Picking a new head for the National Economic Council is an important moment for the President's rapidly realigning White House staff. It is an opportunity to do two very critical things at once going into the President's crucial final full year before the re-election campaign gets into full swing. The first of these is the most urgent project of this next year: finding some way in this badly damaged economy to start seriously generating some new jobs. The second mission is possibly even more important to the President's re-election and long term political health and legacy: restoring the balance in the Democratic coalition.
Ever since William Jennings Bryan's Cross of Gold speech at the 1896 Democratic convention, after which the populists merged their movement and their party with the Democrats, the political party I am proud to call mine has on economic issues been an uncomfortable coalition of those working-class populists and urban business leaders. Woodrow Wilson was the first Democratic President to govern with this uncomfortable coalition, and he chose fairly evenly between the two. FDR and Truman were more clearly on the populist side, JFK was more in the middle between the two, and LBJ went more with the populists, but all of those Presidents had significant business figures as part of their advisers and political coalition. Carter and Clinton both leaned much more heavily toward the business (increasingly Wall Street) wing of the party but both had more populist progressive advisers as well. Having smart guys like Joe Stiglitz and Bob Reich on the same side as me during those White House policy fights didn't mean we won half the time, but us progressives inside won a few rounds at least.
Flip to the transition period in late 2008. As the economy was on the verge of crashing around us, the President-elect decided to make his bet overwhelmingly with the Wall Street-oriented side of the party, the folks who were proteges and aligned ideologically with Bob Rubin. There were a couple of exceptions (Volcker and Jared Bernstein) but they were relegated to relatively minor positions. I had the sense at the time that Obama felt that he needed to have people who understood the financial sector and industry players really well, and that in a time of crisis he was looking for a team that wouldn't be too torn apart ideologically to make clear quick recommendations. But whatever the reasons, what had become the wing of economic thinkers with a sizable edge in the Clinton years became virtually the only view Obama has heard since he became President. With Tim Geithner's mentor and ideological twin Larry Summers leaving the NEC, now is the time to restore a measure of balance to the President's economic.
The biggest reason that is so important is because of the jobs issue. The macroeconomic Wall Street-oriented guys like Geithner and Summers have never been focused on the specifics of how you produce jobs in the short term- it is just not how they think. Macroeconomists think in terms whether the GDP is going up or down, whether finance is flowing and the banks are healthy. They tend to think, as administration officials used to say ad nauseum until someone in the political team finally got them to stop, that jobs are a lagging indicator that will come back around someday, after the banks get more financially comfortable and start lending again. The problem is that the shock to this economy from the damage done by the financial crisis has made classical macroeconomics a dead-end street. Banks are more comfortable but they are still not lending money because (a) there are a lot of toxic assets still on the books, (b) no one thinks main street businesses will be making money anytime soon, and (c) the Wall Street banks think they can still make more money in speculative trading than in boring investment.
The old economic models are broken, and a little entrepreneurial populism is exactly what is needed right now: someone with fresh ideas re how to spur manufacturing, how to jump-start new industries and companies. You need someone to provide a balance to Geithner's classical macroeconomic thinking, someone who wants to invest in middle class jobs not somewhere in the future when the economy has healed itself a lot more, but now. Right now. The President needs to face the fact that there aren't a lot of creative new ideas coming from the financial macroeconomists and Rubin proteges.
Here's what is also true on the political side: whatever happens, there are few economic thinkers anywhere that believe prosperity and big job gains are right around the corner. We are very likely to still have an economy in the doldrums in the fall of 2012. If Obama stays with the an economic team all drawn from the same crowd as he has now, and they all keep advising him to do the same things he has been trying all along, no one is going to give him any political credit two years from now. He has to be seen as FDR was in 1936: things were still bad, but he was willing to keep trying and trying and trying some more on new ideas to spur the economy, and at least some working class folks- Social Security recipients, WPA workers, etc- had a little bit of money to spend. If Obama brings in a new economic team with some new middle-class jobs-oriented ideas, it will help him immeasurably in terms of keeping voters' patience. The other politically crucial thing it will do is that it will unite his party. The populists in the Democratic coalition- labor, poor people, working class women, immigrant laborers- want to feel like their President is on their side, that he is taking chances and trying new things that will help them economically.
