The Treasury’s strategy, first reported by The Washington Post over the weekend, is a clever one: Bailout money shuffled to banks through these “special purpose vehicles” won’t technically have come from the government — at least not directly — and therefore conditions like executive pay limits won’t apply to the eventual recipients. (Those familiar with the Enron scandal will remember the dubious role of special purpose vehicles.)

But it’s a strategy that might also be illegal, and Rep. Edolphus Towns (D-N.Y.), who just happens to chair the House Oversight and Government Reform Committee, is looking into the matter. In a letter sent Monday to Treasury Secretary Tim Geithner, according to The Post, Towns didn’t mince words about his displeasure with the end-around Congress:

“It would be unconscionable and irresponsible for the Treasury Department to permit excessive pay practices to continue at companies that have been rescued by the taxpayers,” Towns wrote in the letter. “I will strongly oppose any attempt to weaken or bypass these restrictions, or to violate the spirit, if not the intent, of these laws.”

The sharp tone of the letter marks a rare instance of a powerful Democrat calling the young Obama administration — still very much in its honeymoon phase, in the eyes of most Democrats — onto the carpet.

No response this morning from Towns’ office*, but this is an episode worth watching.

*Update: Towns’ spokeswoman Jenny Rosenberg said that the Treasury has yet to respond to the letter.

Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House.

Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week.

Now, of course, he’s a leading voice in Washington’s efforts to bail out the banks. Is there any wonder why the White House swooped in to dilute Sen. Chris Dodd’s (D-Conn.) proposed limits on executive pay?

Rick Wagoner may be leaving his position as CEO of General Motors but he’s not going away empty handed. Though he cannot receive a severance package under the terms of the auto industry bailout, he is due to receive some $20 million in retirement benefits after 32 years with with the company.

And this is on top of the $63 million in compensation he received between 1992 and today. The only caveat? Bankruptcy.

From ABC News:

If GM is forced into bankruptcy, Wagoner could get much less, according to Dave Schmidt, an executive compensation analyst with James F. Reda and Associates. Less than $1 million of Wagoner’s total $20.2 million pension package appears to be guaranteed if GM goes bankrupt, Schmidt said.

I imagine he’ll manage to scrape by.

–

Ed Brayton is a reporter for TWI’s sister site, The Michigan Messenger. ]]> http://washingtonindependent.com/36481/wagoner-dont-cry-for-me-general-motors/feed 0 http://washingtonindependent.com/36395/sherman-bill-caps-executive-pay-at-1-million http://washingtonindependent.com/36395/sherman-bill-caps-executive-pay-at-1-million#comments Mon, 30 Mar 2009 21:45:35 +0000 Mike Lillis http://washingtonindependent.com/?p=36395 Long before the AIG bonus scandal erupted this month, Rep. Brad Sherman (D-Calif.) was at the forefront of (failed) congressional efforts to install stricter pay limits for employees of bailed out banks. Sherman was an early critic of the Troubled Asset Relief Program, arguing last fall that it didn’t More...

But what about what the executives promised to do under those employment contracts?  Surely those contracts required managers and executives to act in good faith on the company’s behalf and not gamble away all its assets. Even if the bonuses weren’t based on current profits, they must have been based at least on the employees doing a decent, good faith, legitimate job. And selling risky credit-default swaps — insuring really, really bad debt — may well not meet those standards.

So why haven’t we — the taxpayers who supposedly own some 80 percent of the company now — seen the contracts yet?

New York Attorney General Andrew Cuomo is probing the matter, and he has the right idea in questioning the legitimacy of the bonuses, noting that the company may have violated New York laws prohibiting “fraudulent conveyances.” If a company enters contracts to pay money it “effectively doesn’t have, it’s akin to a looting of a company,” Cuomo said in a conference call with reporters. If the AIG contracts were signed when the people in charge knew “the finances were going south,” it could be considered a fraudulent conveyance, Cuomo said.

While Cuomo investigates, Congress ought to be insisting that AIG come clean about how and when those contracts were negotiated, what exactly they say, and whether the those lucky employees in the AIG unit that triggered our global economic crisis and received $165 million in bonuses so far (a total of $1 billion was supposed to be paid out, according to Bloomberg) actually fulfilled their contractual obligations.

In response to expected bonus restrictions, officials at Citigroup Inc., Morgan Stanley and other financial institutions that got government aid are discussing increasing base salaries for some executives and other top-producing employees, people familiar with the situation said.

The crackdown, part of the economic-stimulus package passed by Congress and signed into law by President Obama last month, limits bonus pay for the top five executives of any recipient of taxpayer capital through the Troubled Asset Relief Program, plus the 20 next-highest-compensated employees.

The discussions are at an early stage, partly because the government hasn’t yet issued specific rules on the bonus payments that will be allowed at companies that received TARP aid. The talks also are proceeding cautiously because of the political volatility of pay, bonuses and perks on Wall Street, including outrage over American International Group Inc.’s promise to pay $450 million in bonuses to employees in the insurer’s financial-products unit.

Nice to see patriotism in action. Per my earlier post, it’s time to demand that these companies operate in the open. Maybe it will take subpoenas, or public hearings, or a scolding from the President. But whatever it takes, it’s time to get more aggressive in making these firms accountable for the way they’re using public money. There’s plenty the government could do here, such as requiring a detailed and public accounting of compensation payments, so the people can see — and judge — for themselves, or imposing some kind of penalty for companies that try to cheat the public.

