THE STASH MARCH 19, 2009
I have to say, I'm starting to find the obsessive "what did Geithner/Obama know and when did he know it" line of questioning a little tedious. Yes, it's worth establishing a rough chronology so we know if public officials are telling us the truth. But the endless preoccupation by my colleagues in the media--when did the Fed tell Treasury, when did Treasury tell Geithner, when did Geithner tell Obama--is getting a little ridiculous. This just wasn't a huge substantive mistake. It was a small substantive mistake--we're talking about a tiny fraction of the $200 billion we're floating AIG here--and a huge political mistake. I'm just not sure how helpful it is to reconstruct the genesis of a political mistake in painstaking detail when we've got these huge substantive issues to deal with.
This graf in this morning's Washington Post contribution to the genre (which is actually one of the better, more level-headed accounts out there) kind of gets at the absurdity of it all:
During this period, Geithner's primary concern was keeping the financial system from collapsing, a source said. The compensation packages for AIG employees were hardly, if ever, brought up, another source said. Other staff members at the Fed and Treasury were in charge of the compensation issues and only briefed Geithner, sources familiar with the matter said. Once nominated for the Treasury post in December, Geithner recused himself from affairs related to specific firms. [emphasis added.]
I mean, however you feel about what Geithner knew about the bonuses and when he knew it, you have to concede that his far bigger concern throughout this time was preventing the global economy from self-immolating. As a substantive proposition, how much would we even want a Treasury secretary to focus on $165 million in bonus money while there were hundreds of billions of dollars in bailout money flowing to AIG and other companies? Doesn't seem like that would be a particularly good use of his time beyond a certain point.
The problem, of course, is that if you don't mind the politics of a situation like this, it can quickly cripple your efforts to do anything else. But, again, that's a reason for the press to treat it like a political fiasco ("please tell the American people what you're doing to make this right") not a substantive fiasco (Watergate-style badgering). The coverage seems to me a lot more in line with the latter than the former.
As for the explanation part, one potential cause of the problem occurred to me as I read the WaPo account: The government officials in charge of dealing with AIG are mostly apolitical--which is to say, precisely the kinds of people you'd expect to miss the significance of a radioactive development like the bonus payments. The Post reports that:
The Fed officials did not anticipate the political firestorm that would erupt over the bonuses, a senior government official said. "They clearly underestimated the matter," the source said.
Of course they underestimated the matter! They're a bunch of wonks and technocrats. The Fed doesn't have many staffers or political appointees attuned to these considerations. It mostly consists of economists, financial geeks, regulators, etc. The whole point of the Fed is that it's insulated from public opinion. For its part, while Treasury typically employs a bigger cadre of political hands, a lot of those jobs haven't been filled yet (or weren't when this was going down). In the interim, Treasury has relied disproportionately on career staff--very much in the mold of their technocrat cousins at the Fed.
Don't get me wrong--I love these people. But, to put it mildly, they're not the folks I'd want doing my political trouble-shooting.
A final quick point, also from the WaPo piece: It sounds like the Fed has had about enough of being scapegoated:
While declining to answer questions about the AIG bonuses, Fed spokeswoman Michelle Smith said in a statement: "The Fed and Treasury officials have coordinated closely on all aspects of the U.S. government's support for AIG during this extraordinary period."
The implicit message here seems to be: Don't tread on us, because we'll send the blame right back in your direction. I'd take it to heart if I were involved in the situation.