There are now conflicting stories about when Tim Geithner knew about the AIG bonuses. The administration says he found out last week. But Congress (and obviously the administration) knew of plans to pay hundreds of millions of dollars in bonuses last fall. There was an SEC filing to pay $469 million in "retention payments" to AIG executives in November of last year.
How could Geithner not have known about any of this? He'd have to be the only one in Washington that didn't know. More troubling is his earlier instance, especially during the stimulus package fight, that these companies be able to pay bonuses without much limitation.
Look at this article from February 9th in the New York Times that explains how he fought against pay caps -- and won. How is this not completely his responsibility?
For him to pretend to be surprised now when he actively fought to make sure bonuses were not limited is disingenuous at best.
Finally, another interesting question is -- why? He claims it's because these banks couldn't keep the best and the brightest talent otherwise. That seems laughable, but he might have actually believed it because he has been surrounded by people who have internalized this idea for so long.
But let's consider one other possibility first.
Robert Rubin played ball with Wall Street and helped them to deregulate a lot of these financial markets right before Clinton left office. He then conveniently went to work for one of those banks and collected a whopping $115 million at least from Citigroup for sitting on their board for a period of years. Does Geithner know this is the reward for loyalty -- to the banks?
Probably his motivation is less sinister. So, let's return to the idea that seems so absurd to the rest of us who do not work on Wall Street -- that the bankers are so uniquely talented that the system cannot function without them.
Tim Geithner has been buried deep inside the Wall Street bubble for many decades now. And inside this bubble there is a tremendous sense of entitlement. They feel that these people are so bright and work so hard and that the financial industry is so complicated, that no one else can do the job. That we need these bankers and that they deserve all the money they get. That the system couldn't run if these bankers didn't get all this money for their incredible expertise and service.
The reality is that there has been no accountability for a long time on Wall Street. The bankers no longer feel a responsibility to the banks. There is no owner to fire them if they screw up, now that all of these large banks are publicly owned. So, their main concern is their own bottom line. And they have convinced themselves that they are of paramount importance -- and no one has fired them to disabuse them of this notion.
So, Geithner is under the same delusion as all of the people in his subculture -- that they are essential. That they must be paid huge salaries and bonuses whether their firms go up or down, because they are priceless. Geithner believes the system, the banks and the bankers must be protected. He is absolutely wrong on this fundamental issue. The economy and the American public must be protected -- often times from these same bankers. It is irrelevant if the banks survive or if the executives keep their jobs or their bonuses; it is only relevant that the financial sector and the economy stabilize. Those are two totally different goals.
It seems apparent that Geithner has been after the wrong objective. And now that this has been exposed, he hides behind fake outrage at things he obviously already knew -- and helped to bring to fruition. Either Geithner uses this as a turning point to completely alter his frame of thinking about this problem and fundamentally change his goals, or he steps aside for someone who already understands this concept.
Geithner got into this trouble because he saw Wall Street as his main constituency rather than the American people. He needs to straighten out that underlying mistake immediately, or let someone who is not under this misconception take over.