There are a lot of good candidates from the progressive populist wing of the party. A former Senator like Byron Dorgan or Don Riegle or Jon Corzine (in spite of being a former Goldman Sachs guy, Corzine is a serious economist populist). A former labor guy like the brilliant Ron Bloom, who is already in the administration. Lots of good economic writers and thinkers as well. But I know the administration wants to check either the former CEO box or the woman box in terms of their symbolic hirings, so let me throw one choice into the ring that fits one of those two boxes: Leo Hindery. I'll admit some bias, as he is a friend of mine. But the economist I respect as much as any other, Rob Johnson (who would also be a great candidate but doesn't want it), said to me the other day that he thought Leo was the best candidate he could possibly think of, and I have to agree with him. One of the most successful CEOs in the country over the last couple of decades, a great manager, a longtime writer on issues of manufacturing and trade, he would be hard for business leaders to say he wasn't qualified. But Leo is a tried and true populist, a close friend of the labor movement in spite of being a retired CEO. He has great political relationships on Capitol Hill, and a good working relationship with new White House COS Pete Rouse. The only political downside, if you can call it that, is that he has been a critic of White House economic policy, but I think hiring him would show that Obama was open to new ideas.
Leo is not the only good candidate, but hiring him or someone like him, someone who will restore balance to the President's economic team and political coalition, and someone who will walk in the door with a raft of fresh ideas that Geithner and Summers haven't been thinking about, would go a long way in getting the President ready to take on the economic challenges of the next two years. The bottom line for me isn't a particular candidate, it is that the President understands that he, his party and governing coalition, and our country need an NEC head who is not tied to traditional Wall Street-oriented ideas about the economy, or someone from corporate America that isn't bothered by the outsourcing of jobs and the trade deficit. We need an NEC chair who has a track record of caring passionately about manufacturing jobs, our crumbling infrastructure, our trade deficit, and new approaches to creating good paying jobs for middle and working class Americans. Having someone like that to run the NEC to balance Geithner's macroeconomic financial sector orientation at Treasury is crucial to rebuilding our economy, and to rebuilding confidence in this administration that they care about the middle class who has lost so much in the last ten years.
Update: This post was written yesterday before I had the chance to look at the stunning NYTimes story in this morning's paper. Entitled "Cheap Debt for Corporations Fails to Spur Economy", it summarizes better than anything I could write why the classical macro-economic model embraced by the Bob Rubin wing of the Democratic Party is not working in the deeply damaged economy of 2010. The article describes how one major corporation after another is borrowing "vast sums of money for next to nothing- simply because they can", but instead of using that borrowing to invest and create jobs, they are using it to (a) stockpile cash against worries of future weakness in the economy; (b) invest in new technology that allows them to "be more efficient and cut jobs"; (c) lower their next year's tax bill; (d) buy long term bonds (in one case mentioned, a 100 year bond); and (e) finance new mergers and acquisitions.
In case you are keeping track at home, none of those 5 things creates jobs or benefits workers.
The old economic model is fundamentally broken, torn apart by the incredibly deep damage done to this economy by the last decade of erosion of middle class buying power, and the Bush recession and financial market collapse of 2008. We need an NEC head who will bring fresh ideas and a different economic model to the administration.
There is so much flak for what seems would be a fine Presidential appointment. The nation's Chief Executive, Barack Obama, is often characterized as Spock, a Vulcan who is almost virtually void of emotion. It is said that our current President is practical. He acts on logic. Yet, this supposed intellectual individual has, at times, seemed ready to do other than what most think reasonable. Mister Obama has not appointed the truly best Sheriff for towns throughout the country, Elizabeth Warren..
In a quick discussion of a New York Times article about a pending shift in Federal Reserve culture toward expansionary monetary policies, Matthew Yglesias states:
The President's failure to make these nominations and secure their confirmation in a timely manner will, in retrospect, prove to have been his biggest mistake.
