How Timothy Geithner's Bailout Plan Created the AIG Bonus Scandal

In order to protect its bailout plan, the Obama administration protected the bonuses.

Back in January and February, there were some votes to try and block excessive employee compensation at financial institutions receiving bailout money. In the Senate, this took the form of the Snowe amendment, which was supported by all 58 Democrats, and also by three Republicans. In the House, it took the form of the TARP Reform Act, which was favored by 242 Democrats and 18 Republicans. Overall, across the House and the Senate, only 10 Democrats, compared to 193 Republicans, voted against legislation that might have stopped the bonuses.

Unfortunately, despite overwhelming Democratic support for limiting executive compensation, in order to save their public-private partnership bailout plan, the Obama administration worked against these limits:

As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.(...)

The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.