A Washington Post article provokes a rather disturbing thought. Remember all that talk during debate over the TARP bailout plan for banks about safeguards that prevented executives in companies that we bail out from getting golden parachutes or making outlandish salaries? It’s something both parties seemed to agree on and they allegedly took steps to prevent that from happening. But the Post reports that the White House demanded a change in that provision that seems rather significant in retrospect:
Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.
But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.
Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future.
Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.
“The flimsy executive-compensation restrictions in the original bill are now all but gone,” said Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee.
So let’s recap: The original TARP plan was to have the Treasury Department buy up troubled bank assets in an auction in order to infuse the banking system with cash. Both parties wanted to place limits on executive pay for those companies who sold those assets to Treasury, but the White House insisted on a limitation on executive pay only for companies who received TARP funds through that particular mechanism. And then a short time after the legislation passed, the administration suddenly decides that instead they would give those funds to the companies by buying stock in them rather than buying troubled assets.
Isn’t that convenient? And I’m sure it has absolutely nothing to do with the fact that Treasury Secretary Hank Paulson is himself a former CEO of Wall Street giant Goldman Sachs and that he now regulates his friends and business partners. Nope, nothing to see here. Move along, folks.
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