“You don’t have to wait to use plain language in your dealings with consumers,” Obama said. “You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote. You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.”

Felix Salmon at Reuters particularly liked this explanation of the need for a Consumer Financial Protection Agency:

Consumers shouldn’t have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card – that appear without warning on their statements. And responsible lenders, including community banks, doing the right thing shouldn’t have to worry about ruinous competition from unregulated competitors.

Opponents of such an agency argue that it will limit consumer choice and financial innovation, but Salmon says Obama countered that argument well in his speech, by arguing that in the past a lack of rules has meant “innovation of the wrong kind,” like the firm that could make its products look best by “doing the best job of hiding the real costs.”

For example, we had “teaser” rates on credit cards and mortgages that lured people in and then surprised them with big rate increases. By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s most complex or confusing.

Derek Thompson at The Atlantic, however, has a different take. Obama, he said, channelled his inner Jennifer Aniston in the speech.

I have an running observation about Obama, inspired by this article in The New Republic, that the president likes to remind audiences that he would prefer to tweak their incentives than have the government mandate reform. He and Treasury, you remember, wanted private investors to choose to buy the toxic assets. He continues to ask private insurers to choose preventative care, end underwriting and cut it out with rescission.

This instinct reminded me of a famous scene from Aniston’s movie The Break-Up, where her character famously tells her live-in boyfriend (Vince Vaughn), not that she wants to do the dishes for him; nor that she wants to force him to do the dishes: She wants him to want to do the dishes.

Reading Obama’s speech with my Rom-Com glasses on, the message is strikingly familiar. Obama doesn’t want to run Wall St. He wants Wall St. to re-learn how to run itself.

In the movie, Aniston’s wish for her boyfriend to want to do the dishes doesn’t exactly come true. Thompson isn’t sure Obama will fare any better.

I swear, it’s not just me watching too much TBS. Tim Fernholz remarks that “his call for financial sector players to act voluntarily in the public interest immediately rather than waiting for reform to pass” sounds like “health care tactics all over again.” It’s true! This is a very standard rhetorical tactic for Obama. Whether it works for him better than the threat worked for Aniston’s character, however, remains an open question.

And that’s the question that remains, as the Lehman anniversary passes, Obama heads back to Washington, and the fate of financial regulatory reform remains up in the air.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”

“I was shocked to see that the number has nearly quadrupled this time,” said Cummings. “I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start.”

I wonder if the higher figure will again spur the kind of public outrage brought on by the earlier bonus disclosures. Good thing for AIG that it’s not getting back in line for another bailout.

Yesterday, the Wall Street Journal reported that BofA chief executive Ken Lewis told New York’s attorney general in February that Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson told Lewis to keep mum about Merrill’s steep losses at the end of 2008, as well as $4 billion in bonuses Merrill intended to pay employees, lest the news spook BofA shareholders and kill the acquisition deal.

Geithner, of course, was neck deep in crafting the bailout strategies under the Bush administration, and now Towns, who heads the House Oversight and Government Reform Committee, has joined forces with Rep. Dennis Kucinich (D-Ohio), who chairs the Domestic Policy subpanel, to ask what role Geithner played in the controversial BofA-Merrill deal.

From the lawmakers’ April 23 letter to Geithner:

If Mr. Lewis’s statement, as reported by the Journal, of discussions that occurred between Mr. Paulson, Mr. Bernanke and himself is accurate, then federal officials were potentially involved in knowingly denying BOA investors material information.

The lawmakers are asking Geithner for “all documents prepared for internal use related to discussions with Bank of America and/or Treasury about compensation packages, bonuses, annual losses at Merrill Lynch, and federal guarantees against losses on Merrill Lynch assets, for the period August I, 2008 through January 19,2009,” as well as “discussions relating to public disclosure of information about compensation packages, bonuses, and annual losses at Merrill Lynch.”

A similar version of the letter went to Bernanke. And unlike the first inquiry over executive compensation limits — which Geithner still hasn’t responded to, even eight days after the requested deadline –  Towns and Kucinich are threatening to subpoena the officials for the information if they don’t get it otherwise.

The implications of Mr. Lewis’ testimony, if accurate, are extremely serious. Under these circumstances failure to comply with the Subcommittee’s request raises the prospect that we will be forced to consider compulsory means to achieve compliance with our request. However, we would prefer your voluntary compliance.

Guess the Obama honeymoon is officially over.

But then you find out that even in a year when people saw their retirement and college savings accounts decimated, top hedge fund managers raked in the big bucks, according to The New York Times.

As major markets and economies careened downward last year, 25 top managers reaped a total of $11.6 billion in pay by trading above the pain in the markets, according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine, which comes out Wednesday.

James H. Simons, a former math professor who has made billions year after year for the hedge fund Renaissance Technologies, earned $2.5 billion running computer-driven trading strategies. John A. Paulson, who rode to riches by betting against the housing market, came in second with reported gains of $2 billion. And George Soros, also a perennial name on the rich list of secretive moneymakers, pulled in $1.1 billion.

The thing is, we need these same hedge funds to buy up those toxic assets from banks. So it might not be a great idea to start picking on them, even though Treasury Secretary Timothy Geithner wants to regulate them and tax their profits. From The Times:

Even as the spotlight intensifies, these hedge fund managers and others who made it through last year with cash on hand are the sort of investors the federal government hopes will step in and buy troubled assets from banks. The richest managers are also in the best position to take advantage of the distressed environment to build their wealth.

