Wednesday, March 18, 2009

Senator Dodd Fights Back: Says Obama Administration Pressured Him to Change a Provision He Sponsored That Would Have Banned AIG's Bonus Payments

Yesterday, a few bloggers reported that Senator Christopher Dodd inserted an amendment to the bailout that strengthened the constraints on executive compensation for companies that receive TARP assistance, but which did not apply retroactively. That story -- as other bloggers and the media suggested earlier today -- is not completely true.

Dodd has set the record straight on the issue, and his account parallels media descriptions of the proposed amendment that were first published in February. Dodd certainly introduced an amendment to the stimulus package which would have toughened restrictions on executive pay, but the measure would have applied retroactively.

After Dodd proposed his amendment, White House and Treasury Department officials publicly stated their disagreement with the measure. The Treasury Department had previously issued a weaker regulation that was made even weaker because it only applied prospectively to companies that had not received any TARP assistance.

Dodd's amendment, however, passed in the Senate. But when the final bill emerged from the conference committee, the language making Dodd's amendment retroactive had vanished.

Dodd now confirms that the Obama administration pressured him to delete the retroactivity clause while negotiators worked on the final version. Dodd says that he feared losing the executive compensation provision altogether, and this made him compromise with the Treasury Department (which undoubtedly spoke for the President).

The Huffington Post has the full story. Here is a clip:
The Treasury Department demanded that Sen. Chris Dodd insert exemptions into the stimulus bill that allowed bailout recipients to receive bonuses, the Connecticut Democrat said on Wednesday.

According to Dodd, officials at Treasury expressed concern that if the government were to prohibit payouts, it risked being sued by companies like AIG, which had contracts stipulating that bonuses were to be paid.

At the urging of Treasury officials, Dodd modified a clause he had previously inserted into the stimulus that prohibited bonuses from being issued by bailed-out companies. An exemption was added to allow bonuses that applied to in-place contracts.


Pro said...

Breaking News: Dodd Says loophole that protects AIG Bonuses added per request of the Obama administration. The video is about a fifth of the way down.

Obama should take full and direct responsibility for this mess.

Darren Lenard Hutchinson said...

Pro: he already said "the buck stops with me." So, I think he's trying to push it out of the way. As much as this situation is troubling, I do believe that he's smart by placing the focus on him. Although he might suffer a little in terms of "approval" ratings, at the moment, he is still rather popular. Dodd and Geithner are not. Having Dodd and Geithner take the fall would keep the issue alive. If Obama takes the fall, then his popularity could smother the issue. Obama is capitalizing on his ability to escape media "outrage."

Anonymous said...

There goes the neighborhood. president Obama's intitials are BO and he has lost a lot of my enthusiasm for him with this softening of the bonus money fiasco.

As Goldie Hawn said in "Overboard", we are watching the President as a hawk.

Infidel753 said...

According to this story, the Fed knew about the AIG bonuses in advance, but the administration didn't:

Jason Papanikolas said...

Question as I'm not a lawyer: could Dodd have retroactively applied an executive compensation provision?

Seems to me that would have been ex post facto and hence illegal. In which case, it makes perfect sense of Obama to make Dodd back down.

Why didn't we engage some good M&A lawyers for what is in all actuality an acquisition? Or maybe we did and this is all just hype?

Obama will definitely survive, damaged perhaps, but intact. OTOH, I think Geithner's days are numbered, irregardless of who takes the bullet.

Darren Lenard Hutchinson said...

Jason - the government's legal case would have been stronger BEFORE the bonuses had been paid. Before the money is in the hands of the workers, AIG or the workers would have to argue that Congress cannot limit or place conditions upon the receipt of federal money. This position is absolutely wrong.

Once the money has been paid, then the company could argue that the condition is too onerous because it would force the company to try to retrieve the money (not an easy task). Also, the workers could sue, arguing that their contractual rights were violated (suing the company or the feds). Passing a specific law to target these individuals raises issues as well.

The ex post fact clause only applies to criminal liability.

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