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Blaming Dodd for AIG-Gate Misses the Mark

There’s a new argument coursing through Washington in the last 48 hours, which lays the blame for the AIG bonus scandal at the feet of Sen. Christopher Dodd (D-Conn.) for altering his recently-enacted executive pay proposal to exclude AIG.

The blame is misplaced. Here’s why.

The Dodd executive pay amendment, which was attached to the $787 billion stimulus bill last month, prohibited top executives at bailed-out firms from receiving bonuses exceeding one-third of their salaries. The amendment, which was opposed by the Obama administration, passed the Senate by a voice vote on Feb. 12.

Afterwards, at the urging of the White House, Dodd agreed to add a clause ensuring that the restrictions wouldn’t apply to “any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009.” This is the language in the final bill signed by President Obama, and because AIG’s controversial bonuses are contractual, it’s also the reason that the insurance giant isn’t subject to the Dodd amendment’s limits. (As Daphne points out today, there are legal questions about whether Washington can meddle with those contracts in any event, but let’s assume for a moment that the original Dodd provision would have empowered Treasury to do so — if only because that’s what Dodd critics are doing this week.)

In a statement issued Tuesday, Dodd said that the language modifications were made “to ensure that some bonus restrictions would be included in the final stimulus bill.”

The implication was that if he didn’t agree to the compromise with the White House, the entire provision would have been stripped out. And there was good reason to fear that would have happened. Indeed, two other executive pay provisions that passed the Senate were deemed unacceptable to the Obama administration. One, sponsored by Sens. Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine), would have forced TARP recipients to repay Washington for any 2008 bonuses exceeding $100,000 or pay a steep tax on the outstanding balance.

This week, Wyden went after the administration for rejecting the very measure that might have precluded the entire AIG scandal. From Politico:

“Sen. Snowe and I put a lot of hours into that effort. We had a bipartisan provision that in my view would have set up a huge disincentive for somebody paying out bonuses like was done in the AIG case,” Wyden said. “We both pushed very hard to persuade the Obama economic team to go along with our approach, and unfortunately we weren’t able to convince them.”

So for the administration’s industry-friendly stand on executive pay, Dodd is taking the heat.

Not that the Connecticut senator, who’s facing a tough reelection contest in 2010, didn’t invite some of the criticism. When TARP was passed last fall, for example, the Banking Committee chairman hailed the “very concrete” limits on executive pay, even as experts and some other Democrats were quick to point out gaping loopholes in the law. And his amendment, which restricts bonuses for only the top 25 executives of the largest bailed-out companies, wouldn’t have done much to rein in AIG, where 73 employees recently received bonuses in excess of $1 million.

Also, Dodd’s carefully worded statement Tuesday can be easily interpreted as an indication that he wasn’t a part of the negotiations that led to the changes to his amendment. “Because of negotiations with the Treasury Department and the bill Conferees,” the statement reads, “several modifications were made, including adding the exemption.” Dodd was not a conferee.

The passive voice strikes again.

In another statement issued late last night, Dodd clarifies that he was actively involved in the modification process, but he’s quick to say that he opposed the changes even as he agreed to make them.

I’m the one who has led the fight against excessive executive compensation, often over the objections of many. I did not want to make any changes to my original Senate-passed amendment but I did so at the request of Administration officials, who gave us no indication that this was in any way related to AIG.

As Harold Meyerson pointed out in his Washington Post op-ed Wednesday, it’s probably time to redirect the criticism toward Treasury Secretary Tim Geithner:

Geithner’s indulgence of bankers’ indulgences is fast becoming the Obama administration’s Achilles’ heel. The AIG debacle is the latest in a series of bewildering Geithner decisions that threaten to undermine the administration’s efforts to restart the economy. So long as it’s Be Kind to Bankers Week at Treasury — and we’ve had eight straight such weeks since the president was inaugurated — American banking, and the economy it is supposed to serve, will remain paralyzed. The Geithner plan to restart the banks provides huge taxpayer subsidies to hedge funds, investment banks and private equity companies to buy the banks’ toxic assets without really having to assume the risk. That’s right — the same Wall Street wizards who got us into this mess, using the same securitization techniques that built mountains of debt within a shadow financial system that remains unregulated, are the saviors whom Geithner has anointed to extricate us — with our capital, not theirs — from the mess that they created.

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