Participants at the meeting were impressed by Obama’s strong command of the issues at hand and appalled by McCain’s acknowledgment that he had not even read Paulson’s three-page bailout plan.

A Republican sitting some distance down the long table whispered to a pair of Democratic senators, “Everyone here is ready to vote for Obama, including the Republicans.” [Democratic House Financial Services Committee Chairman] Barney Frank was even more disgusted than usual. “This was about as unpresidential as it gets,” he said later.

Bush’s expressive face said it all. When Obama spoke, he paid careful attention, as if he knew that here was his successor. When McCain spoke, Bush’s face was quizzical and unconvinced, as if he’d eaten something sour.

But that was the civilized portion of the meeting. Shortly thereafter, Paulson begged Democrats not to attack the bailout plan. But it was the Republicans who had withdrawn their support, and Frank was incensed at Paulson’s suggestion that Democrats were somehow to blame.

Barney Frank muscled his way past Harry Reid and started yelling. “F— you, Hank! F— you! Blow up this deal? We didn’t blow up this deal! Your guys blew up the deal! You better tell [GOP Rep. Spencer] Bacchus and the rest of them to get their s— together!” When Paulson tried to equivocate, Frank threw in another “F— you, Hank!” — his third of the day.

For all the bedlam at the meeting, Obama and his team emerged confident that the election was theirs to win — and that the country needed them to win.

“That was surreal,” Obama said on the speakerphone from the car on the short ride back to the hotel, with several campaign aides on the call. “Guys, what I just saw in there made me realize, we have got to win. It was crazy in there.”

“Maybe I shouldn’t be president,” he said in his familiar wry tone, only with more amazement than usual. “But he definitely shouldn’t be.”

But unless you’re well-versed in the modern minutiae of the financial market, it probably didn’t help explain anything about why Treasury Secretary Tim Geithner is facing an investigation into his role in the affair.To recap Morgenson and Story:

• The people at Goldman Sachs invested in mortgage-backed securities they expected to decline in value in order to make money off the insurance claims.
• Due to a long-standing relationship, they went to AIG for a kind of insurance — credit default swaps — which were not regulated.
• They then used other companies, including Société Générale, to purchase more of the unregulated insurance that AIG might not have otherwise underwritten in order to manage its own risk.
• When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
• After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
• The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

When the federal government, including then-Treasury Secretary Hank Paulson (who once served as chairman and CEO of Goldman Sachs), directed AIG to pay Goldman exactly what it wanted, it overrode significant and long-standing misgivings by AIG’s lawyers and accountants that Goldman’s estimates of its losses were correct. Morgenson and Story note that the prices on the very securities for which Goldman demanded insurance payments have since rebounded — but under the terms of the deal struck by the federal government, Goldman doesn’t have to pay a cent of its insurance settlement back to either AIG or the taxpayers. That’s quite the sweetheart deal for Goldman Sachs, if not taxpayers.

Now-Treasury Secretary Tim Geithner’s role in the November payouts is under investigation; his spokesperson said last month that then-New York Fed Chair Geithner officially recused himself from participating in the AIG bailout after Nov. 24, 2008 — the date of his nomination to Treasury — and had begun to insulate himself from such decisions “weeks earlier in anticipation of his nomination.” The Presidential election was held Nov. 4, 2008, and the plan to give Goldman everything it wanted was made official 6 days later, on Nov. 10. Either Geithner was insulating himself from his own job weeks before the election, or he was as involved in the negotiations as his detractors have charged.

Documents have recently emerged showing that the N.Y. Fed, starting as early as Geithner’s Treasury nomination announcement, worked with AIG to prevent full disclosure of how the bailout money it received in November went straight to companies like Goldman Sachs, Société Générale and Deutsche Bank, among others. The order to AIG from the government not to negotiate with its creditors may have cost U.S. taxpayers $13 billion; it was only under pressure from the SEC that AIG made public in March 2009 (after Geithner’s confirmation) the banks to which it had transferred its bailout funds.

