Bachmann, Kline, Paulsen

The Democratic Congressional Campaign Committee went after Reps. Michele Bachmann, John Kline and Erik Paulsen on Wednesday for their votes last year against taxing bonuses of bank executives who received TARP funds from the federal government. The DCCC jumped on news today that AIG leaders will be getting $100 million in bonuses this year.

The bill the Republican trio opposed would have taxed TARP employee bonuses at 90 percent. While the bill passed the House last spring, it has yet to become law.

The DCCC released three statements today that were identical, except for specific references to Bachmann, Kline and Paulsen.

“This morning, Americans heard that AIG executives are getting $100 million in bonuses despite still owing taxpayers more than $100 billion,” said Ryan Rudominer, National Press Secretary of the DCCC. “While Representative Paulsen protects these outrageous Wall Street bonuses paid for by President Bush’s bailout, Paulsen does nothing to help hardworking families. Clearly, Representative Paulsen is more concerned about Wall Street, than Main Street.”

Rep. Michele Bachmann explained her opposition to the bill last year:

“Folks, two wrongs don’t make a right. Without the wrong-headed $700-billion bailout, the taxpayers would never have been put in the position of their dollars being doled out for executive bonuses in the first place… The bill on the House floor today, while not mentioning AIG by name, is clearly meant to punish a specific group of individuals in response to public outrage over the bonuses. The author of the bill, Rep. Rangel, explains his motivation for the bill by saying that he “had an obligation to respond to the fears and anger of the people.” Given this motivation, a legislative action aimed at punishing individuals, no matter how loathed or despised they may be, is explicitly prohibited by the Constitution in Article I, Section 9, Clause 3.”

Treasury Secretary Timothy Geithner. Photo: WDCpix

WASHINGTON — The latest political clamor over AIG, poised to combust next Wednesday at a House hearing on backdoor payments to banks that made risky deals with the company, centers on the Federal Reserve’s effort to conceal details of those payments. But senior officials, including Treasury Secretary Timothy Geithner, have so far evaded a key question: Why were AIG’s trading partners fully paid with taxpayer money instead of being told to take a loss?

“They chose to pay some people off entirely,” Bill Black, an economics and law professor at the University of Missouri and a leading critic of the government’s bailout managers, said in an interview. “They have never given a coherent explanation of why those particular folks. Under their own logic, there was no reason to pay off these parties at 100 cents on the dollar.”

Geithner, who led the New York Fed when it orchestrated the $62.1 billion payout to 16 banks that held AIG’s credit default swaps, has been asked to explain that controversial decision numerous times over the past year. And his answers have varied, depending on the questioner, causing Black and other critics to wonder whether the nation’s financial regulators can be counted on to spot the next economic crisis.

In November, bailout inspector general Neil Barofsky quoted Geithner as stating that AIG’s bank counterparties — including Goldman Sachs, Merrill Lynch and 10 foreign firms — were not at direct risk if the troubled company defaulted on its debts. “The direct effects of that failure would not have been particularly significant,” Geithner reaffirmed last month during testimony on Capitol Hill.

In May, however, Geithner suggested that AIG could not have negotiated lower payments to its trading partners without endangering the health of the whole financial system.

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”

So which explanation is true: Were AIG’s creditors hedged against the risk of a default — as Goldman has argued — or not? And if the banks had already mitigated the risk of losing their deals with AIG, why didn’t that allow Geithner’s Fed to negotiate a cut in repayments?

“There’s no way to prove it and no way to know,” former New York governor Eliot Spitzer, who took on Wall Street as the state’s attorney general, told The Washington Independent. “It’s part and parcel of the willingness of the Fed and Treasury to obscure from public view transactions involving tens of billions of dollars.”

Spitzer, who co-wrote a New York Times op-ed with Black calling for the public release of all AIG emails, said the Fed’s inability to intelligibly explain its actions cast doubt on the central bank’s fitness to lead the monitoring of systemic risk — as envisioned in the House-passed financial reform bill.

“Maybe [that power] should go to the Treasury, maybe it should go to the New York State attorney general,” Spitzer quipped. “But certainly, the Fed hasn’t done very well.”

