Rep. Brad Sherman (CA), a senior Democrat on the House Financial Services Committee, told TPMDC today that the Obama administration could have prevented excessive bonuses from being paid out at AIG — but it missed the chance.
Sherman told me in an interview today that the Treasury Department wouldn’t have to be withholding $30 billion in aid from AIG until the company restructures its bonus payments, because Congress already had given Treasury the authority to prevent those bonuses from being paid.
Referring to the original bailout Congress passed in October, Sherman told me:
We had a provision in there that said Treasury was supposed to establish, by regulation, standards for executive compensation. We required that to be done — had it been done, it would have been binding, whether [or not] these contracts had been signed earlier. It’s entirely within the power of the federal government to have contracts modified [at companies receiving public aid]. Nixon had contracts modified by the federal government. We gave a similar power to Treasury.
Sherman voted against the bailout, he explained, because he didn’t believe that Treasury would use the power given to it by Congress. As it turned out, the department ultimately exercised its executive compensation powers last month, but the final regulations were riddled with loopholes — and only applied to companies receiving “extraordinary” assistance from the government in the future, a standard that no company has officially met so far.Sherman has been at the forefront of the debate over executive compensation since the earliest days of the bailout. It was Sherman who first sounded the alarm to TPMDC over efforts to remove CEO pay caps from the stimulus bill, sparking a flurry of public attention that kept the caps (somewhat) intact.
The California Democrat believes that the solution to AIG’s woes is outright government receivership, a prospect that Rep. Alan Grayson (D-FL) raised with me earlier today.
But Sherman also counseled wariness, as the nation gives in to expend anger over AIG’s bonuses and largely ignores the weekend disclosure of the large banks who benefited because of their status as AIG counterparties in credit default swaps deals.
“Arguably, this thing with bonuses is a red herring they’re throwing at us [to distract from what AIG] did with the $170 billion” they’ve received from the U.S. government, Sherman said. “The bonuses are chump change compared with what’s going to the uninsured counterparties.”