Congress To Probe Geithner’s “Special Purpose” Plan To Skirt Pay Caps On Bankers

Yesterday we puzzled over the mixed messages we were hearing from Obama officials over the veracity of a Washington Post report that it was using Enron-style “special purpose vehicles” to undermine executive pay restrictions on bailed out banks: senior adviser David Axelrod sheepishly defended the strategy on one Sunday talk show, while Tim Geithner denied it altogether on another. But newly-promoted House Oversight Chairman Ed Towns is getting to the bottom of it, reports the Post today, in a story that sheds some much-needed light on the conflicting stories: the strategy began with the Treasury Department’s $1 trillion consumer and business lending initiative, which is in part an expansion of the Federal Reserve’s Term Asset-Backed Securities Loan Facility, which is open to the American subsidiaries of foreign banks, which Treasury presumably wants to participate in the programs without having to deal with the added diplomatic headache of subjecting foreign bankers to rules designed to satisfy American voters. Unsurprisingly, not everyone in Congress is opposed to that.

A senior House aide said he agreed with the Treasury’s policy and that he believed a recent vote by the House on another piece of executive compensation legislation showed that Congress did not intend the restrictions to apply to firms that did not receive direct capital injections. The aide spoke on condition of anonymity because he was not authorized to comment.

Oversight sees things differently, however.

But staff members of the House Oversight Committee rejected Geithner’s argument and said hedge funds and other firms benefiting from taxpayer funds should be subject to pay limits. “I can’t think of a single member on the committee who would agree with” Treasury’s position, said another senior committee aide who also was not authorized to comment by name.

And that, we suppose, is why we have an Oversight Committee. (They’ll need something to do while they’re still waiting for the Justice Department to release the records of its longtime AIG fly on the wall James Cole.)