Under the House’s financial reform legislation, the Fed chief would take a senior role on an “oversight council” of regulators, including the Treasury Secretary, that would be asked to neatly dissolve failing companies. The bill also allows the Fed to declare a financial “emergency” that would allow it to extend up to $4 trillion in discounted loans to banks.

Jane D’Arista, who spent 20 years as a congressional economist and now leads the Political Economy Research Institute’s financial reform project, said the AIG saga shows Fed officials “didn’t have a real handle” on the collapsed insurance firm’s web of complex deals.

“I don’t feel the team in place in this administration … understands institutions that well, and that was shown in Geithner’s response to the crisis,” D’Arista said. “He thinks he did a good job.”

Geithner told CNBC last week that he believes that paying off AIG’s counterparties in full was “absolutely” the right thing to do, adding: “Personally, I feel like I have a good sense of what the principal failures were” that caused the nation’s lingering financial crisis.

Barry Ritholtz, chief of the financial research firm Fusion IQ and creator of the The Big Picture blog, connected the Fed’s failures to spot burgeoning bubbles and abuse of lending rules to its lack of staff with Wall Street experience.

“The Fed is filled with economists and academics, none of whom have been on a trading desk or managed assets for a living,” Ritholtz said. “They have nothing to do with what’s actually going on on Planet Earth.”

Federal Reserve Chairman Ben Bernanke and Geithner were neither traders nor financial regulators before they joined the central bank. Bernanke’s background lies in academia, while Geithner focused on international monetary policy for 15 years before ascending to the New York Fed.

“These guys were fighting a forest fire, and they did the equivalent of clear-cutting a region,” Rob Johnson, a Roosevelt Institute senior fellow and former chief economist at the Senate Banking Committee, said in an interview.

“The frontier they chose was to use AIG as a conduit … the result of using that logic is, they fortified stockholders and bondholders and management, and did so at the expense of taxpayers.”

Among the most fortified bondholders was Goldman, which played a role in an estimated $33 billion of AIG’s riskiest deals. The company has argued that AIG was a “sophisticated investor” which should not be given free rein to renege on its contracts with big banks, even in the case of an effective takeover by the government.

But Janet Tavakoli, founder of Tavakoli Structured Finance and an expert on the credit derivatives that swamped AIG, countered that the game changed when public money was used for a “backdoor bailout” of firms that took hazardous gambles.

“We, the taxpayers, are not sophisticated … I’m saying, now we should revisit it,” Tavakoli said, by clawing back some of the payments the Fed made to big banks. “Without trying to get inside peoples’ heads and trying to read particular motivations, I’d say it’s about the money. Goldman Sachs is saying they’re entitled to it all and get to keep it all.”

Two Republican members of the bailout’s congressional oversight panel made a similar suggestion last week as part of a broader report on government rescue efforts.

To tamp down furor over its role in the counterparty payments, the Federal Reserve on Tuesday endorsed a Government Accountability Office audit of the AIG rescue. A spokesman for the central bank’s New York branch referred The Washington Independent to a lengthy statement released that day, disputing that it sought to withhold public information about the choice to bail out the 16 banks in question.

For its part, the Treasury Department has said that Geithner recused himself from discussions about repaying AIG’s counterparties on November 24, 2008, when his nomination to lead the agency became public, and “began to insulate himself weeks earlier.”

Yet Geithner took at least nine meetings related to the AIG rescue in the month before his nomination, according to his official daily calendar, which was released by the New York Times last spring.

One of those meetings occurred on November 21, 2008, and another on October 30, the day before AIG’s senior vice president of financial services emailed a colleague that a New York Fed official “asked me to stand down on all discussions with counterparties on tearing up/unwinding” the trades that have sparked the current controversy.

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Photos: C-SPAN, Lauren Victoria Burke, CBS

U.S. Rep. Michele Bachmann may have started it last fall with loopy comments on national TV about her congressional colleagues’ “anti-American” views. Last week, she again tried to “out” fellow lawmakers, this time for supporting AIG’s bonuses, while a widely quoted (but anonymous) banker termed the U.S. House of Representatives’ bonus tax “anti-American” — helping Bachmann (who likewise opposed the tax) close the rhetorical noose around her targets’ necks. Until, that is, Sunday’s “60 Minutes” show on CBS, when President Barack Obama repatriated the term while chiding former Vice President Dick Cheney for fomenting actual anti-Americanism abroad. Quotes and video after the jump.