This is certainly possible. The President's failure to change the culture at the Fed by filling these vacancies earlier may well prove to be his biggest mistake. The dire condition of the economy is by far the top political problem facing the Obama administration.
But really, going back further, not allowing Republicans to destroy the filibuster back in 2005 is the biggest mistake made by not only President Obama, but by the Democratic trifecta as a whole (and, I admit, my biggest mistake too). This would have resulted in a wide swatch of changes, including a larger stimulus, the Employee Free Choice Act, a better health bill (in all likelihood, one with a public option, and completed in December), an actual climate / energy bill, a second stimulus, and more. If Democrats had tacked on other changes to Senate rules that sped up the process, such as doing away with unanimous consent, ending debating time after cloture is achieved on nominations, eliminating the two days between filing for cloture and voting on cloture, and restricting quorum calls, then virtually every judicial and administration vacancy would already be filled, as well.
Playing the "what if" game can be painful, because there is no way to go back in time and change what happened. However, it is also useful in that it gives us a roadmap on how to do better in the future. In this case, that means focusing our efforts on changing Senate rules for the next Congress. Right now, it is hard to imagine any more important effort in order to achieve more effective governance.
It is irritating but not especially surprising when Goldman Sachs CEO Lloyd Blankfein says things like "they are doing God's work", or claiming that attacking Goldman is "hurting America." I'm sure people like him really believe they are good people just doing their best to help the world economy, in the same way Ayn Rand really believed that selfishness is a virtue and the Gordon Gecko character in Wall Street really believed that greed was good.
What is disturbing is when Obama administration officials like Larry Summers appear to believe it too - or at least believe that these massive mega-banks (the top six controlling assets equal to 63% of our nation's GDP) are needed to keep our economy going. I have been thinking about the Summers quote (given to PBS' Jeffrey Brown) all weekend long:
Brown: The too big to fail issue, why not go further? Why not just limit the size of banks?
Summers: Jeff, that was the approach America took to banking before the depression. That was the approach America took to lending in the thrift sector, before we had the S&L; crisis. Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States. But that's not the important issue, they believe that it would actually make us less stable. Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn't have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.
It is ironic that this quote is so appalling given that the Obama administration has been showing more steel on taking on Wall Street in some ways, and has been effectively fighting back against Republican efforts to completely neuter the bill in terms of at least some issues. I have also been pleased at Obama's political positioning on the issue, finally showing some populist message talking points on the issue. The Summers quote is awful, though - quite possibly the worst quote I have ever seen from this administration on the banking issue, and that's saying something because there have been lots of disappointing ones. Summers historical references are inaccurate and completely misleading: to imply the reason for the Great Depression and the 1980s S&L; fraud crisis were due to the companies being too small is laughable and absurd. In fact, the Great Depression and the S&L; crisis, as well as the 2008 financial meltdown, were all caused by the same thing: too little oversight over financial institutions that were too economically and politically powerful.
Summers' further argument is that smaller, less diversified banks would be at greater risk of failure ignores 60 years of successful banking regulation under Glass-Steagall and the other New Deal economic reforms. Even worse, he is essentially arguing that our economy needs massive concentrations of wealth and size in a few big banks in order to prosper, which takes the argument for oligarchy to a logical end point that is as right wing as anything I have ever heard Mitch McConnell argue.
What Summers, Dodd, and apparently the President continue to not get is that massive concentrations of wealth and power - both economic and political - do equally massive amounts of damage over time to both a democracy and to the markets that make our economy function. We can only make markets be markets, as the Roosevelt Institute put it in their outstanding report on financial policy, if the big six banks don't have the ability inherent in their size to distort and dominate the economic system. Simon Johnson's experience as Chief Economist at the IMF taught him this very well: when countries are dominated by a financial oligarchy, their markets become corrupted and their economies can't recover until you break up the oligarchy.
