How the Fed Failed to Tell Obama About The Bonuses (WaPo)

[pinto]

How the Fed Failed to Tell Obama About The Bonuses
By David Cho and Michael D. Shear
Washington Post Staff Writers
Thursday, March 19, 2009; Page A01

Federal Reserve officials knew for months about bonuses at American International Group but failed to tell the Obama administration, according to government and company officials, exposing problems in a relationship that is vital to addressing the financial crisis.

As pressure mounted on AIG employees to return the bonuses, new details emerged yesterday about what the Fed, the Treasury Department and the White House knew regarding the payments and when. AIG executives said the Fed was informed three months ago by the company that it would pay $165 million by March 15 to employees working at its most troubled division. The Treasury and White House said they learned of the payments from Fed officials only days before they were due.

Close coordination between the Fed and the administration is now more important than ever as they near the launch of two signature programs to rescue the financial system, which together could reach $2 trillion and are aimed at reviving consumer lending and purchasing soured assets and loans from ailing banks.

Treasury Secretary Timothy F. Geithner, a central figure in the decision to bail out AIG last fall as president of the Federal Reserve Bank of New York, said in an interview yesterday that he had not been aware of the size of the bonuses and the timing of the payments.

"I was stunned when I learned how bad this was on Tuesday ," Geithner said. "I shouldn't have been in that position, but it's my responsibility and I accept that."

(more at)

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031804210.html

[Hoopla Phil]

1. Dodd claims Obama officials asked for the bonus provision.

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aT_tMXRy2vDs

[ErinBerin84]

2. yes, most people are aware of that by now......

But I thought this article was interesting, the communication lines are really screwed up if this is true.

[Hoopla Phil]

3. Clearly one hand does not know what the other is doing.

I think there are far too many people in this administration that have their own agendas. This can come to no good end and really make the president look bad if it continues.

[ErinBerin84]

4. yep

[blm]

5. I don't think certain members of the economic team are as concerned about informing new president

as they are protecting their own past actions that contributed to the crisis.

Obama should have brought in a whole NEW financial team steeped in the progressive policies that were submitted over the years to counter the excesses of the fascists agenda. Instead, he relied on the myth of the competence of the Clintonites.

[ErinBerin84]

6. hopefully this will be an illuminating experience for him then

[frazzled]

7. Corroborated by Liddy's testimony yesterday, no?

What stunned me in the testimony that no one has really talked about was the exchange between the first Republican questioner and Mr. Liddy. The GOP Rep. started right in to try to nail Geithner/Treasury. Liddy says he worked the bonus deal out with the Fed only. But surely Mr. Geithner knew right? Not to my knowledge sez Liddy. They worked only with Fed. The desperate Republican tried to say that surely Treasury was informed by the Fed. Mr Liddy had no knowledge of that. My guess is Treasury was not informed by the Fed ... especially given that Kanjorsky was hopping mad that Liddy/Fed had not informed the House committee either, even though discussions to dissuade them from giving out bonuses had been held.

Here's how I see the whole thing, after much troubled reflection over yesterday's Treasury/Dodd revelations.

Treasury was indeed concerned in general over the legality of the government abrogating completed private contracts by fiat, and passed that concern to Dodd, who apparently concurred and changed the language.
I believe they did not want to come in themselves to break the contracts, but wanted to make sure that any entity contemplating extravagant or harmful bonuses could be dissuaded from doing so by putting pressure on the managament to break the contracts themselves.

What happened seems to have been they thought Liddy would not make these bonuses, but found out only very late that he had worked with Fed to do exactly that. This explains the angry letters of last week, and the frankly hamfisted last-minute scrambling they have had to do at the WH.

[acmavm]

8. HMMMM. I woulda thought this guy would have had a way to

get the info he needs. I mean, why didn't anyone know? Didn't little Timmy G. run the Fed for a while? He has no contacts? He doesn't know how to get the info he needs to make decisions?

Or does he just know how to hand out our money?