House to Probe Adherence to Bailout's Pay Limits
Tuesday, April 7, 2009
A congressional oversight committee opened an investigation yesterday into whether the Obama administration is circumventing a law that limits lavish pay for executives at firms benefiting from the $700 billion federal bailout.
Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, sent a letter to Treasury Secretary Timothy F. Geithner asking for records on any special entities that the government believes it can use to funnel bailout money without requiring firms to abide by congressional restrictions.
"It would be unconscionable and irresponsible for the Treasury Department to permit excessive pay practices to continue at companies that have been rescued by the taxpayers," Towns wrote in the letter. "I will strongly oppose any attempt to weaken or bypass these restrictions, or to violate the spirit, if not the intent, of these laws."
The investigation comes two days after The Washington Post reported that the administration has engineered new bailout programs in a way that it believes will allow firms benefiting from the initiatives to avoid congressional restrictions that curb executive pay and require companies to turn over ownership stakes to the government.
Some experts and congressional staff have questioned the legality of that approach. In his letter, Towns asked whether the administration believes the restrictions do not apply to funds passed through esoteric entities -- known as special-purpose vehicles -- and, if so, to explain why.
Treasury officials have said that they are complying with the law and argue that their strategy is necessary to persuade firms to take part in programs critical to rescuing the economy. They have also said that banks receiving direct capital injections, which have been subjected to the restrictions, should be treated differently than hedge funds and private investors that the government wants to participate in new initiatives.
Asked about the issue on CBS's "Face the Nation" on Sunday, Geithner said the Treasury was not trying to evade restrictions on executive pay imposed by Congress. "Our obligation is to apply the laws that Congress just passed on executive compensation, and we're going to do that," he said. "Now, we're also going to make sure these programs are as effective as possible in making credit more available to businesses and families across the country."
The Treasury has not imposed the restrictions on firms participating in a $1 trillion consumer lending program seeded with bailout money. Asked by a reporter on March 23 whether the pay limits would apply to a $1 trillion program to buy toxic assets, Geithner said: "The comp conditions will not apply to the asset managers and investors in the program," according to a transcript released by the administration.
Stephanie Cutter, a Treasury spokeswoman, declined to clarify Geithner's remarks or comment on Towns's letter because she said she had not yet seen it.
A senior House aide said he agreed with the Treasury's policy and that he believed a recent vote by the House on another piece of executive compensation legislation showed that Congress did not intend the restrictions to apply to firms that did not receive direct capital injections. The aide spoke on condition of anonymity because he was not authorized to comment.
But staff members of the House Oversight Committee rejected Geithner's argument and said hedge funds and other firms benefiting from taxpayer funds should be subject to pay limits. "I can't think of a single member on the committee who would agree with" Treasury's position, said another senior committee aide who also was not authorized to comment by name.