As Dodd Takes Heat, Republicans Smell Blood
Image has not been found. URL: /wp-content/uploads/2009/03/dodd099.jpgSen. Chris Dodd (D-Conn.) (WDCpix)
For Sen. Chris Dodd (D-Conn.), it’s been a difficult week.
As the wrath over AIG bonuses has swept across the country and overtaken Washington, the Senate Banking Committee chairman has borne much of the blame for softening a law to allow those payments to be made. The episode has evoked questions about Dodd’s credibility, raised eyebrows about his industry ties, and left Republicans drooling over the possibility that his once-untouchable Senate seat might be up for grabs in 2010.
Illustration by: Matt Mahurin
There’s just one problem: It wasn’t Dodd who engendered the AIG loophole.
Instead, White House economic officials swooped into congressional negotiations last month insisting that Dodd alter his own executive compensation proposal, passed by the Senate as part of the $787 billion stimulus package, so as not to restrict existing bonus contracts — the very type that ignited a firestorm this week when AIG began paying them out.
After implying earlier this week that he wasn’t behind the changes, Dodd clarified his statement Wednesday, saying that he agreed to the White House modifications out of fear that the entire provision would be stripped out otherwise. That he’s been blamed for empowering AIG’s bonuses when his original proposal would have prevented them is just one of the absurdities to arise from the country’s five-day obsession with AIG-gate.
Consider the events: In February, as Congress was debating the stimulus package, Dodd successfully attached language that would have prohibited all bonuses to the 25 highest paid employees of companies receiving any funding under the Troubled Asset Relief Program, or TARP. Under the provision, the Treasury, if it chose, could expand the number of employees targeted for the bonus ban. AIG’s bonuses would have been subject to the provision.
Yet the amendment, as Dodd wrote it, didn’t last long. In a series of negotiations that became public just this week, Treasury officials threatened to oppose the entire provision if it wasn’t changed to exempt the contractual bonuses. As a result, Dodd added a clause excepting “any bonus payment required to be paid pursuant to a written employment contract executed on or before Feb. 11, 2009.”
“I was being sought out and asked to modify this,” Dodd said in a CNN interview Wednesday, “with the alternative, quite candidly, being losing the amendment itself.”
In an interview with CNN Friday, Treasury Secretary Tim Geithner conceded that it was the White House that insisted on the changes. “We expressed concern about this specific provision,” Geithner said, “because we wanted to make sure it was strong enough to survive a legal challenge.” (This week, TWI’s Daphne Eviatar examined the legal limitations surrounding the government’s vow to clawback the AIG bonuses.)
The practical implications of the changes were realized last weekend when the news broke that AIG had paid out $165 million in bonuses to the very branch of the insurance giant that had drowned the company with its toxic investments.
Speaking to reporters in Connecticut Friday, Dodd defended his actions, reiterating that he made the changes only upon the insistence of the White House. That request “seemed rather technical and innocuous at the time,” he said. “Had anyone suggested to me six weeks ago that this was on behalf of some bonuses for AIG employees who had received substantial taxpayer money to try and keep that organization alive, I would have rejected it out of hand.”
Dodd also questioned why it took Treasury officials so long to acknowledge that it was the White House, not him, to force the amendment changes. He was “disappointed,” he said, that those officials “didn’t have the courage to stand up a couple of days ago and admit that they were the ones who asked for it.”
Dodd’s amendment was softened in other ways as well. For example, the final version no longer bans bonuses, it merely limits them to one-third of a recipient’s salary. It also trims the number of affected executives based on the amount of funding a company receives. For firms accepting less than $25 million from TARP, the restriction applies only the highest-paid employee. For those receiving between $25 and $50 million, it extends to the five top-paid executives. For firms accepting more than $500 million, the top 25 executives are affected.
The White House also rejected two other provisions designed to rein in executive pay for the leaders of bailed-out banks. One would have capped total compensation at $400,000. The other would have forced the firms to reimburse the federal government for the 2008 bonuses they paid to employees or face a 35 percent excise tax on the balance.
No matter. Somewhere in the middle of this week, the argument arose that Dodd was the culprit. And the press — local and otherwise — has pounced.
“Dodd’s Credibility Cracks,” screams Friday’s headline of the Republican American in Connecticut’s Litchfield County.
“Dodd Clarifies Apparent Inconsistencies,” reads another from the New Haven Register.
And Republicans smell blood. The National Republican Senatorial Committee is sending out YouTube videos of Dodd’s public statements from the week, claiming he flip-flopped in explaining his role in modifying his amendment. NRSC spokeswoman Amber Wilkerson issued a statement this week calling Dodd’s behavior “alarming.”
“Contrary to his statements and denials over the last 24 hours, Senator Dodd has now admitted that he and his staff did in fact change the language in the stimulus bill to include a loophole for AIG executive bonuses,” Wilkerson said, adding that Dodd “is re-living the lesson that it’s not always the crime, it’s the cover-up, and he owes taxpayers a serious explanation.”
The scandal could have implications next year when Dodd, the longest-serving senator in Connecticut history, is up for reelection. Although the five-term senator won his last two contests with roughly two-thirds of the vote, early polls put him in a horserace in 2010. Indeed, a Quinnipiac University poll released earlier this month found GOP contender, former Rep. Rob Simmons, up by one point — and that was before Simmons had officially entered the race.
Not that Dodd doesn’t bear some of the blame for his recent image problems. Last year he was embroiled in a mortgage scandal when it was reported that he had received preferential rates on two mortgage refinancings through Countrywide Financial Corp. The Senate Ethics Committee is investigating. Also not in his favor, Dodd has received $103,900 in political contributions from AIG in the past two years, second only behind Barack Obama, who received $104,332, according to the non-profit Center for Responsive Politics.
Vincent Moscardelli, political science professor at the University of Connecticut, said that the cumulative nature of Dodd’s image troubles could give the AIG entanglement — justified or not — more power to influence next year’s election that it might otherwise have had.
“If this were an isolated incident, I don’t think it sticks,” Moscardelli said. “The problem here is that it hasn’t happened just once.”
Michael Bailey, an election expert at Georgetown University, agreed that the recent scrutiny will have damaging effects on Dodd’s across-the-board reputation. But Bailey also argued that attacks around a money-in-politics scandal might not fly in Connecticut, where the finance and insurance industries are kings. This is especially true of Republicans, he added, who “probably won’t feel comfortable running hard on issues of ferreting out business corruption and excessive compensation.”
“If there were a Ned Lamont figure out there already going after Dodd this would be a bigger problem,” Bailey wrote in an email, referring to the liberal candidate who defeated Sen. Joe Lieberman (I-Conn.) in the 2006 Democratic primary, “but I don’t think that’s where things are.”