As I wrote the other day, there are some solid policy proposals in both the House and Senate bills. Combining the best of these bills (and getting rid of the crap inserted by industry lobbyists) will give you a decent step forward at rebuilding the regulatory framework shredded over the last two decades. But until you pass legislation similar to the Brown-Kaufman bill to actually break up the banks, we aren't going to solve the problems we face in the financial sector due to too much political and economic power by these mega-banks.
About 6 months ago, I started warning about the potential for a really bad electoral cycle for the Democrats in the 2010 midterms. I feared that by not taking the big banks on more aggressively, not doing more to create jobs in a really bad economic period for job creation, and letting the health care bill drag on and get too compromised in terms of taking on the insurance industry, that Democrats would be badly hurting ourselves with both our base voter turnout and with swing working class voters getting hammered in this economy. A lot of the Democratic establishment said folks like me were over-hyping, that while it wouldn't be an easy year, there were all kinds of reasons to think it wouldn't be so bad. To my great chagrin, my predictions were proved right with a vengeance in the first three big elections of this cycle in NJ, VA, and MA: base vote turnout was terrible, and working class swing voters turned dramatically against us. Now, the conventional wisdom has turned and just about everybody in the Democratic party is in full scale doomsday mode.
That's why I was so heartened to see David Plouffe's well reasoned analysis piece in the Washington Post on Sunday, laying out a strategy on how the Democrats can survive 2010 without getting slaughtered. Because what is needed now in the Democratic party is that kind of calm, steady thinking. As worried as I have been now for these last 6 months, I am equally convinced that if we do the right things politically and policy-wise (the two are in sync), we can surprise people in the 2010 elections and do a lot better than the pundits and the panickers think.
The reason I believe this is that I have been involved in several elections where good things happened against all the predictions of the conventional wisdom. Let me take you back to some elections in the past where Democrats came back when things looked really dark for them:
On Wednesday, Chris wrote a quick hit on Representative DeFazio's statement that there was "growing consensus" among Congressional liberals that Treasury Secretary Timothy Geithner should step down. He went on to say that Summers should go as well. Folks in the blogosphere have been saying as much for a long time now, but this seemed like something new, coming from a veteran Representative. The piece Chris linked to ended with DeFazio saying, ""We may have to sacrifice just two more jobs to get millions back for Americans," underscoring that it was not just a general criticism of Geithner and Summers, but one closely tied to the need for shifting from a Wall Street-centered economic policy to a Main Street-centered one. So I followed up by talking with Darcy Burner, Executive Director of the American Progressive Caucus Policy Foundation, to see what it might mean.
Open Left:On MSNBC Rep. Peter DeFazio (D-Ore.) said Wednesday that he and other liberal House members are becoming increasingly tired of the Obama administration economic policies that are too focused on maintaining the stability and health of Wall Street firms and largely ignore Main Street. There's been significant criticism of Geithner and Summers in the blogosphere since their appointments were first announced, and significant criticism of their policies as well. There's been scattered and occasional congressional criticism before, but this sounds like it's a good deal more serious. Is it? And if so, why is it different and why now? Let's take those one at a time.
Is it different?
Darcy Burner: My best guess is that it is more serious. Now the Progressive Caucus has not taken an official position. Congressman DeFazio was speaking on his own behalf, quite eloquently, I thought. I particularly liked the line about "losing two jobs to save millions." But I think that the indications are that there is growing dissatisfaction among the members of Congress who very much want to see a set of economic policies that are going to help main street, rather than just Wall Street. And a jobless recovering isn't particularly progressive approach to how we solve the economic crisis that we're in.
Now, it is the case, obviously, that we have some progressives who've been very active, particularly in the financial reform aspect, if you look at Alan Grayson, for instance. He is a member of the Progressive Caucus, he's been extraordinarily involved in asking the tough questions, and encouraging his fellow members on the Financial Services Committee to ask some really tough questions at the hearings they've held, about the Federal Reserve, about the banking system, about the banks, about some of the Wall Street shenanigans.
So there has been growing pressure from members of Congress. And, you know, we're seeing some traction around the idea of auditing the Fed, and finding out what's really going on there.
So I don't think it's particularly surprising that there would be an expression of real dissatisfaction with the Administration's economic policies and the economic advisors from progressives in Congress.