“The guys who own the future are the guys like John Paulson and the others on the Alpha list,” said Keith R. McCullough, the chief executive of Research Edge, a firm in New Haven that provides trading analysis for hedge funds. “Ironically enough, we’re going to go beg for capital from the very people we’ve been trying to vilify.”

More evidence of why populist rage exists. And how, in this increasingly complicated crisis, it can be difficult to decide where to direct it.

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

DeSantis also aims at Liddy directly:

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

This tidbit on Liddy’s timing is particularly interesting:

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

Read it for yourself, and decided whether DeSantis deserves your sympathy. But whether or not you agree with his side of the story, it’s worth hearing. In the outrage and anger of last week, not everyone’s voice was heard.

The Los Angeles Times reports that legal experts agree that the bill that passed the House on Friday would probably not be considered a bill of attainder, which is essentially a law that singles out one group for punishment and is prohibited by the Constitution. It’s probably not an ex post facto law either, which retroactively punishes actions that were lawful when they were committed.

“The Supreme Court has limited those provisions to laws that ‘inflict punishment,’ mostly in the criminal arena,” writes The Times’ David Savage.

While it may feel like punishment to all those corporate executives accustomed to multi-million-dollar bonuses, tax laws are technically not punitive, and legal experts say they’re rarely struck down as unconstitutional.

As a reality check, let’s review something that happened recently — a reminder of how we got into this crisis and who bears most of the responsibility for it. On Thursday, the Federal Deposit Insurance Corporation announced it had completed the sale of IndyMac, a once high-flying subprime lender that failed last summer. The total loss to the federal insurance fund? Some $10.7 billion, according to the FDIC.

IndyMac sustained huge losses selling Pay Option ARMs, which are loans that require little or no documentation. They allow the borrower to pay only the interest on the loan for several years, or to choose the amount of the monthly payment. These loans went south quickly, often because borrowers couldn’t afford the houses they bought or their loans reset to much higher payments as the loan balance grew.

Did any of this stop IndyMac from selling these loans, even at the end of its tenure, when it was clearly in trouble? No. Banking analyst Bert Ely told TWI that IndyMac used $10 billion in loans from the Federal Home Loan Bank of San Francisco to continue making Pay Option ARMs — even when investors figured out that the loans might not be such good bets and refused to buy them anymore.

IndyMac wasn’t alone. Other struggling banks also borrowed from the Federal Home Loan Bank system to keep themselves afloat, as TWI reported. The financial newsletter of the Institutional Risk Analyst wrote that Congress ought to be investigating the whole mess:

“Most of the failed banks resolved by the FDIC during 2008 have been excessive users of FHLB advances…Remember, it was the availability of the FHLB advances as funding source which allowed the management of IndyMac to grow the bank’s size beyond that supported by its natural deposit base… Like WaMu and Countrywide, but even to a larger degree, IndyMac leveraged government funding via the FHLBs with unsafe and unsound lending practices – and all with the full approval of federal regulators!

Obama and Geithner weren’t in charge when all that deregulation was going on, as I recall. It’s true the rescue effort hasn’t been perfect, and the populist anger against AIG often has gone too far. And it’s convenient for congressional Republicans — the biggest cheerleaders of the free market for financial services — to try to pin some of the resulting damage on the people in charge now.

But the huge cost of winding down IndyMac is an important reminder: Don’t forget how we got here — and who led the way.

–

Subprime loans were bad. TWI’s Twitter feed is good. Please follow it here.

Cantor is playing the outside game. Since becoming whip in the wake of a second straight anti-GOP wave election in 2008, the Virginian has quickly become the public face of House Republicans — in part because he’s willed it so, in part because the Democrats seem happy to elevate him as the GOP’s scary new “Mr. No”… an outside group targeting Republicans called constituents in a handful of GOP districts to warn them that their congressman was opposing legislation to recoup the bonuses because Cantor’s wife works for a bank that receives TARP funds.

Republicans are stoking populist outrage over AIG, but they were unable to own every angle of the scandal the way they’d hoped. The GOP’s resolution to pull back the bonuses simply didn’t get them credit — Democrats boxed them out as the party with the plan to punish the company. Looking ahead, Republicans are trying to change the focus of the AIG outrage to the line in the stimulus bill that protected bonuses offered before Feb. 11.

Today, he made good on that promise.

Wyden, along with Sen. Olympia Snowe (R-Maine) and Senate Finance Committee leaders Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), re-introduced the bonus-tax proposal this afternoon — complete with enhancements.

For example, the original bill applied the 35 percent tax only to the companies that distributed the bonuses, while the newer bill would also slap that tax on the employees who received them (Total tax = 70 percent). Also, the first proposal applied the tax only to bonuses in excess of $100,000, while the latest version lowers that floor to $50,000. The provisions would apply only to banks that have accepted more than $100 million in bailout funding (and still have at least that much outstanding).

“I wish we didn’t have to do this,” Grassley said in a statement, adding:

Without the massive infusion of public dollars through the bailout program, these companies wouldn’t even exist anymore, much less be handing out bonuses.  Instead, the bonuses have done a lot of damage to public confidence in the financial sector, which was already very low.  The outrage you see at the grass roots is justified.

Wyden weighed in with a similar message. “Getting bailed out by the American taxpayer was more than enough of a bonus for these companies and individuals,” Wyden said in a statement. “I’m hoping the second time is the charm for our bipartisan approach.”