Grassley: President is Right to Call Wall Street Bonuses Shameful in Bailout Environment, Should Work to Recoup, Prevent in Future
M E M O R A N D U M
To: Reporters and Editors
Fr: Jill Gerber for Sen. Grassley, 202/224-6522
Re: Wall Street bonuses
Da: Friday, Jan. 30, 2009
Sen. Chuck Grassley, ranking member of the Committee on Finance, today made the
following comment on President Obama’s remarks this week that Wall Street bonuses rewarded
during the ongoing economic crisis are “shameful” and the “height of irresponsibility.” Grassley
has sought to limit golden parachutes to executives of firms receiving federal help and worked to
improve oversight of bailout spending.
“President Obama is right. These bonuses are shameful and the height of irresponsibility.
I’ve said this many times. CEOs who run their companies into the ditch should beg for
forgiveness, not rewards. The President should use his full power to pull back bonuses for bailout
recipients. That includes past recipients and those going forward.”
Two news releases detailing Sen. Grassley’s oversight efforts follow here.
United States Congress
For Immediate Release
November 19, 2008
Contact: Maria Speiser (McCaskill), (202) 228-6263, (202) 641-7342
Jill Kozeny (Grassley), (202) 224-1308
SENATORS INTRODUCE BILL TO UPDATE AND STRENGTHEN OVERSIGHT OF BAILOUT FUNDS
WASHINGTON, D.C. – U.S. Senators Claire McCaskill (D-MO) and Chuck Grassley (R-IA)
today moved to tighten government oversight of the financial rescue plan approved by Congress
in October. The senators introduced a bill that would put in place provisions to better monitor
how the $700 billion dollars are spent by increasing the power and authority of the Special
Inspector General created to oversee the program.
The law was written based on the plan spelled out by the Treasury Department at the time, to buy
up troubled, toxic assets. Now that the Treasury plan has changed, the authority of the Special
Inspector General needs to be broadened. The McCaskill-Grassley bill will provide the
necessary fixes to ensure there is strong oversight in place.
“We voted on this measure thinking there would be responsible oversight of how the tax dollars
are being spent,” McCaskill said. “Instead, almost half the money has been doled out but no one
is watching to make sure that the government is spending it wisely. We need to fix this before
another cent is spent unsupervised.”
“The stronger the watchdog, the better, given the enormous stakes for the taxpayers with this
bailout package. Congress, the current administration and the new administration need to take
every step possible to make sure the sensibilities of Main Street are not violated as the $700
billion is used,” Grassley said.
The legislation will:
• Give the IG temporary hiring power. This will allow the IG to quickly begin hiring
staff without going through the normal civil service process which could cause a lengthy
delay in beginning oversight work. The temporary hiring power is modeled after the
provisions created for the Special Inspector General for Iraq Reconstruction (SIGIR) and
will only last for six months.
• Expand the authority of the IG to cover any and all action conducted as part of the
Troubled Asset Relief Program, including assistance to homeowners and foreclosure
mitigation efforts. Under the current language of the law, the IG’s authority would cover
only two sections of the relief program.
The senators are hopeful the legislation will pass the Senate unanimously before Congress
recesses for the year. Senators Susan Collins (R-ME) and Joseph Lieberman (I-CT) are cosponsors.
For Immediate Release
Wednesday, Nov. 12, 2008
Grassley Questions Changing Direction of Financial Stabilization Spending,
WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance,
today questioned why the Treasury Department and Federal Reserve repeatedly have changed
direction in the use of taxpayer funds authorized in the Emergency Economic Stabilization Act of
“When you see so many changes, you wonder if they really know what they’re doing,”
Grassley said. “The administration and congressional leadership were so confident when they
brought this to the members. Changing direction like this may be completely legal, but it
certainly raises some questions as to if they have a handle on how bad the situation really is. Just
as important is Congress’ need to conduct vigorous oversight, despite Treasury changing the plan
The Committee on Finance has general jurisdiction over and oversight responsibility for
the Treasury Department. Grassley outlined a series of questions in a letter to Treasury Secretary
Henry Paulson and Federal Reserve Board Chairman Ben Bernanke. The text of his letter
November 12, 2008
The Honorable Henry M. Paulson, Jr.