A couple of items in the financial sector, but both can be summarized in these words: the powerful and greedy continue to run things with impunity in the financial world.
First there's the news that Goldman Sachs is making record bonus payments for the first half of the year. Let me repeat that: RECORD bonus payments. Bigger than 2004 or 2005 or 2006 or 2007. Bigger than at the height of the bubble. In spite of all the toxic assets they have created. In spite of all the government bailout help. In spite of all the stunning damage to the American and world economy. In spite of all of that (or maybe because of some of it), for the very, very short term, the company has good profit numbers. Ergo post hoc, they are giving out really awesome bonuses to their big enchiladas.
Then, there is the massively infuriating article entitled "Treasury's Got Bill Gross on Speed Dial". It seems that Bill Gross is extremely happy these days. Everybody in government seems to hang on his every word. The plan that he helped develop, the Public-Private Investment Program (the PPIP for short), which would coincidentally make him billions of dollars, is being pushed by Tim Geithner.
Read these two articles back to back; and if you are not sputtering with rage at the end, you must truly be the most pro-corporate libertarian around.
Hey, I know it takes a heck of all ill wind not to blow somebody some good. And I knew that when the Summers-Geithner policy of resuscitation of the financial system rather than restructuring it was adapted, that lots of people would make money off the deal. But reading these two articles really does make you wonder who won the election, and how these greedy folks can get away with doing whatever they want.
Check out this absolutely terrific post by Drew Westen, one I had really wished I had written because it's so on target. I want President Obama to succeed more than I've ever wanted anything politically, but it's not going to happen unless he (a) wrenches the control of the economy away from the greedy, and (b) confronts the greedy directly. You have to decide which side you are on, Mr. President: the struggling tens of millions barely hanging on, or not hanging on at all, in this dreadful economy. Or the greedy bankers and health insurance executives. I trust that you have good values and instincts, and I want to be on your side in these fights. I appreciate the good things you've done so far on the stimulus, the budget, health care, the environment. But at some point, you are going to have to confront the greedy, or you are not going to inspire and you are not going to win.
Fight the good fight, Mr. President, and there will be tens of millions of us who will fight it with you. Avoid these fights, and your Presidency will be adrift, with neither set of allies fighting for you or big legislative victories.
Most of us who have been working on the banking issue from the restructuring side of things (meaning put the big banks into receivership and break them up into smaller components that are no longer too big to fail), including people I know far closer to the administration's economic team than I am, have come to the conclusion that the administration's policy regarding the big Wall Street financial institutions is fairly set for the time being. There are a variety of reasons Obama has chosen this path - the fact that Geithner and Summers really believe it is better to resuscitate the big banks rather than to fundamentally restructure them, the belief (reinforced by the Senate's recent failure on cramdown legislation) by senior administration officials that despite the populist anger among the general public that there is no political will in DC to take on the big banks, the reality that most of the media's shallow interpretation about whether something works is whether the Dow Jones goes up the day the plan is announced. But regardless of the reasons, this is the reality we are living with. Obama has clearly chosen a path, and those of us with a different idea about how to work on these issues have to live with the fact that we have lost the debate, for now, inside the administration. The question now is: what do we restructuring advocates do now?
We Americans dwell in a consumer plutocracy, and the plutocrats don't even bother to be cute about it any more. Barack Obama, hailed by the geniuses of new media as a populist saviour, has surrounded himself with a team that was already bought and paid for by the financial services industry before they ever walked into the White House.
Larry Summers collected $5.2 million last year from his part-time job with a hedge fund.
$5.2 million for a part-time job!
One day per week!
"And just in case you ever get a big job in Washington, Larry, remember who your friends are!"
