Obama gave a speech back in February wherein he laid out plans to cap the pay and bonuses of executives working for companies who received taxpayer-funded federal bailout money, noting that such executives could still receive compensation (like options) tied to the long-term health of the company.  The move was in response to events like the AIG fiasco that occurred after the first round of Bush bailout money.

This week, the Federal Reserve “pay czar” Kenneth Feinberg – hired to oversee the companies who took the bailout money – issued a set of guidelines (The White House likes the term “formula” and “guidelines” better than “pay cap”) aimed to limit the pay at 7 firms who received the most bailout money.  The White House ordered what’s being described as “drastic” pay cuts for 175 top executives at these companies, which are:  AIG, Citigroup, Bank of America, GM, Chrysler, and the financing departments of the two automakers.  However, it’s worth noting that the guidelines don’t specifically prohibit multi-million dollar paychecks or substantial deferred compensation.

Said Obama in a speech, “I’ve always believed that our system of free enterprise works best when it rewards hard work.  But it does offend our values when executives of big financial firms — firms that are struggling — pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat.”

The Fed also noted that it would begin reviewing compensation practices at some our largest largest financial firms. In its guidelines the Fed stated, “Banking organizations too often rewarded employees for increasing the firm’s revenue or short-term profit without adequate recognition of the risks the employees’ activities posed to the firm.”

The Fed also noted that the hope is for other banking institutions to adopt the “pay cut model” in an effort to focus on long-term profitability and stability, rather than short-term cash.

And so we award a Fantasy T-Wearer Award today to Kenneth Feinberg, with what we’ll call the People’s Republic Executive Salary Cap, above.

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Taking into account the outrage over the AIG bonus controversy and the unprecedented steps the government took to reverse them, along with the Obama salary caps for bailout company executives, it would seem that the Obama administration is indeed taking a hard line on the issue of insolvent organizations bonusing their employees on the taxpayer dime.

As U.S. Senator Russ Feingold (D-WI) said on the Senate floor last month when criticizing automatic bonuses: “These bonuses are paid every year, often without any public discussion or a recorded vote by those with the authority to approve or stop them.  The people giving themselves these bonuses have made sure that they get them regardless of their performance.”

What makes Feingold’s testimony interesting, though, is that he wasn’t talking about AIG or any of the TARP companies.  He was, in point of fact, talking about the bonuses and automatic pay raises for members of the United States Congress itself.  Feingold has been opposed to the automatic pay raises for almost 20 years, and last month he was able to get his beef onto a bill that passed in the Senate.

The House of Representatives, however, defeated this bill by avoiding a vote on it.  Nor has either Congressional arm instituted an accountability system that rewards performance rather than tenure.  Nancy Pelosi dodged the bullet issue by noting that Congress has “recognized the economic crisis” by voting to skip next year’s raise.

That the House is refusing to revisit their own automatic bonus program under an administration that has called for performance-based pay for both private-sector employees and teachers is particularly ironic given that the House is currently revisiting TARP-funded bonus legislation in response to the AIG fiasco, with statements like this one from Rep. Michael Arcuri (D-NY): “We will not sit idly by as money is being taken from the American people instead of being used to restore the confidence in this nation, as it was intended.”

Hmm.  Is that so?

The legislation in question requires that all bonuses and incremental payments to employees of TARP-funded companies be doled out based on performance standards, which again shines a bright shiny light on the rather large (and bipartisan) elephant in the living room.  Or, in this case, on the House floor.

And so we award Nancy Pelosi and all members of the House of Representatives a Fantasy T-Wearer award this week, with the “kettle calling” T-shirt at right.

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Yesterday we talked about the AIG bonus controversy that’s causing a furor with the American people.  Despite the fervent wishes of several men in expensive suits (notably Obama, Timothy Geithner, Edward Liddy and most especially Christopher Dodd), the American people are not willing to drop this topic quite yet.

Obama publicly took the blame for the fiasco with a “the buck stops with me” statement, while also pointing out that his administration was responsible neither for the lack of oversight that caused AIG to fail, nor for these bonuses being granted.

On Capitol Hill, AIG CEO Edward Liddy sat uncomfortably in a witness chair and lamely asked that any employees who received a bonus in excess of $100K please return it.  Pretty please, with sugar on top?  I’ll give you a gold star…

Dodd’s camp continued to deny that it was his amendment, right up until Christopher Dodd went on Wolf Blitzer to try to talk himself out of being held responsible for what CNN was already calling “The Dodd Amendment.”  This made for very entertaining televsion viewing, as Chris Dodd gave an interview trying to distance himself from the amendment while CNN scrolled news of “The Dodd Amendment” below him.

Dodd then copped to maybe possibly adding some language that could have maybe caused these loopholes… but only because Geithner made him do it.  To be fair, some reports are now saying that the actual loophole that permits the AIG bonuses was in fact tacked onto the Dodd Amendment at the request of the Treasury Department.  The game of Whodunit isn’t over, and it isn’t pretty.

Chris Dodd tried to defend the amendment with this statement:

“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill.  But for that language, there would have been no language to deal with this at all.”

