Stealing 'Til 11:59AM January 20

At first, I considered the shift in the TARP program from the deeply flawed "trash for cash" scheme to partial nationalization to be a good thing. Treasury wasn't getting the optimal price for the exchange, but it certainly had a better chance for success. Now we learn that the whole "feint left, move right" maneuver was designed to allow financial firms to escape executive pay limits:

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

Wow. And there are strong hints that Emperor Paulson was planning on using this loophole all along:

Meanwhile, Paulson repeatedly told lawmakers that he did not plan to use bailout funds to inject capital directly into financial institutions. Privately, however, his staff was developing plans to do just that, Paulson acknowledged in an interview.

As usual, you cannot expect government "oversight" with the input of business interests to serve the public. What there needs to be is more activism in shareholder meetings and in the public sphere, to make it completely toxic for a firm that accepted TARP money to offer these generous pay packages. That may sound like nothing, but it's what has turned AIG into a pariah. At the end of the day, these companies still have to do a little business with the public, so damaging their public profile seems to me to be the way to go. Certainly this Treasury Department is thoroughly uninterested in what TARP money recipients are doing with their cash. And it's pretty clear that Congress wanted little more than a fig leaf in the bill about executive compensation to prove that they "cared" about the issue. Read this article about Chuck Schumer and you'd know that we have a bipartisan problem.

What both parties know is that the optics of fat bonuses and CEO pay for any company who got a handout from the government is poison. Time to take it to the board meetings.