Another Reason To Oppose A Car Czar / Auto Bailout

Executive pay limits may prove toothless – Loophole in bailout provision leaves enforcement in doubt

By Amit R. Paley

updated 2 hours ago

WASHINGTON – 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.

The┬áTroubled Asset Relief Program or “TARP”┬ástipulated 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 Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

“The flimsy executive-compensation restrictions in the original bill are now all but gone,” said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

The modification reflects how the rapidly shifting nature of the crisis and the government’s response to it have led to unexpected results that are just now beginning to be understood. The Government Accountability Office, the investigative arm of Congress, issued a critical report this month about the financial industry rescue package that said it was unclear how the Treasury would determine whether banks were following the executive-compensation rules.

Michele A. Davis, spokeswoman for the Treasury, said the agency is working to develop a policy for how it will enforce the executive-compensation rules. She would not say when the guidance would be issued or what penalties it might impose. But she said the companies promised to follow the rules in contracts with the department.

Unprecedented restrictions
The final legislation contained unprecedented restrictions on executive compensation for firms accepting money from the bailout fund. The rules limited incentives that encourage top executives to take excessive risks, provided for the recovery of bonuses based on earnings that never materialize and prohibited “golden parachute” severance pay. But several analysts said that perhaps the most effective provision was the ban on companies deducting more than $500,000 a year from their taxable income for compensation paid to their top five executives.

One Response

  1. Well I can see my comments were not added again, big surprise. Are you afraid of a true dissuasion of the issues or do you just what blind acceptance of you opinion.

    “Disuassion”? LOL.
    FIRST – WHAT YOU MAKE WORKING FOR FORD IS NOT RELEVANT – THE AVERAGE “ALL IN” COST FOR A WORKER AT THE “DETROIT 3″ IS APPROXIMATELY $30/ HOUR HIGHER THAN THE THE ‘NEW AUTO INDUSTRY”. If your keep electing UAW Reps who lie to you about the “facts” – that is your problem – and neither I nor the American Taxpayor should be required to “bailout” your ignornace.
    THE CURRENT POLICTICAL SPIN IS JUST BULL SHIT – A “DISORDERLY BANKRUPTCY” – I’m sure the term “disorderly” will come as a surprise to every Bankruptcy Court in the Country – Let me see if I can look up the process for compeleting a “disorderly” as opposed to “orderly” bankruptcy – I am amazed how how stupid they think the American public is ……..

    Lastly, why don’t you start your own BLOG – I didn’t ask for your comment and I don’t care what you think

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