Bachmann’s original remark on MSNBC’s “Hardball” last October:

What I would say is that the news media should do a penetrating expose and take a look. I wish they would. I wish the American media would take a great look at the views of the people in Congress and find out, are they pro-America or anti-America? I think the American people would love to see an expose like that. … Absolutely, I’m very concerned that [Obama] may have anti-American views.

An American investment banker , as quoted in a Financial Times article on Saturday entitled “Banker fury over tax ‘witch hunt’” – a single, conspicuously unnamed source whose views are now circulating widely on the ‘net:

“Finance is one of America’s great industries, and they’re destroying it,” said one banker at a firm that has accepted public money. “This happened out of haste and anger over AIG, but we’re not like AIG.” The banker added: ”It’s like a McCarthy witch-hunt. … This is the most profoundly anti-American thing I’ve ever seen.”

Obama on Cheney on CBS’ “60 Minutes”:

How many terrorists have actually been brought to justice under the philosophy that is being promoted by Vice President Cheney? It hasn’t made us safer. What it has been is a great advertisement for anti-American sentiment.

Here is the “60 Minutes” clip:

Photo: C-SPAN3

U.S. Rep. Michele Bachmann — famous for urging the media to expose anti-Americans in Congress – did her own probing today, pressing AIG CEO Edward Liddy for names of her colleagues who had foreknowledge of AIG’s controversial bonus payments. “Did any members of Congress know anything about the bonuses?” asked Bachmann. Yes, Liddy responded –  at least some were aware of “the obligation to pay the bonuses.”

But he didn’t name names for Bachmann, any more than he did earlier when Rep. Barney Frank (D-Mass.) asked Liddy for names of the AIG executives who got bonuses.

Bachmann’s interrogation went like this:

Which members of Congress or staff knew about this and when?

Any members of the administration who knew about this?

Did any members of Congress know anything about the bonuses?

Could you be responsive about which members of Congress knew?

Liddy said he didn’t know but promised to try to find out for her.

Bachmann’s five minutes of questioning came toward the end of a long day of testimony from Liddy and an earlier panel of witnesses before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

Bachmann, a member of the committee, appeared to be in attendance for the full hearing. Her questioning was measured in tone and lacked the incendiary word choice of other committee members, who shouted “Damn!” and warned Liddy of legislation that would be worse for AIG than waterboarding.

At one point, Rep. Paul Kanjorski (DR-Pa.) banged his gavel and threatened protesters from the group Code Pink with expulsion from the hearing room unless they surrendered their signs. Frank lightened the mood by expressing relief — after seeing how Kanjorski dealt with the signs — that the protesters weren’t wearing the slogans on their shirts.

Here is video from Bachmann’s questioning of Liddy:

Photo: C-SPAN3

AIG CEO Edward Liddy told the U.S. House Financial Services Committee that he has asked AIG executives who got bonuses “to return at least half of those payments.” Some want to return 100 percent, he said. C-SPAN3 is streaming the hearing in live video.

Under questioning by Rep. Paul Kanjorski, Liddy said he had assumed the Federal Reserve Bank had shared information about the bonuses to the Treasury Department.

“There was no intent to deceive or to hide anything,” Liddy told the committee (prepared remarks PDF).

Reps. Keith Ellison, Erik Paulsen and Michele Bachmann are members of the full finance committee, and Bachmann is member of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, which is holding the hearing. Each subcommittee member has been promised five minutes to question Liddy.

Photo: abc30.com

By rank, U.S. Reps. Erik Paulsen, R-Minn., and Leonard Lance, R-N.J., are among the lowliest members of the House Financial Services Committee, which this morning holds an AIG-related hearing. Yet some politically astute casting Tuesday elevated the freshmen to point men in the House Republicans’ response to the AIG bonus scandal. The pair are among the rarest of species in Congress: newly elected Republicans from districts that favored Barack Obama for president.