The baffling weakness of that statement coupled with the elaborate tap dance he’s done to try to deny ownership of “The Dodd Amendment” has earned Chris Dodd a second Fantasy T-Wearer Award today, with the They Made Me Do It T-shirt above.

UPDATE: The House passed a bill to recoup bonuses at 90% paid to any employee, making in excess of $250,000, who was bonused by any company getting $5 billion or more from the government bailout program (the Troubled Assets Relief Program, or TARP).  The matter now falls to the Senate.

As for the matter of Whodunit, Timothy Geithner is now stepping up to the plate to assume responsibility for the loophole addendum.

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Oh, AIG.  Go sit in the corner.  Again.  Preferably without a masseuse and a glass of taxpayer-afforded lemon-infused mineral water.

AIG first upset American taxpayers and Barack Obama when the failing company decided to treat its employees to a posh spa weekend the day after it received $85 billion of taxpayer-funded federal bailout money.  At the time the campaigning Obama brought up this misuse of taxpayer money in the debates, noting that these executives should be fired and that the cost of the trip should be reimbursed to the Treasury.

Despite assurances by now-President Obama that the $787 billion stimulus package would be free of pork barrel spending and special-interest earmarks, and despite his assurances that executives in bailed-out companies wouldn’t be rewarded for failure, the stimulus package was signed into law with an executive compensation amendment tacked on by (the newly-outraged) Chris Dodd.  Dodd had clashed with the President on the issue of executive compensation after Obama announced his executive salary cap; but news of Dodd’s amendment and AIG’s embodiment of it has caused a massive public outcry, and Dodd is now looking at ways to tax the bonuses.

Dodd’s stimulus package amendment allows for contractually obligated bonuses agreed on before Feb. 11, 2009.  This means AIG was able to spend $165M in bonuses for top executives – including 11 top execs who took their $1 million+ “retention bonuses” and walked out the door with them.

How this amendment escaped the notice of the President, the Treasury Secretary and members of Congress who are outraged by this news is a good question.  The simple answer is most likely that giving people less than 24 hours to read a complicated 1100 page spending bill is just not enough time for anyone to read and understand it, even the guy sitting in the Oval Office.  Perhaps a Cliff’s Notes version would have been of value…

Obama and other members of Congress are predictably outraged, and the President has instructed Treasury Secretary Timothy Geithner to “pursue every single legal avenue” to undo the bonuses.  Geithner is now saying that the $165 million will be deducted from the $30 billion that the company is due to receive as part of their bailout package.  But this solution doesn’t work for people who want those that recieved the bonuses to have some sort of personal accountability in the matter, hence certain members of Congress looking for ways to tax the bonuses up to 98%.

And so we award Christopher Dodd a Fantasy T-Wearer award this week, with the “Ctrl Z (undo)” T-shirt at left.

If only it were that easy…

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Bad news today for executives who thought that taxpayer bailout money was meant for their personal gratification: President Obama has instituted a salary cap of $500K for executives at any company that’s to receive substantial government aid.

Obama also announced that he’s putting the kabash on cash bonuses, noting that any future bonuses will have to be paid in stock that can’t be cashed out until the government loans are paid.  And just to be Grinchy about things, he’s demanding that these companies make public “all the perks and luxuries bestowed upon senior executives, and provide an explanation to taxpayers and to shareholders as to why these expenses are justified.”

No word on whether the employees of AIG have submitted doctor’s notes about needing massages and golf games to alleviate the stress of working for a financially insolvent company.

Obama describes this move as “basic common sense.”  This phrase is slightly different than, say, words that have been applied to the $25 million bonus package for Peter Kraus.  Kraus received this bonus for the whole 3 months he spent at the failing Merrill Lynch before it was “bought out” by Bank of America, who in turn went to the federal government for bailout money to help with troubled assets.  Like the ones they just bought from Merrill Lynch.

The best summation of Lynch’s package is: “The master bedroom suite is a private sanctuary on the corner of the apartment with two windows overlooking Park Avenue and a fourth wood burning fireplace.“  Which is of course why living on Park Avenue is expensive.  In this case, Kraus’ new bonus-funded digs cost over $30 million.

Well, perhaps it’s nice to know that at least one American citizen is able to afford a new house despite being briefly out of a job.

Obama’s mandate was met with criticism from some Wall Street pundits who claim it will make it difficult for troubled firms to retain top executives.  Others have noted that, were these executives doing a job worthy of 7 and 8 figure bonuses, perhaps their companies wouldn’t be failing in the first place.  Obama himself noted that American citizens are rightfully upset at seeing top executives be “rewarded for failure.”  And indeed, a simple search of our catalogue would indicate that Americans are fed up with the way the bailout money has been managed.

And so we award two Fantasy T-Wearer Awards today: the first is the “Good to be a Banksta” T-shirt above, which really does make a nice housewarming gift for Peter Kraus.  And the second is the “Bah, Humbug!” T-shirt at left, which goes to Treasury Secretary Timothy Geithner in the hopes that his lighthearted wardrobe choice might lead some affected executives to turn those frowns upside-down.

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