Exiting Treasury Secretary Timothy Geithner

In a new report the Special Investigator for TARP cites the Treasury Department for allowing excessive pay to bailout companies:

SIGTARP found that once again, in 2012, Treasury failed to rein in excessive pay. In 2012, OSM approved pay packages of $3 million or more for 54% of the 69 Top 25 employees at American International Group, Inc. (“AIG”), General Motors Corporation (“GM”), and Ally Financial Inc. (“Ally,” formerly General Motors Acceptance Corporation, Inc.) – 23% of these top executives (16 of 69) received Treasury-approved pay packages of $5 million or more, and 30% (21 of 69) received pay ranging from $3 million to $4.9 million. Treasury seemingly set a floor, awarding 2012 total pay of at least $1 million for all but one person…

Treasury made no meaningful reform to its processes.

The failure of the Treasury Department under Tim Geithner to rein in bonuses for companies bailed out by taxpayers has been an issue since TARP began. Unlike Geithner’s many odd justifications for not regulating the banks operations for fear of hurting the financial stability of the system – allowing excessive bonuses has no systemic risk justification. If anything allowing massive bonuses takes money out of the company putting it in a worse financial position. Especially given that Geithner has refused to propose any rules on delaying bonuses to traders who might be taking risky positions that while in the short term produce profits in the long term will prove to be losses.

That failure could prove to be lethal if the same myopic trading culture based on pumping up the short term numbers is allowed to continue to prevail. Big bonuses today and crashes tomorrow requiring TARP 2.

With Ally soon to be the only remaining company in the program TARP’s legacy is taking shape and it isn’t pretty. When Wall Street got in trouble Washington broke all the rules and shoveled taxpayer money into the companies with little to no restrictions. Of the few restrictions placed on the companies few have been followed.  The victims of Wall Street’s greed on the other hand have gotten minor, highly regulated, assistance which has now mostly been shutdown. Wall Street continues to gain subsidies and has an explicit bailout guarantee which drives their share prices up. The middle class taxpayers who paid for TARP and underwrite those subsidies and guarantees have no such financial security.

It may be hard to know when the destruction of the middle class began but TARP was unmistakeably the beginning of the end of the American Dream.