As the N.Y. Fed staffers — who, despite his recusal, still worked for Geithner — were pressuring AIG to refrain from disclosing the government’s demands on behalf of Goldman and the secondhand amount Goldman received from the bailout, Geithner was amending his tax returns and paying back taxes in order to survive his confirmation process. Revelations that he’d also used his position at the N.Y. Fed to preserve the financial interests of Goldman Sachs over taxpayers or the company in which the government had taken a majority stake might have scuttled his nomination entirely. These days, many Democrats seemingly think that perhaps it should have.

Bank of America purchased Merrill Lynch in December, even after then-BoA CEO Ken Lewis voiced reservations that the buyout would be a bad move for BoA shareholders due to the bad financial shape of Merrill.

Lewis later told New York’s attorney general that federal officials, notably Bernanke and Paulson, had pressured him to go through with the sale. To sweeten the pot, the White House eventually put up $20 billion of Wall Street bailout dollars to catalyze the deal.

Appearing before Towns’ panel last week, Bernanke defended his role in the saga. Paulson will have his chance  July 16.

The Obama administration earlier this year issued guidelines that include limiting salary for top executives at some firms receiving TARP funds and requiring that additional pay be in the form of restricted stock, vesting only after the company repays its debt, with interest, to the government. Congress then chimed in with even tougher rules curbing bonuses for top earners at firms receiving TARP money. As part of that effort, lawmakers barred those firms from paying top earners bonuses that equal more than a third of their total compensation.

“The White House,” the Journal reported, “has been wrestling with how to marry those two efforts, which in combination are more punitive than administration officials had intended.”

Indeed, “more punitive” is hardly what policymakers seem to be after. A brief history:

Both the Bush and Obama administrations have been extremely lenient about limiting executive compensation for firms accepting bailout cash. The original bailout bill, unveiled by then-Treasury Secretary Henry Paulson in September, contained almost no conditions on executive pay at all. Congress intervened to apply some limits, but the loopholes remained enormous.

In January, the House passed a bill to close some of those loopholes, but the Senate ignored the bill.

A month later Obama, along with his Treasury Secretary Tim Geithner, announced their own executive pay limits, though those guidelines also were pocked with holes. The reason for the leniency, a Treasury release argued at the time, was “to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery.” The message was clear: The White House feared that severe restrictions on executive pay, even for firms kept afloat only on the waterwings of billions of federal dollars, would scare away the “talent pool” that had run the companies into the ground — employees deemed vital to the recovery.

More recently, the Senate succeeded in passing another law limiting some executive bonuses to a third of compensation. It’s this law that the administration apparently feels is too punitive, despite the fact that Treausry officials watered it down before it was passed. And of course none of these efforts have done much to limit executive pay, as reports have indicated.

So this is the landscape that Feinberg is soon to encounter. Think about that the next time you’re feeling bitter about your job.

Eartha reports that while he refrained from directly criticizing his successor’s job performance, Bush echoed former Vice President Dick Cheney’s remarks on abusive interrogation techniques used against terror suspects:

“You have to make tough decisions,” Bush said. “They’ve captured a guy who murdered 3,000 citizens … that affected me … They come in and say he may have more information … and we had an anthrax attack … and they say he may have more information. What do you do?“

Bush was firm and defended his record as president: “I will tell you that the information gained saved lives.”

On the Troubled Asset Relief Program:

“You are only really as good as the people you listen to,” Bush said, adding that then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke told him that if he did not approve the Troubled Asset Relief Program, the nation’s economy would have quickly crumbled.

“I can’t prove to you that the measures we took averted failure,” he said. “The major culprit was a lack of responsible regulation.” [...]

“Markets obviously sometimes need restraint and oversight,” said the former president.

Please check out Eartha’s reporting on the event here and here.