Treasury Secretary Geithner Denies Administration Will Help Executives Avoid Pay Limits

By Don Miller
Associate Editor
Money Morning

U.S. Treasury Secretary Timothy Geithner denied the Obama administration would allow financial companies avoid limits on executive compensation, as suggested in a recent report by the Washington Post. Geithner also said he's prepared to oust executives at banks that require "exceptional" assistance from the U.S. government, as it did last week with General Motors Corp. (GM).

In an interview on CBS' "Face the Nation" program, Geithner disputed a report in theWashington Post that the White House was going to allow some exceptions to the compensation rules and other restrictions imposed by congress on companies receiving government assistance.

Quoting unnamed sources, the Post article said the administration believes it can circumvent the rules by funneling the federal aid first to entities (known as special-purpose vehicles), acting as middlemen and "via this two-step process, stripping away the requirement that the restrictions be imposed."

"No, that's not true," Geithner said when asked about the report. "Our obligation is to apply the laws that Congress just passed. We want the American taxpayers' assistance going to generate greater lending, not providing excess compensation."

But another administration official said the government must be careful not to place so many restrictions on pay that it undermines critical support from private parties needed to absorb a logjam of "toxic" assets clogging the books of lending institutions. 

"We're asking financial companies to come in and help solve this problem by providing more lending, by buying up toxic assets and so on," Obama senior adviser David Axelrod said on "Fox News Sunday." "We don't want to create disincentives and undermine the program."

Congress enacted executive pay restrictions as part of an effort to claw back bonuses at American International Group (AIG), which received bailout funds worth roughly $180 billion.

The House of Representatives passed the "Pay for Performance Act of 2009," containing provisions for limiting bonuses and executive pay last week. The bill is now headed to the Senate.

On the issue of protecting heads at financial companies after recently forcing out executives at auto companies, Geithner said the U.S. government would not hesitate to oust management of big banks that require "exceptional assistance."

"If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes," while ensuring taxpayers are protected, Geithner said in an interview on the CBS program. "Where that requires a change in management and the board, then we will do that."

He noted the government had shaken up management at financial institutions Fannie Mae (FNM), Freddie Mac (FRE) and AIG, "and we'll do that in the future if that is necessary."

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