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A Party of Amnesiacs

As Weigel pointed out earlier, the GOP appears poised to make a strategy of blaming Democrats — notably Senate Banking Committee Chairman Chris Dodd (Conn.) — for allowing the AIG bonuses that have become so controversial this week.

We pointed out a few reasons earlier today why Dodd doesn’t bear the blame (at least no more or less than most others in this town). Yet it’s worth going back even further to understand where the laxity originated that permitted enormous paydays for the same folks who ruined their companies.

Start the clock in September, when Henry Paulson, treasury secretary under the Bush White House, was charged with selling Congress on the $700 billion Troubled Asset Relief Program. As part of his pitch, Paulson, along with Federal Reserve Chairman Ben Bernanke, repeatedly insisted that executive compensation limits should be avoided, lest they hobble the effectiveness of the program.

“If we design it so it’s punitive and so institutions aren’t going to participate,” Paulson told Fox News at the time, “this won’t work the way we need it to work.”

Congressional leaders (including Dodd) caved, adding only a few loophole-filled provisions restricting executive pay, including language that the Treasury “shall require that the financial institution meet appropriate standards for executive compensation.”

Fast forward to December, when Neel Kashkari, appointed by the Bush administration to administer TARP, appeared before the House Financial Services Committee, where he was asked point blank by Rep. Brad Sherman (D-Calif.) whether enormous AIG bonuses — some reportedly as high as $3 million — were indeed “appropriate” considering that the flailing insurance giant had already received $152 billion in federal help. The exchange is eye-opening:

SHERMAN: Sir, have you met your responsibility to require that appropriate standards of executive compensation be imposed on AIG and the other recipients of TARP funds?

KASHKARI: This is an important issue that we must not lump all of the institutions together.

SHERMAN: I’m not. I’m asking about A-I-G. Is a three million dollar bonus an appropriate standard of executive compensation, or has the law been violated?

KASHKARI: Congressman, I can’t… I do not have the details of what the bonus levels are at AIG.

SHERMAN: Well, you are the one who is supposed to impose appropriate levels of executive compensation. Have you done that? Or, are they making payments of executive compensation that are not appropriate? Or are you just blind to whether they are appropriate or not?

KASHKARI: Congressman, we have imposed on AIG new corporate governance standards, executive compensation standards and expense policy standards…

SHERMAN: Do your standards prevent the payment of a three million dollar bonus?

KASHKARI: I do not believe that they specifically prevent a payment of a three million dollar bonus.

SHERMAN: So have you imposed appropriate standards for appropriate executive compensation? Are you here to tell this committee that appropriate standards of executive compensation would allow a three million dollar bonus? How about a 30 million dollar bonus? Would that be appropriate compensation? Or would that be prohibited by any standards that met the statutory requirement imposed on Treasury?

KASHKARI: Congressman, in the case of AIG, we replaced with the Federal Reserve the senior management of AIG.

SHERMAN: Sir, I didn’t ask you about corporate governance. I didn’t ask you about the make-up of the executives. I asked whether a three million dollar bonus, or a 30 million dollar bonus, is consistent with a statutory requirement that we have appropriate standards on executive compensation. Let me ask it specifically. As to 30 million dollars, is that appropriate or inappropriate? Or you have no opinion?

KASHKARI: I am not in the position to opine on a specific number if it is appropriate or not.

In light of all the recorded statements and testimonies, the GOP’s Dodd-centered criticisms should be easy to shoot down. Then again, no one ever claimed that accuracy was more important than messaging in this town.

And, of course, Kashkari is still in charge of TARP.

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