By Pam Martens: January 29, 2013
Somebody is right and somebody is wrong when it comes to whether Tim Geithner, the man who stepped down as U.S. Treasury Secretary on Friday, is a crony capitalist covering the backs of his corporate pals, their failed companies, and their obscene pay or is an American hero.
President Obama is in the good guy camp, using the January 10 occasion of his nomination of Jack Lew to replace Geithner as Treasury Secretary to say: “When the history books are written, Tim Geithner is going to go down as one of our finest secretaries of the Treasury.”
The President’s assessment stands in stark contrast to that of a growing list of informed insiders, some of whom are already writing those history books. Neil Barofsky, former Special Inspector General for the Troubled Asset Relief Program (TARP), had a devastating take on Geithner in his 2012 book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street. According to Barofsky, Geithner used the Home Affordable Modification Program (HAMP) to “foam the runways” for the banks, slowing down the foreclosure stream so the banks could stay afloat, with no sincere effort to help struggling families stay in their homes.
Sheila Bair, the former head of the FDIC, painted an equally nefarious picture of Geithner in her 2012 book, Bull by the Horns. Geithner showered Citigroup, a firm that was clearly insolvent, with $2.5 trillion in Fed loans, taxpayer capital, and asset guarantees. (Geithner headed the New York Fed before moving to Treasury.)
In Ron Suskind’s 2011 Confidence Men, Geithner reportedly ignored a directive from President Obama to wind down Citigroup. Instead, Geithner approved the massive bailout package.
Now, just 18 days after the President’s famous pronouncement about how the history books will remember Geithner, along comes another scathing report on his Treasury Department from yet another Special Inspector General of TARP, Christy Romero.
According to the report that was released yesterday, instead of following its own guidelines for reining in excessive pay at companies still using TARP funds in 2012, or following a previous Special Inspector General report ordering Treasury to develop more robust policies on pay, the Treasury allowed lavish pay packages at AIG, GM and Ally.
The person put in charge of this pay program, Patricia Geoghegan, worked for three decades for the corporate law firm, Cravath, Swaine and Moore LLP, serving Fortune 500 companies.
When Congress passed TARP legislation, it placed limitations on executive compensation in order to prevent taxpayer funds going in the front door to shore up the teetering company from going out the backdoor as obscene compensation to executives. The U.S. Treasury Department was put in charge of the plan and created the Office of the Special Master for TARP Executive Compensation. Kenneth Feinberg served as the first Special Master and was succeeded by the current Acting Special Master, Geoghegan. Only companies deemed to have received exceptional assistance were impacted. All but three, AIG, GM and Ally had repaid their TARP funds before the period of the latest report.
The report made the following findings for the 2012 period covered by the report:
- The Treasury approved pay packages (cash and other compensation) worth at least $1 million for every employee except one under the Special Master’s pay-setting jurisdiction, apparently setting a pay floor. The one exception, an AIG employee, received Treasury-approved pay of $700,000 in cash with no incentive stock.
- The CEO of AIG received total compensation of $10.5 million; the CEO of Ally received total compensation of $9.5 million; and the CEO of GM received $9 million in total compensation. (The 2011 median household income of the U.S. taxpayers providing the TARP funds to save these companies is $50,000.)
- OSM approved a cash salary for a GM employee of $950,000, which on its face was excessive, when compared to OSM’s $500,000 cash salary guideline. The salary was $316,000 higher than the median cash salary of the employee’s peers. The employee came to GM in 2010 as part of an acquisition. The employee’s employment contract stipulated that his compensation, upon transitioning to GM, is subject to the Special Master’s restrictions. However, instead of limiting the employee’s salary to $500,000, or to the 50th percentile ($634,000), OSM approved the employee’s cash salary, set by the subsidiary before GM acquired it. OSM did not justify why an individual’s pay at an acquired subsidiary is relevant or why the pay could not be modified in 2012, given that the position was covered under the restrictions of the Acting Special Master.
- Despite SIGTARP’s January 2012 report identifying serious concerns with OSM’s pay-setting process, Treasury continued to use the same process for setting 2012 pay without significant change. Even though SIGTARP recommended that OSM develop more robust policies, procedures, or guidelines, to date, OSM has not done so.
- Treasury approved a $1 million pay raise for AIG’s CEO of its subsidiary, Chartis, a $200,000 pay raise for an employee of its subsidiary, Residential Capital, LLC (“ResCap”) – weeks before ResCap filed for bankruptcy – and a $100,000 pay raise for an executive at GM’s European unit, despite that unit experiencing significant losses. OSM’s written explanations for the pay raises lacked substance, largely parroting what each company asserted to OSM without any independent analysis by OSM.
- Treasury approved pay packages worth $5 million or more for 23% of the top 25 employees at AIG, GM, and Ally. In addition, Treasury approved pay ranging from $3 million to $4.9 million for 21 out of the 69 employees.
- Geoghegan told SIGTARP that OSM would not normally reopen executive compensation from year to year because it would be disruptive, and it is “relatively easy for OSM to keep things the way they were.” The Acting Special Master largely based her decisions on prior years’ pay, telling SIGTARP that OSM would not change pay based on a change in circumstances. However, even where there was a negative change such as ResCap filing bankruptcy or GM Europe suffering significant losses, OSM did not reduce the compensation for the employees in charge of those entities.