Of the 34 Republicans House members — three freshmen and the rest veterans — from districts in which Obama beat Sen. John McCain last November, Paulsen is one of only seven who received a lower percentage of district votes (48 percent) than did Obama in his race (52 percent). (Lance, for example, polled evenly with Obama at 50 percent.)

But it happens that both Paulsen and Lance serve on the House finance committee, where they hold down the bottom of the seniority list. But perhaps no other Republicans in Congress could make better electoral use of some high-profile surfing on what their committee colleague Rep. Gary Ackerman, D-N.Y., today called the nation’s “tidal wave of rage” over AIG.

At House GOP leaders’ direction, Paulsen’s and Lance’s will be the leading names on a bill that demands Treasury Secretary Timothy Geithner recover the AIG bonuses — a “rehash of what President Obama is already doing to address the issue,” in ThinkProgress’ estimation.

Indeed, Paulsen professed to be all about working with Obama in comments last month after the president spoke before Congress: “The President issued a bipartisan call for cooperation,” Paulsen said, “and I stand ready to work with him on solutions to solve the big problems facing our Country.”

But with the country in an uproar, House Minority Leader Rep.  Boehner said:

I applaud the legislation unveiled today by Reps. Erik Paulsen, Leonard Lance, and all of our House Republican freshmen to increase accountability in bailout funds and to recover the AIG executive bonuses. … It is time for the Administration to provide Congress and American taxpayers an exit strategy that will get the federal government out of the private sector and out of the bailout business.

Paulsen followed suit at the press conference he and Lance held Tuesday: ”This is clearly another example of not only how Congress is broken, but how the administration has dropped the ball.“

Photo details: Flickr/Eric Richardson, DU.com/Kadie

Americans’ anger over AIG’s publicly funded executive bonuses may make this the last “Why are we not rioting?” post. First, one more observer remarks on the stateside calm, blaming low levels of unionization while seeing sparks of resistance in hundreds of homeowners picketing a mortgage financier’s Connecticut home. But there’s union help in spreading the word about anti-AIG-themed economic protests planned for Thursday at sites across the country. They’ll have to draw the advertised 10,000 to the streets without us: The Minneapolis protest is set for “500 Griswold St, Detroit, MI,” time TBA.

As usual, California is ahead of the curve, with a lightly attended anti-AIG demonstration yesterday, documented here. Another protest at Wall Street will take place April 3-4.

None of it will likely reach the heights Fox’s Sean Hannity hoped for late last month with an online poll asking which sort of revolution (right wing, natch) viewers prefer:

Franken's half-million from the FIRE sector pales beside Norm's nearly $2 million.

During the 2008 cycle, Sen. Norm Coleman has received three and a half times more in campaign contributions than Al Franken from interests in the so-called FIRE (Finance, Insurance, Real Estate) sector at the heart of the continuing financial crisis–and over twice as much from the principal players in this week’s Wall Street drama.

This morning I crunched the following Minnesota US Senate race numbers from the Center for Responsive Politics’ campaign finance database at Open Secrets. I was looking for two things:

1) Norm Coleman and Al Franken’s respective contributions from the four most prominent players in this week’s Wall Street crisis (the bankrupt Lehman Brothers; bailout recipient AIG; near-bankrupt Merrill Lynch; and Bank of America, which agreed to acquire Merrill Lynch).

2) Coleman and Franken’s overall contributions from companies in the crisis-plagued FIRE sector.

The numbers cited below all are from the 2008 cycle, and are current through the most recent reporting period, which ended on July 28.

Coleman and Franken’s donations from this week’s Wall Street headline-makers:

Lehman Brothers:

Coleman $4,300; Franken $1,000

Bank of America:

Coleman $8,300; Franken $1,000

Merrill Lynch:

Franken $4,525; Coleman $2,400

AIG:

Coleman $1,000; Franken $0

Total: Coleman $16,000; Franken $6,525

Coleman and Franken’s funding from the FIRE sector (*):

Total:

Coleman $1,833,281

Franken $513,787*

[* Though the insurance industry does not appear among Franken's top 20 donor industries--which is as far as Open Secrets' website goes without getting into custom data sets--this does not mean Franken has gotten no money from insurance interests. It does mean that his donations from the insurance biz equal less than the $28,750 given by number 20 on Franken's list, organized labor.]