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
The Honorable Ben S. Bernanke
Board of Governors of the Federal Reserve System
Twentieth and Constitution Avenue, NW
Washington, DC 20551
Dear Secretary Paulson and Chairman Bernanke:
I am writing to express my concerns and receive answers to questions I have regarding the
Treasury Department’s implementation of the Emergency Economic Stabilization Act of 2008
(the “Act”) which was signed into law on October 3, 2008. As you know, pursuant to the Act
and the President’s written certification of need dated October 14, 2008, Treasury received the
authority to purchase, or commit to purchase, troubled assets up to the limit of $350 billion
outstanding at any one time. Of the first $350 billion, I understand that Treasury has already sent
out $125 billion to 9 large banks, is in the process of sending out up to $125 billion to other
financial institutions, including smaller banks, and will be sending another $40 billion to AIG.
Under the Act, the President can submit a request to authorize Treasury to obtain an additional
$350 billion. Secretary Paulson in his statement today indicated that these additional funds
should be used to reinvigorate the markets for credit cards, student loans and auto loans. In
addition, he stated that the funds would not be used to purchase the “toxic assets” that Treasury
intended to purchase when it sought passage of the Act.
In light of the President’s imminent request for up to an additional $350 billion, I ask that you
respond to my questions and concerns. I noted that in my statement entered into the
Congressional record on October 1, 2008, the day the Senate passed the Act, that Congress
would be monitoring Treasury’s actions and asking questions about its implementation of the
Act. In that speech, I stated that “[t]axpayers are protected because the final bill doesn't provide
$700 billion upfront. The Administration originally wanted the authority to have it all at once,
but this bill provides for the program to be implemented in stages. Only $250 billion will be
provided immediately, and another $100 billion will be provided upon a written certification of
need by the President. Finally, the remaining $350 billion will be provided unless Congress acts.
Let's be clear. Congress can act anytime to revoke the Treasury's authority. They will be
watched, and they will be questioned. And, if Congress doesn't like what it sees, we can repeal
this economic stabilization plan.”
The Act only restricts the deductibility of compensation and the payment of golden parachute
payments to the top five executives of financial institutions that: (1) sell an equity interest or debt
position to Treasury in a "direct purchase" or (2) sell at least $300 million in troubled assets to
Treasury in an “auction sale.” The Act does not restrict, for example, the payment of bonuses
and other perks paid to executives and top managers outside of the top five executives. The Act
also does not restrict the payment of severance benefits to executives who voluntarily terminate
from employment. Recent reports indicate that financial institutions that have received taxpayer
funds under the Act are using these funds to pay bonuses to executives inside and outside of the
top five executives of the institution. Top executives are walking away from their troubled
institutions with tens of millions of dollars.
As I stated in my October 10, 2008, letter to you, I am concerned that these provisions are mere
window dressing. My concerns have only increased given Secretary Paulson’s announcement
this morning that Treasury will not be using funds authorized by the Act to purchase “toxic
assets.” It would appear that no penalties will apply to institutions that receive taxpayer funds
and violate the Act’s restrictions on executive compensation.
Treasury is not constrained by the Act and should be exercising its broad authority to issue
regulations that further limit executive compensation and other expenses paid by institutions that
are receiving funds under the Act. Treasury should also take steps to ensure that taxpayer dollars
are not being used to pay bonuses or other rewards to those executives responsible for their
institutions’ poor performance that, in turn, led to an institution’s demise and destruction of
shareholder value. On November 10, 2008, the same day on which AIG received an additional
$40 billion of federal funds, there were new reports of AIG spending money on another lavish
retreat in Arizona. This is unconscionable.
I raised a number of questions in my October 10, 2008, letter to you. To date, I have not received
a response. Please provide responses to these questions that I am repeating here.
1. Why would the Troubled Asset Relief Program (“TARP”), Capital Purchase Program,
and the program for Systematically Significant Failing Institutions fail if the Act
contained tighter provisions for executive compensation?
2. What is being done to monitor the expenses of companies rescued with taxpayer dollars?
3. Given that Treasury has broad authority to write regulations governing executive
compensation, why is Treasury not utilizing this authority to restrict compensation and
other expenses paid by rescued companies?
