Pejman Yousefzadeh

The Treasury department:

A government auditor harshly criticized the Treasury Department for approving “excessive” pay packages for top executives at three companies that received large government bailouts.

Christy Romero, the special inspector general overseeing the $700 billion Troubled Asset Relief Program, criticized the Treasury for approving pay raises at General Motors Co., Ally Financial Inc. and American International Group Inc.

The report released Monday was critical of the Treasury’s special master overseeing executive pay at companies that got very large bailouts: Cash salaries of $450,000 or more were approved for 94 percent of the top 25 employees each at AIG, GM and Ally.

“While taxpayers struggle to overcome the recent financial crisis and look to the U.S. government to put a lid on compensation for executives of firms whose missteps nearly crippled the U.S. financial system, the U.S. Department of the Treasury continues to allow excessive executive pay,” the report said.

The executives at GM, Ally and AIG “continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines” previously announced, the report said.

AIG repaid its government bailout in December and is no longer subject to the pay restrictions. Initially seven companies — including Chrysler Group LLC, Chrysler Financial, Citigroup Inc., and Bank of America — were covered by the restrictions.

Patricia Geoghegan, the Treasury’s “pay czar,” agreed to shift more pay away from longer-term incentive pay. She removed long-term restricted stock for senior executives, including the CEOs of AIG, GM and Ally. In total, she removed long-term restricted stock from 24 of the 34 employees’ pay packages and for all but one of the 24 employees, replaced it with stock salary, as requested by the companies.

In total, she approved pay packages worth $5 million or more for 23 percent of the top 25 employees at AIG, GM, and Ally — nine at AIG, three at GM and four at Ally.

Barack Obama, it should be remembered, has gotten a lot of populist mileage out of his criticism of excessive pay packages. Funnily, however, I don’t recall him blaming Tim Geithner in any of his speeches denouncing large executive payouts.

I know that there are a lot of people who are ever-so-mightily upset that Hank Greenberg of AIG had the temerity to sue the federal government regarding a Takings Clause issue that arose from the government’s bailout of AIG, but as Stephen Bainbridge points out, there most certainly does exist an important legal principle at stake in this case, and that principle deserves to be settled by allowing Greenberg to have his day in court.

It is worth noting that Professor Bainbridge is all over this issue. He explains here why AIG’s board had to join Greenberg’s suit; note that former Harvard law professor—and current Massachusetts senator—Elizabeth Warren either does not understand, or pretends not to understand the reasons why AIG’s board had to join the suit, and here, he offers a further explanation as to why the suit against the government may have merit. Whether one agrees or not, there should be a consensus around the fact that political grandstanding regarding the issue should not replace sober legal analysis.

Unfortunately, however, there are a great many people more interested in fomenting outrage regarding the Greenberg/AIG suit than there are in spelling out the legal issues in dispassionate fashion. Interestingly enough, those waving the bloody shirt regarding this story like to call themselves part of the “reality-based community.”