Treasury Department admits pushing for bonus loophole
UPDATE (at bottom): TARP inspector says Bush admin. 'specifically contemplated' the AIG bonuses
Update from CNN -- 459PM ET: (CNN) --"Treasury Secretary Timothy Geithner told CNN Thursday his department asked Sen. Chris Dodd to include a loophole in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses.
"In an interview with CNN's Ali Velshi, Geithner said the Treasury Department was particularly concerned the government would face lawsuits if bonus contracts were breached.
"Dodd admitted to CNN Thursday he'd added the controversial provision after a Treasury official pushed for it. Earlier in the week, Dodd had said he had not played any role in the addition of the loophole.
"Geithner told Velshi Thursday he takes full responsibility for the situation."
Our earlier story follows.
The Obama Administration's Treasury Department pushed to strip language that would have restricted the bonuses paid to staffers of bailed-out companies from the stimulus bill, a Democratic senator revealed late Wednesday.
Senate Banking Committee Chairman Chris Dodd (D-CT) disclosed that he was responsible for inserting a clause into the stimulus bill that allowed bailed-out firms to continue forward with eye-popping bonuses to executives that may have shared responsibility for some of the companies' woes in the first place.
In a step further, though, he told CNN that the language was sought by the Obama Administration's Treasury Department, which feared that the government would face lawsuits by including the provision.
A senior Treasury Department official purportedly confirmed Dodd's assessment. It remains unclear whether the Treasury Department knew the insurance behemoth AIG planned to pay some $165 million in bonuses to employees at the time.
The Connecticut Democrat appears to have gotten caught on the spot by the cable news network. On Tuesday, he told the network that he had nothing to do with the bonus language -- which now seems to have been a lie.
On Wednesday, a Treasury Department official confessed to CNN that the administration had pushed to have the bonus measure nixed, forcing Dodd's hand.
Dodd, when approached again, said the decision not to include language regarding bonuses "seemed like innocent modifications" at the time.
"I agreed reluctantly," Dodd said. "I was changing the amendment because others were insistent."
"The administration had expressed reservations," he added. "They asked for modifications. The alternative was losing the amendment entirely."
He further added that the change was made at the urging of Treasury Department staffers, and that he hadn't been contacted by senior Administration aides.
His account adjoins a report Thursday in the Washington Post, which alleges that neither the White House nor the Treasury Department were told of AIG's bonuses until just before they were publicly announced, though the Federal Reserve had known for months.
The bonuses were doled out to the AIG division at the heart of the company's near collapse and whose intricate dealings with banks worldwide helped trigger the global financial crisis.
Treasury Secretary Timothy Geithner told the Post that he had not been aware of the size of the bonuses and the timing of the payments.
"I was stunned when I learned how bad this was on Tuesday [March 10]," Geithner told the Post. "I shouldn't have been in that position, but it's my responsibility and I accept that."
Geithner met with his staff and considered options, but concluded that the government could not change contracts for work that had already been done.
Update: TARP inspector finds Bush administration 'specifically contemplated' AIG bonuses
According to Bloomberg, "President George W. Bush’s administration 'specifically contemplated' paying bonuses to American International Group Inc. employees in its November agreement to provide federal bailout funds to the insurance giant, the inspector general for the Troubled Asset Relief Program said today."
"The TARP contract between AIG and Treasury 'specifically contemplated the payment of bonuses and retention payments to AIG employees, including AIG’s senior partners,'" the inspector said in the financial news network's article.
The US government owns 80 percent of AIG.
This video is from CNN's American Morning, broadcast Mar. 19, 2009.
Download video via RawReplay.com
Stephen C. Webster contributed to this report.
This article has been modified from its original version.
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