Purchase of Mortgage-Backed Securities
When Treasury pitched the need for a financial rescue bill to Congress, Congress was told that
$700 billion was needed to purchase mortgage-backed securities in order to reestablish a market
in these securities that had frozen up. Congress was told that this was essential to unfreezing the
credit markets, and that if Congress did not act, Americans on Main Street would soon begin to
suffer as a result of an inability to get credit to fund small businesses and purchase items such as
houses and cars. However, shortly after the Act was signed into law, Treasury announced that it
would partially nationalize certain banks. Next, Treasury announced that it was considering
guaranteeing up to 3 million mortgages totaling up to $600 billion in principal amount according
to press reports. In addition, on November 10, 2008, the Treasury Department announced that it
would be providing an additional $40 billion to AIG under the Act in exchange for preferred
stock and warrants of AIG. When added together with aid provided by Treasury outside of the
Act, AIG will have received approximately $150 billion of taxpayer money. Then, in his news
conference today, Secretary Paulson announced that Treasury is no longer considering
purchasing mortgage-backed securities and indicated there were other priorities for TARP funds.
In light of the above, I would appreciate detailed responses to the following questions.
1. Why did Treasury decide to use the money to partially nationalize certain banks rather
than follow through with the stated purpose of purchasing mortgage-backed securities?
2. Was Treasury considering using the money that it expected to receive under the Act to
partially nationalize certain banks and guarantee mortgages prior to October 3, 2008, the
date the Act was passed in the House of Representatives and signed into law by the
a. If yes, did you inform any members of Congress of the fact that Treasury was
considering using the money that it expected to receive under the Act for these
b. If yes, which members of Congress did you inform and when?
1. Explain in detail the Department’s rationale for providing $40 billion in additional aid to
AIG under the Act and provide all relevant materials to support this decision.
2. Explain in detail the rationale prioritizing the markets for credit cards, student loans and
Extension of Credit
According to a number of published reports, the banks that have received large sums of money
from the Act are not using the majority of that money to extend credit. Instead, it has been
reported that these banks are using the money received under the Act to acquire other banks, pay
large bonuses to their executives, and pay dividends to their shareholders.
Because these reports raise additional concerns, please respond to the following questions.
1. Is Treasury tracking how these banks are using the taxpayers’ money? If yes, describe in
detail the methodology for tracking these funds, including how Treasury is managing any
databases that it may be using.
2. Describe in detail how taxpayer money is being used?
Contracts with Third Parties
Treasury has already executed a number of contracts with companies to assist Treasury in
implementing the Act. I am strong believer that sunlight is the best disinfectant and think it is
important that the process of implementing the Act be as transparent as possible, especially when
taxpayer money is being used. As a result, please provide responses to the following questions.
1. Provide original copies of all contracts.
2. Explain why only redacted copies of these contracts are available on your website
and explain the rationale for redactions in each contract.
3. Explain how the Treasury plans to abide by the Act to ensure that there are no
conflicts of interest that may arise in connection with the administration and
execution of the authorities provided.
Selection of Participants
As you know, on October 24, 2008, Treasury approved $7.7 billion in aid to PNC
Financial Services Group Incorporated, which just hours later announced that it was
acquiring National City Corporation for $5.58 billion. Although Treasury approved aid
to PNC, it had denied aid to National City Corporation.
I. Describe in detail, and provide copies, of the standards, policies and
procedures the Department is using to decide which banks will receive aid.
II. Who makes the decision as to whether or not a bank will receive aid from
III. How did Treasury decide that National City was ineligible to receive funds?
Resolution of Disapproval
Since it appears that Treasury has already identified uses for the additional $350 billion,
it seems very likely that the President will be requesting the use of these funds soon. As
you aware, should Congress decide to deny the President’s request, Congress would only
have 15 days from the transmission of the President’s request to pass a resolution of
disapproval. I am concerned that the President may transmit this request when Congress
is not in session and unable to come back in session within the 15 days in which
Congress must act to deny the President’s request.
As a result, I would like to know when the President intends to submit to Congress the
request for the additional funds.
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