Stimulus backroom deal backfires

March 17, 2009 12:00:00 AM PDT
There is growing outrage over the AIG executive bonuses and now there is a new plan to get the money back. It was a backroom deal between Congress and the White House that led to those bonuses and the whole mess is now threatening to unravel the president's agenda.

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During a late-night, closed door meeting last month, negotiators for the House, Senate and White House agreed to strip an amendment to the stimulus bill that would have restricted bonuses to any company receiving federal bailout funds. Instead of that measure, another measure by Senator Chris Dodd (D) from Connecticut was inserted that limited "executive compensation," but specifically exempted bonuses.

Senate Majority Leader Harry Reid (D) of Nevada was in on those closed door negotiations when the bonus limitation was stripped from the stimulus bill.

"I'm wondering sir, if that was a mistake by Democrats to drop that and you wish you hadn't at this time?" asked a reporter.
"I think we should look at what we did put in the bill. We did put the Dodd language..." said Senator Reid.

Senator Reid never addressed whether it was a mistake, but Republican leaders were all over it.

"Corporation executives that run their corporation into the ground, should not be rewarded for doing that," said Senator Chuck Grassley (R) of Iowa.

"It's shocking that they would -- the administration would come to us now and act surprised about these contracts. Why didn't they ask the question two weeks ago before they gave them $30 billion?" said Sen. Mitch McConnell (R), the Minority leader.

New York's attorney general has been investigating the AIG bonuses.

In a letter to the chair of the House Banking Committee he said the top bonus was more than $6.4 million. The top 10 bonuses add up to $42 million total and 73 AIG employees received bonuses of $1 million or more.

Congressional Democrats have a plan to get the bonus money back by imposing a huge 91 percent tax on it.

"The only way you can get the money back is to tax it back," said Representative Steve Israel (D) of New York.

But having Congress go after the money doesn't really help restore confidence in the president or his treasury secretary who signed off on the bonuses before the president was against them.

"The president is going to have to take a much more decisive stand. He's going to have to really get involved," said ABC7's political analyst Bruce Cain.

Professor Cain says the president is still expressing confidence in his treasury secretary, but Timothy Geithner's credibility has become a political liability.

"And I don't think he can allow the secretary of the treasury to be the spokesperson on this issue any longer. I think he, Barack Obama, has to be the person who takes the questions, who makes the decisions who seems to be in charge of this issue. I think Geithner just can't do it," said Professor Cain.

Professor Cain says nothing less than the president's agenda is at stake.

"If he can't live up to that moment, then he's got a problem that's going to make a lot of things unravel. So this is a defining moment for his presidency," says Professor Cain.

On Tuesday, Geithner wrote a letter to Speaker of the House Nancy Pelosi (D) promising that in the future, AIG bonuses will be subject to the strict executive compensation provisions in the stimulus package, but bonuses written prior to February 1, 2009 are exempt.

ABC News reports there are another $230 million in AIG bonuses due to be paid out later this year.

AIG's chief executive testifies before Congress on Wednesday.

Read Tim Geithner's letter to House Speaker Nancy Pelosi here

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