George W. Bush remembered his friends who paid him $15 million on a $600K investment in a baseball franchise, and Barack Obama remembers his friend Penny Pritzker, the Queen of Sub-Prime Lending, chief financial officer of his Senate and Presidential campaigns, and Rahm Emanuel remembers his friends among the investment bankers at Wasserstein Perella, who paid him $16.2 million for two years of "work," and it isn't easy to figure out exactly what "work" that was, because Rahm Emanuel was a speech and communication major at Sarah Lawrence and Northwestern, and never had any training whatsoever in accounting, or business, or finance... but he always knew how to follow the money, as a fundraiser for Richard Daley and Bill Clinton, and now Rahm has followed the money all the way to his current job as Chief of Staff and gatekeeper outside the Oval Office.
"If you ever get a big job in Washington, Rahm, remember your friends!"
And the friends remember, too. They remembered Bill Clinton for signing Gramm-Leach-Bliley, and paid him $40 million for speaking, in 2007, alone, and the same friends already remember Tim Geithner.
Tim Geithner is "[a] very unusually talented young man...[who] understands government and understands markets," says Henry Paulson, who gave away more money to the banks than anybody in the history of the world... except Tim Geithner, Larry Summers, Rahm Emanuel, and Barack Obama.
FDR Economist Says Obama Should Put Stimulus First
April 2 (Bloomberg) -- When John Maynard Keynes came to Washington in 1934 to persuade President Franklin Roosevelt to spend more to revive the U.S. economy, Roosevelt didn't pay the British economist much attention, Thomas Worsley recalls. He hopes President Barack Obama won't repeat Roosevelt's mistake.
Worsley, then a 23-year-old economist about to take a job in the Treasury Department, says Roosevelt balked at too much economic stimulus, and even allowed conservative Democrats to talk him into reining in federal outlays in 1937.
Now, at 97, Worsley is watching as Obama wrestles with the deepest economic slump since the Great Depression and is coming under fire from critics at home and abroad over his spending plans. Ultimately, Worsley said, only World War II delivered the U.S. from its hard economic times, and he advises Obama to keep pumping money into the economy.
"That vindicated Keynes's argument," Worsley said during an interview at his brick townhouse in Alexandria, Virginia, where his framed economics degrees from the University of Virginia, including a doctorate, are displayed. "You have to get enough spending going to get private enterprise interested in taking chances on investing."
Top Economics Aide Discloses Income
Summers Earned Salary From Hedge Fund, Speaking Fees From Wall St. Firms By Philip Rucker and Joe Stephens
Washington Post Staff Writers
Saturday, April 4, 2009; Page A05
Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations.
One of the most bi-partisan pieces of legislation in the last decade played a huge role in causing the current economic crisis: The Financial Modernization Act of 1999. The bill repealed a huge number of 1930's era regulations on the financial services industry that were designed to prevent financial collapses like the one we currently face. The conference report was favored by 90 Senators and 362 members of the House. It was praised in ways that are eerily similar to calls for new regulations:
''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,'' Treasury Secretary Lawrence H. Summers said.
That was Larry Summers in November of 1999. Now, here is Larry Summers's boss last month:
"We can no longer sustain 21st-century markets with 20th-century regulations," Obama said following an Oval Office meeting with his top lieutenants and the chairmen and ranking members of the House and Senate panels overseeing the financial industry.
Um, didn't your chief economic advisor tell us ten years ago that we already achieved that goal? And it's not just Summers. Virtually every person involved with drafting the new regulations supported increasing de-regulation ten years ago. That shouldn't give anyone who hopes to prevent another cycle of speculative bubble rise and fall much confidence.
The best we can hope for is that Larry Summers, and everyone else who supported the Deregulate The Financial Sector bill ten years ago, have learned from their mistakes. Apropos, a question on whether the administration will repeal the 1999 Financial Modernization Act and reinstate Glass-Steagall is the top, non-marijuana related question in the Financial Stability section of Open For Questions at Whitehouse.gov. Go vote for it. It is a question that needs an answer.
Much of the news these days--the AIG fiasco, Geithner's flawed bailout plan, the financial crisis itself--points to a single essential truth: Wall Street rules. The GOP's subservience to Wall Street is longstanding and unmatched. But Wall Street also holds power over the purported party of the people, most notably in form of Robert Rubin and his acolytes. It's fair to call Wall Street, as Robert Kuttner does, the Democratic Party's most powerful interest group. Which would be horrrendous even if Obama weren't trying to solve a financial crisis that Rubin and his acolytes helped to create.
