Obama signals bonus clawback support

Obama signals bonus clawback support
By Tom Braithwaite in Washington and Greg Farrell in New York
Copyright The Financial Times Limited 2009
Published: March 19 2009 14:27 | Last updated: March 20 2009 13:59
http://www.ft.com/cms/s/0/231acf54-1487-11de-8cd1-0000779fd2ac.html


President Barack Obama on Thursday offered broad support for legislative efforts to claw back bonuses at bailed out financial institutions after the House of Representatives voted to impose a punitive tax on such payments.

In a statement, the White House said Mr Obama looked forward to receiving final legislation that would “serve as a strong signal to the executives who run these firms that such compensation will not be tolerated”.

But he said it was also essential to work on reforms that would prevent unreasonable practices in the future, and stopped short of promising to sign specific legislation into law.

Thursday night, appearing on the Tonight Show with Jay Leno, Mr Obama reiterated that he was ‘stunned’ by the bonuses, but signalled that retroactive measures weren’t ideal.

“What happened here was the money has already gone out and people are scrambling to try to find ways to get back at them,” he said. “But I think that the best way to handle this is to make sure that you’ve closed the door before the horse gets out of the barn.”

The House’s move to claw back bonuses came amid continuing outrage over $165m bonuses paid to executives at AIG, the crippled insurance group kept alive by $170bn taxpayer funds. The dispute has poisoned the political climate and undermined Treasury secretary Tim Geithner at a moment when he is struggling to advance a financial rescue plan.

Mr Geithner told CNN he only discovered the “full scale and scope of these specific bonus payments” on March 10. But he said: “I was in a position where I didn’t know about these sooner, I take full responsibility for that.”

However, efforts to draw a line under the scandal were undermined by his admission that Treasury officials had pressed Democratic Senator Chris Dodd to amend a clause in the stimulus bill that would have restricted bonuses retrospectively.

Mr Dodd, who faces a tough re-election fight, was conciliatory on Thursday.

But his Democratic colleague, Senator Ron Wyden, blamed the president’s economic team for the debacle.

“There hasn’t been adequate follow-up in terms of his economic team,” Mr Wyden said. “I want them to get their act together.”

The legislation passed by the House shows how the AIG scandal is now threatening the entire compensation culture on Wall Street. It extends to any company that has received more than $5bn in money from the troubled assets relief programme.

Any employee with a gross income of more than $250,000 who received a bonus this calendar year would face a 90 per cent tax on it, according to the legislation, which was approved in the House on Thursday by 328 votes to 93.

Bonus recipients at Fannie Mae and Freddie Mac, the mortgage finance companies, would be hit as would staff at banks such as Citigroup, JPMorgan and Goldman Sachs.

“This is the foreign bank relief act,” said Alan Johnson, who runs a financial industry compensation consulting firm in New York. “I predicted this. Once the government got involved with the banks, they were not going to pay anybody.The drunken mob has torches, and we’ll see if the Senate is going to be more like Joe McCarthy or Jimmy Stewart.”

The bill must be passed by the Senate, where legislators are already working on their own version of a bill to claw back bonuses. Some Republicans argue that any law along the lines of the House bill would be counter-productive and even unconstitutional.

The Constitution forbids any “Bill of Attainder”, legislation aimed at punishing a select group of individuals. The Republican Study Committee, a group of Republican conservatives in the House, said the fact the law was retroactive – affecting bonuses paid since December 31, 2008 – was also a dangerous step.

But lawmakers in the House said bonuses should not be paid at institutions that have received government aid. “These people are getting away with murder,” said Charles Rangel, chairman of the House ways and means committee. “They’re getting paid for the destruction they’ve caused to our communities.”