Geithner Knew About AIG Bonuses; Treasury & Dodd Protected Them

Today Treasury Secretary Geithner gave an interview to CNN in an attempt to head off further inquiries into the Democrats’ handling of the AIG mess. What he admits is stunning:

Velshi: One of the issues CNN and other news organizations have reported since late January, that AIG was going to pay about $450 million to about 400 employees of the AIG financial productions unit, which is really at the heart of AIG’s problems, an otherwise healthy company.

There is some dispute as to who knew when what. AIG’s CEO said that you might have known about this earlier than you did. When did you learn about this, and what did you learn?

Geithner: I was informed by my staff of the full scale of these specific things on Tuesday, March 10th. And as soon as I heard about the full scale of these things, we moved very actively to explore every possible avenue — legal avenue — to address this problem, to make sure that, again, the assistance we were providing was not going to unduly benefit these people.

And, you know, we moved very quickly. We’ve made it clear that the payments going forward had to be renegotiated, and we’re going to make sure that the taxpayer is compensated for any payments we can’t recoup. And we’re exploring all legal means to recoup those payments.

Velshi: But you’re pretty certain on the advice that you’ve been given that we can’t just legally not give these — or get any of these bonuses back?

Geithner: Absolutely. That our best judgment at the time was we had no legal ability to block a set of those payments, but those that we had the capacity to affect, we insisted or renegotiated.

In any case, we’re going to go back and try to recoup the payments that were already made [that] we had no legal ability to block at that time.

Velshi: As far as you can remember, though, you did not know about this before March 10th?

Geithner: On Tuesday, I was informed about the full scale and scope of these specific bonus problems. And again, as soon as I did — but, you know, it’s my responsibility, I was in a position where I didn’t know about those sooner, I take full responsibility for that…

Velshi asks who at Treasury requested that Dodd put in the provision to protect the AIG bonuses.

Geithner: This provision? We expressed concern about this specific version. We wanted to make sure it was strong enough to survive legal challenge. But we also worked with him to strengthen the overall framework, and his bill has this very important provision we’re relying on now to go back and see if we can recoup payments that were made that there was no legal ability to block

Geithner: No, again, what we did is just express concern about the vulnerability of a specific part of this provision, the legal challenge, as you would expect us to do, that’s part of the legislative process, but again, his bill also has this very important provision that allows us to go back and see if we can recoup these payments, and we’re going to explore that, but in any case, we’re going to make sure that the American people are compensated for any payments we can recoup.

Geithner twice says that he did not learn of ‘the full scale and scope’ of the AIG payments until Tuesday, March 10. He needs to tell us what he did know. What does ‘full scale and scope’ mean? He could have known everything but the precise number of bonus payments, or the exact overall total. ‘Full scale and scope’ is a weasel phrase, designed to cloud the issue, rather than to clarify what Geithner knew. He might as well have asked what the definition of ‘is’ is.

Geithner might have known essentially everything about the bonus payments, but still be able to claim not to have known ‘the full scale and scope.’ He needs to explain what he knew, and when he knew it.

Further, Geithner all but admits that the changes made to Dodd’s compensation amendment were designed to protect AIG’s bonus program. He repeats a few times that Treasury wanted to ensure that Dodd’s amendment withstood ‘legal challenges’ and links that to concerns about payments for which ‘there was no legal ability to block.’ It seems safe to assume that the changes that Treasury made to the Dodd amendment were specifically geared to allowing those AIG bonuses, because Treasury believed they lacked the legal authority to block them.

Geithner said he did not speak to Dodd about the amendment, but he doesn’t say whether he was aware of the question at the time. But he is the Secretary of the Treasury; it was his job to know everything about the centerpiece of the president’s agenda. He must have known that there were questions about the constitutionality of a major provision of the bill. He must have known that Treasury staff were working with Dodd to straighten it out. Did Geithner sign off on a change intended to allow AIG’s bonuses to go through? There seems to be no other logical conclusion. After all, he was essentially the only senior staffer at Treasury in this period, and he could not have left the matter to career staff.

Geithner’s interview raises more questions than it answers. Among them:

  1. What did Geithner know about the AIG bonuses, and when did he know it? Was he aware that AIG was paying hundreds of millions in bonuses to employees who were already well-compensated?
  2. Did he approve of changes to Dodd’s amendment to allow AIG to award these bonuses?
  3. Did he inform (or have staff inform) either the White House or the Congress that AIG’s bonuses were specifically sanctioned by the revised Dodd amendment?

The Democrats are trying to convince the American people that no one knew about the AIG bonuses, that no one would have approved of them, and that no one realized that changes to the Dodd amendment would specifically allow them. Geithner’s interview makes pretty clear that this is all false. One of the most senior Members of the Obama administration seems to have known about the bonuses, and worked to make sure they went through. Who else knew?

And one last question: Chris Dodd did not sit on the conference committee that adopted his revised amendment. Therefore someone who sat on that conference committee must have sanctioned the change he worked out with Treasury. The only Senate Democrat conferees were Daniel Inouye, Max Baucus, and Harry Reid.

Which one of them gave approval for the Dodd amendment to allow AIG’s bonuses?

Before this debate moves any further, we need to know what happened. And Geithner isn’t the only one who needs to answer some questions.