The Journal notes that these companies are proceeding cautiously, because they are sensitive to public outrage over their actions. But they’re still apparently forging ahead to flout the pay limits, which were put in place for a reason.. They’re playing us for fools. The question is, what are we doing about it?

But why stop there?  The shrinking economy has led to mass layoffs across the country in virtually all sectors, at such venerable companies as Caterpillar, Home Depot, Sprint, Microsoft, Nextel, Texas Instruments and Starbucks. There’s hardly a company or industry that isn’t embarking on large-scale layoffs these days.

So what about looking at what the executives in those companies make? How many of them are earning more than $400,000?

Well, the departing CEO of Sprint, for example, reportedly made more than $21 million in 2007, and that doesn’t count his severance package, which was apparently worth more than twice that much.  And according to the Wall Street Journal this weekend, Goldman Sachs CEO Lloyd Blankfein earned $69 million in 2007 — or $400,000 in just two days. The AFL-CIO has put together a terrific database on executive compensation that allows you to check the top 1500 companies in the United States, and compare your own salary to the chief executive’s.

All this makes me wonder, what if, in the interests of the American people and some renewed sense of patriotism stimulated by our snowballing national crisis, major corporations that claim they’re now “forced” to lay off wides swaths of their workforces were to pick up on Claire McCaskill’s idea and (temporarily) limit compensation of their senior executives to no more than the salary of the president of the United States?  $400,000 s year isn’t exactly taking a vow of poverty; and it would surely allow those companies to save at least some portion of the jobs they’re now axing.  Plus, imagine what it would do for employee morale and, consequently, for productivity?  Shareholders would probably welcome the news, too.

The Wall Street Journal, no doubt, would call the idea idiotic, as it calls McCaskill’s proposal and Obama’s complaints about Wall Street bonuses on its editorial page.

But I’d love to see someone pick up on it.  At the very least, it would be a brilliant PR move. The vast majority of Americans would embrace the corporations that had the guts to stand up to the challenge.  And ultimately, it would be in their own self-interest:  after all, when consumers are feeling stingy, a little goodwill can go a long way towards help them to decide where to ultimately open their wallets.

A gold star for anyone who guesses that $25 billion in Federal TARP payments might have had something to do with it.

It’s worth noting, too, that Merrill’s total profits over the entire nine-year period were a negative $7 billion. Those big pre-2007 profits were fake, but the compensation was real. How can we trust these guys with taxpayer money?

For years, the obscure banks had a reputation for poor risk controls and sloppy accounting, as regulators looked the other way, investors said. The banks also were used as a lender of last resort as the credit crunch tightened, lending billions of dollars to keep banks like Countrywide Financial and Washington Mutual afloat. Those banks failed anyway, and now the Federal Home Loan Banks are in trouble because of losses on risky mortgage-backed securities. Based on their reputation, Wall Street firms think their books may be in worse shape than they’ve revealed.

But all this could change, Bloomberg reports. The banks’ new regulator, the Federal Housing Finance Agency, plans to draft new rules for both the banks and for mortgage giants Fannie Mae and Freddie Mac, which the agency also now oversees. From Bloomberg:

The Federal Housing Finance Agency plans to propose new financial requirements next week for Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. The regulatory agency may place new restrictions on Fannie and Freddie’s investments and will revamp capital requirements for the home loan banks, director James Lockhart said in an interview. Under draft regulations “that everyone fought long and hard for,” the agency will determine the “size and composition” of Fannie and Freddie’s $1.7 trillion combined mortgage portfolios, Lockhart said yesterday. He said his agency also plans to release new minimum capital rules for the 12 regional FHLBanks by Jan. 27, as called for by Congress when it enacted legislation in July to strengthen oversight. “The 14 of them are so critical to this mortgage market,” Lockhart said of the government-sponsored enterprises his agency regulates.

Looks like things are changing quickly, with daily exposés of banking misdeeds and a new administration in charge. The idea of cracking down on these enterprises would have been considered radical just a year ago. But when Merrill Lynch doles out billions of dollars for executive bonuses three days before its sale to Bank of America – which needed billions of dollars in government bailout money to seal the deal – the days of anything goes in the financial sector are quickly drawing to a close.

Waxman, chair of the House oversight committee, points out that Treasury spent a combined $121 billion to buttress these banks, while the banks have spent $108 billion in the first nine months of 2008 on employee compensation and bonuses.

Questions to the banks include:

What is their average compensation per employee? How and why have these numbers changed in the past three years? How many employees are paid more than $500,000? Who are the 10 highest-paid employees and how much do they make? What are your policies toward the granting of bonuses?

CEO salaries has been a pet issue for Waxman since taking over as oversight chairman in 2007.  He has already used the financial crisis to expose sweetheart deals at bankrupt Lehman Bros. and bailed out American International Group. The committee continues to investigate lavish gifts that AIG executives received and resort vacations they enjoyed after the government rescued the company last month with an  $85-billion loan.

Waxman gave the banks until Nov. 10 to detail their spending habits.  The nine companies are: Citigroup, Bank of America, Bank of New York Mellon, Goldman Sachs, JP Morgan Chase & Co., Merrill Lynch, Morgan Stanley, State Street Corporation and Wells Fargo.