Geithner's Treasury Department (couple of guys and hundreds of empty offices, from the sound of it) is doing it's best to work around Congressional rules governing the distribution of bailout funds. According to a report in the Washington Post this morning, it is "engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay." In other words, laundering money.
The Treasury Department is anxious to get credit flowing again, according to the report, and Congressional restrictions, particularly on executive pay, are making that difficult. But it doesn't look good. For a start, it's probably illegal. For another, this legal workaround seems awfullyclose to what we experienced with the Bush administration. It can easily be used to sow doubt about the bona fides of the Obama administration.
Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.
The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.
Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.
The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.
What appears to be the administration's decision to sidestep what it sees as onerous restrictions on its effort to restore a healthy economy may backfire. In a related story, the New York Times is reporting its investigation into the ties of members of the Obama administration to the financial industry. No one appears to have stepped over the line, but past relationships between Lawrence Summers and other administration advisers with beneficiaries of bailout funds are undeniable.
It's hard to say whether this merits a yowl of pain and the cry, "They're all the same!" Or whether we need to calm down and acknowledge that it's impossible to elect human beings who have had no ties to any powerful group -- whether it be the AARP or "Main Street" or Wall Street. What's important is how they behave as administration officials and advisers.
