Wall Street Journal article omitted Bush Treasury Department's role from AIG bonus timeline

››› ››› JEREMY HOLDEN

A Wall Street Journal article about Tim Geithner and his aides' involvement in decisions about AIG's bonus payments did not note that it was the Bush administration that negotiated a November 2008 stock purchase agreement with AIG through which the Bush Treasury Department injected $40 billion into the company without requiring that the bonus contracts be nullified.

A March 23 Wall Street Journal article about Treasury Secretary Tim Geithner and his aides' involvement in decisions about AIG's bonus payments did not report that it was the Bush Treasury Department that signed a stock purchase agreement with AIG, whereby AIG received $40 billion in aid, without having to terminate those payments. The Journal reported, "As New York Fed president [at the time], Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period." The Journal further reported, "One of Mr. Geithner's top bank supervisors at the New York Fed, Sarah Dahlgren, became the government's lead overseer of AIG. She sat in on AIG board meetings, joined at times by other top Fed staffers, and also participated in compensation-committee meetings. It isn't clear whether the issue rose to the board level until this month. AIG received an expanded government rescue in October and another in November, bringing the total to about $150 billion, including $40 billion in Treasury funds." But the Journal article did not make clear that it was President Bush's administration that negotiated a November 25, 2008, stock purchase agreement with AIG through which the Bush Treasury Department injected the $40 billion into the company without requiring that the bonus contracts, which AIG had signed with employees, be nullified.

As Media Matters for America previously documented, on March 20, FoxBusiness.com reported that in a November 1, 2008, email, a Treasury Department official wrote, "Have your benefits team made any progress on the 'soft' issues, or heard anything from the fed [sic] on the bonus situation?" The article further reported, "Despite their deliberations at the time, the Treasury and Fed officials, which were part of the Bush Administration, eventually decided to restrict compensation on just the top 75 company executives -- and some of them may still have received hefty bonuses." But in reporting on "how Mr. Geithner and his aides were apprised of the AIG bonuses," The Wall Street Journal did not report that, after deliberating over the bonus contracts, the Bush administration signed the November stock purchase without requiring AIG to nullify those contracts. Indeed, Neil Barofsky, a Bush-appointed special inspector general for the Troubled Asset Relief Program (TARP), noted in March 19 testimony that the executive compensation section of the Treasury's TARP agreement with AIG limits compensation for "Senior Partners," including "all retention payments paid or payable to such Senior Partner under any retention arrangement between the Senior Partner and the Company for any period ending on or prior to March 31, 2010." But the agreement does not affect retention payments for other AIG employees.

From the March 23 Wall Street Journal article:

Since the fall, senior aides to Timothy Geithner have closely dealt with American International Group Inc. on compensation issues including bonuses, both from his time as president of the Federal Reserve Bank of New York and as Treasury secretary.

The extent of their involvement, which wasn't widely known, raises fresh questions about whether Mr. Geithner could have known earlier about AIG's $165 million in bonus payments. When the bonuses sparked a political firestorm last week, Mr. Geithner said he learned about their full scope in early March, just days before they were paid.

Mr. Geithner and Federal Reserve Chairman Ben Bernanke will be grilled by Congress on Tuesday in a hearing that is likely to focus heavily on AIG. The flap has prompted lawmakers to seek curbs on an array of bonuses, tested the Obama administration and undermined Mr. Geithner's standing as he attempts to implement measures to stabilize the financial system.

Treasury officials say the department's staff kept Mr. Geithner in the dark until March 10. "Secretary Geithner, who has been actively engaged in shaping and executing the president's broad economic agenda, takes full responsibility for not being aware of these programs" before that date, Treasury spokesman Isaac Baker said Sunday in a written response to questions.

This account of how Mr. Geithner and his aides were apprised of the AIG bonuses was based on interviews with government officials, lawmakers and congressional testimony.

As New York Fed president, Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period.

After Edward Liddy took over as AIG chief executive, the company hired consultants to look at its payment plans around the world. One of Mr. Geithner's top bank supervisors at the New York Fed, Sarah Dahlgren, became the government's lead overseer of AIG. She sat in on AIG board meetings, joined at times by other top Fed staffers, and also participated in compensation-committee meetings. It isn't clear whether the issue rose to the board level until this month.

AIG received an expanded government rescue in October and another in November, bringing the total to about $150 billion, including $40 billion in Treasury funds.

In early November, the Fed, outside auditor Ernst & Young and AIG officials began examining through a committee the bonuses set to be paid to AIG's financial-products division, including those that sparked last week's furor. The committee concluded that the bonuses, which were in contracts signed before the government takeover, couldn't be legally blocked, according to a person familiar with the matter. The Obama administration has since agreed with that legal interpretation.

AIG cited the retention plan in a public filing in early November, and Fed officials were aware AIG planned to pay $55 million in bonuses to financial-products employees the next month. Mr. Geithner remained involved in major AIG matters, seeking updates from Ms. Dahlgren and other top Fed staffers. He recused himself from dealing with aid to specific companies around the time of his Nov. 24 nomination as Treasury secretary.

Fed officials declined to make Ms. Dahlgren available to comment on the bonus issue.

Lawmakers were also scrutinizing AIG's operations. Some raised the matter of the AIG bonuses at a hearing in December where they grilled Neel Kashkari, a Bush Treasury official who remains at the department.

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