AIG bonuses prove need for enforceable regulation, not Dodd's nonsense "safeguards"

From the NYTimes (By EDMUND L. ANDREWS and PETER BAKER):

Obama administration officials and Republicans alike were nearly universal in condemning the $165 million in bonuses that the American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, is to pay executives in the business unit that brought the company to the brink of collapse last year...

The retention plan also calls for another $230 million in bonuses for 2009 that are due to be paid by March 2010. Combined with the 2008 bonuses, that would bring the total retention pay for financial products executives to $450 million. But in response to pressure from Treasury Secretary Timothy F. Geithner, A.I.G. agreed to reduce its 2009 bonuses for the financial products unit by 30 percent.

Thank goodness for Tim "Transparency doesn't matter. Just trust me" Geithner! But if you're angry, don't worry... another of Obama's top economic gurus, Larry Summers, is also on top of it!

“We are a country of law,” said Mr. Summers, one of several economic officials to hit the Sunday-morning talk show circuit. “There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”

Funny thing is... didn't Chris Dodd write a new law last fall? I seem to recall he turned Bush's three page banker bailout* into a 450-page abomination with all sorts of "safeguards." And what were the key elements of those so-called safeguards, particularly in relation to "excessive executive compensation?"

I commented on Dodd's "safeguards" on January 30. His nonsense bill is here, but the key text seems to be:

the (Treasury) Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance.

and

the term ‘‘senior executive officer’’ means an individual who is one of the top 5 highly paid executives of a public company

In other words, Larry Summers is blaming the law for these obnoxious AIG bonuses. Yet according the Senate Banking Committee Chairman, Chris Dodd, the law was written to guard against such abuses. Too bad those limits apply to only the top 5 paid executives. And even then, the Treasury Secretary gets full discretion over the bonuses given to his Wall Street buddies.

Ya think anyone in The Obama Administration will actually point a finger at Dodd and say he screwed up? Of course not. And if you read more of the NYTimes article you'll see they claim these bonuses are contractual and were agreed upon prior to the bailout.

News flash...

If Bush / Dodd / Obama hadn't supported these bailouts last fall, AIG would now be in bankrupcy and none of these bonuses would be getting paid. And since that's the case, as far as I'm concerned, Larry Summers' argument about America being "a country of law" is absurd. I mean... if you're going to invoke the law, maybe you could start by reading the Constitution?

Question for Mr. Summers: What part of the Constitution provides for The Bailout?

Yeah, exactly. I say Obama should add Summers to the list of people who need to be fired. Obama can give Larry his pink slip just as soon as he signs walking papers for Bernanke and Geithner.

Anyway... this whole AIG episode reinforces my main concern... the federal government is attempting to perform tasks that are simply impossible for it to ever achieve.

Nonetheless, I fully agree with the call of many to regulate the banking the industry (what Dodd intended to do). So as an alternative to the federal government's current failures, I offer the following regulation:

The Congress shall have Power... To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures (US Constitution, Article I, Section 8)

Tim White

* I opposed Bush's billionaire banker bailout from the beginning.