Here are the four main questions about Larry Summers and Timothy Geithner's role in the bonuses scandal:
When did they know about the bonuses? The current line from the administration is that Geithner did not know about the bonuses until last week. However, according to the Washington Post, attorneys working for the Federal Reserve Bank knew about the bonuses for months. If Fed lawyers were working on this for months, was Timothy Geithner, former head of the Federal Reserve Bank of New York, current Secretary of the Treasury, and negotiator of all three AIG bailouts really unaware of this until last week? Really? If so, who kept this information from him?
Why weren't the bonuses disclosed before the Senate voted to release the second half of bailout funding? Clearly, given that Federal Reserve lawyers were working on blocking the bonuses for months, some government officials knew about the bonuses before the Senate voted on January 15th to release the second $350 billion of TARP funding. Given the current furor, I think it goes without saying that public knowledge of the bonuses in January could have altered the outcome of that vote, or at least convinced Senator Banking Chair Chris Dodd to take up the TARP Reform Act passed by the House. Given that, three days before the Senate vote, Larry Summers sent a letter to Congress urging them to release the TARP funding without any new legislative requirements, if he knew about these bonuses back in January that would be a pretty severe case of denying legislators relevant evidence before a critical vote. Even beyond Geithner and Summers, anyone in the government who knew about this but did not bother to tell either the Senate or the media tampered with that vote.
Why were Geithner and Summers working as recently as last month to water down legislation that would have blocked executive bonuses? If Geithner and Summers are both so outraged by the bonuses given to employees of financial institutions receiving bailout money, then why were they working, as recently as last month, to water down legislation that would have retroactively blocked such bonuses? When Senator Chris Dodd had included legislation retroactively blocking bonuses for employees of financial institutions receiving bailout money, he received a personal call from both Larry Summers and Timothy Geithner asking him to drop the retroactive aspect of that legislation. Eventually, Geithner and Summers prevailed, as the legislation was watered down significantly.
Why did Geithner and Summers both say there was no way for the government to get the bonuses back, when there obviously is? Over the weekend, Geithner and Summers both publicly declared that there was no way for the government to force the individuals who are scheduled to receive these bonuses to pay those bonuses back to the government. However, Summers and Geithner were obviously wrong. Over the last two days, dozens of Democratic member of Congress have either introduced, co-sponsored, or set a deadline for introducing legislation that will place a 100% surtax on these bonuses, thus forcing the recipients of these bonuses to pay them back to the government. Given that there was a fairly obvious solution to get the bonuses back, why did Geithner and Summers, who are supposed to be such leading thinkers on finance, declare in public that there was no solution? As I asked last night, are they lacking in imagination, or are they protecting someone?
These are the questions that still have not been adequately answered about the role Geithner and Summers played in the AIG bonus scandal. Journalists and activists of all stripes need to keep asking them. This is not a small issue, since the same people who are being given these bonuses are being entrusted by Timothy Geithner with hundreds of billions of dollars of taxpayer money to get the economy back on track. If we can't trust the person giving the money, or the people receiving it, then they need to be fired and replaced with new people who will do a better job.
(Via Jane Hamsher) Back in mid-February during the fight over the stimulus package, Senator Chris Dodd was pushing for retroactive restrictions on bonuses paid to employees of financial companies receiving bailout money. This measure, which would have applied to AIG bonuses, was opposed by both Wall Street and the Obama administration:
As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.
Both Larry Summers and Tim Geithner personally asked Senator Dodd to remove the retroactive provision, because they thought it meant banks would give the government its money back:
The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said.(...)
The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.
Don't forget that Chris Dodd is the most endangered Democratic Senate incumbent in 2010, as he currently trails his Republican challenger Robert Simmons. Hard to imagine how Dodd's re-election chances will be helped by a senior White House source telling the New York Times that Dodd is to blame for the AIG bonuses.
STATE BLOGS
On Wednesday, Chris wrote a 
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