bill, called the Pay Performance Act, passed the House on Wednesday. In its original form, it required all TARP recipients to make all bonuses performance based, and sought to put an end to the $1 billion in retention bonuses still to be paid out in July and September this year by AIG per an agreement they reached with Treasury Secretary Timothy Geithner. In other words, AIG could only pay out bonuses if the company actually did well, and couldn’t be doling them out while the company was losing money and on taxpayer life support.

The GOP took to the floor of the House with rage, and couldn’t come up with a coherent reason to oppose it which masked their true intent — kill it on behalf of the banks. They fiercely denounced a provision in the stimulus bill that allowed the AIG bonuses to be paid in the first place, but then objected to this bill, which would have essentially removed that provision. As Barney Frank said, "What you have just heard is a denunciation of something that was done by the Congress a few weeks ago and a refusal to undo it. I have never seen people, Mr. Chairman, so attached to something they hate."

Freshman Alan Grayson, one of the bill’s co-sponsors, has some experience taking on entrenched corporate power — his background includes suing war profiteers. In a piece of must-see TV, Fox’s Neal Cavuto singled Grayson out for vitriol, calling him "Sweden in a suit." Grayson responded by saying "These are government owned banks. Is anybody upset that some bureaucrat sets compensation for people who work in the State Department or the Department of Transportation? Why are they complaining when we’re trying to put some kind of break on this vomiting of taxpayer money?"

It looked like it was going to be smooth sailing, but then Melissa Bean decided to give the Republicans a hand. Her New Democrat Coalition has an Executive Director, Adam Pase, who is a former bank lobbyist for predatory lenders and their members brag about their Wall Street backgrounds and their close ties to the banks. The banks didn’t want the bill to pass, and it looked like the Republicans wouldn’t be able to stop it. So, Bean offered up an amendment which allowed TARP recipients to get out from under the bill’s limitations if they had started paying their loans back.

Brad Sherman, known for being a genuinely fiscally responsible member of the House, objected (see YouTube). He said "it would allow a large number of companies to escape the effect of the bill without doing much more than making a few monthly payments of a very small amount." (His own bill, which would have capped executive compensation for TARP recipients at a million dollars, was never allowed on the floor.)

Bean’s amendment initially failed on a voice vote, but she called for a roll call vote — which allowed bank lobbyists to see exactly who did and didn’t vote for the bill. This time, the New Democrats and the Blue Dogs made good on their threats to join with Republicans to pass legislation. Sixty-three Democrats joined with 165 Republicans to pass the Bean amendment.

Score one for the banks.

I asked Brad Sherman how he felt about the amendment. He said, "I could agree to exempt financial institutions that pay back all of the federal money they received under the Troubled Assets Relief Program within a 12 or 24 month time frame. However, the amendment opens the possibility of agreements of far longer duration. It would allow agreements with even a 10 or 15 year term." It also doesn’t prevent banks from taking more TARP money to make payment on their loans.

The Pay Performance Act finally passed, but it will be interesting to see what happens with the rest of this year’s AIG retention bonuses. If the company uses this loophole to pay them, Melissa Bean will wear it around her neck.

One last sad, final note: one of the bill’s co-sponsors, Jim Himes, is a former Goldman-Sachs executive who got more campaign contributions from Goldman than any member of Congress not running for President last year, and his Chief of Staff is a former USB lobbyist. So it was really gratifying to see him co-sponsoring a bill that seemed to be something his big donors would oppose.

But in the end, Jim Himes — also a member of the New Democrat Coalition — joined with Bean and the Republicans to de-fang the bill.

Score another one for the banks.