Although Treasury Secretary Timothy Geithner told congressional leaders
on Tuesday that he learned of AIG’s impending $160 million bonus payments to
members of its troubled financial-products unit on March 10, sources tell TIME
that the New York Federal Reserve informed Treasury staff that the payments
were imminent on Feb. 28. That is 10 days before Treasury staffers say
they first learned “full details” of the bonus plan, and three days before
the Administration launched a new $30 billion infusion of cash for AIG.
“Treasury staff was informed about the new bonuses in a Feb. 28 memo that
the March 15 [bonus-payment] date was upcoming,” a Federal Reserve source
tells TIME. A Treasury Department source, speaking on background, confirmed
the e-mail memo and its contents, saying, “Everybody knew that
[AIG] had a retention issue.”
The New York Fed even went so far as to warn Treasury staffers that the bonuses were a hot-button issue. In the past, the memo says, the “retention,” or bonus, issue has drawn the attention of both Capitol Hill staffers and the media. The New York Federal Reserve forwarded further details of the plan to Treasury on March 5 and even more specifics in a March 9
memo, which Treasury officials had previously said was their first detailed warning
of the bonus trouble.
The Treasury Department official says the fault appears to lie with career
staffers at the department who failed to report the imminent bonus deadline
up the chain to Geithner. This failure may be a by-product of the difficulty
Geithner has had staffing up at Treasury. But he still has personal
vulnerability on the issue. It was Geithner, as head of the New York Federal
Reserve, who negotiated the AIG bailout last September. At that time, he
could have sought to get bonuses repealed as part of the massive
government loan.
Geithner’s supporters argue that the AIG bailout was pulled together in less than
one business day and that it’s understandable that the bonus
issue was not central to those negotiations. They also argue that in
subsequent negotiations with AIG and others about further infusions of
government cash, Geithner has imposed tough conditions limiting bonuses and
executive compensation.
Geithner received solid backing from President Barack Obama on the South Lawn
on Wednesday before the President left for California. “I have complete
confidence in Tim Geithner and my entire economic team,” Obama said. “Nobody
is working harder than this guy. He is making all the right moves
in terms of playing a bad hand.”
See pictures of the global financial crisis.
