Too Big to Fail [267]
To underscore the significance and sensitive nature of the meeting, an announcement was made that all cell phones and BlackBerrys would be confiscated to avoid leaks. A trash can was used as a receptacle for the dozens of mobile devices labeled with congressional staffer names on yellow Post-Its.
As the meeting came to order, Paulson, following Kashkari’s playbook, announced darkly, “You saw what happened earlier this week with Washington Mutual,” and, with as much ominousness as he could muster, added, “There are other companies—including large companies, which are under stress as well. I can’t emphasize enough the importance of this.”
The stern-faced lawmakers listened attentively but immediately raised what they considered to be four major obstacles to the plan: oversight of the program, which the Democrats felt was severely lacking; limits on executive compensation for participating banks, a controversial provision that Paulson himself was convinced would discourage them from participating; whether the government would be better off making direct investments into the banks, as opposed to just buying their toxic assets; and whether the funds needed to be released all at once or could be parceled out in installments.
“Damn it,” Schumer thundered, annoyed that he couldn’t get a straight answer. “If you think you need $700 billion right away, you’d better tell us.”
“I’m doing this for you as much as for me,” Paulson replied, blanching at Schumer’s aggressive tone. “If we don’t do this, it’s coming down on all our heads.”
The conversation soon turned to executive compensation. While everyone in the room was aware of the potential political fallout over huge bonuses being paid out by firms requiring taxpayer rescue, it was Max Baucus, chairman of the Senate Finance Committee, who spoke to the issue. He made it abundantly clear that he was furious with Paulson for not having insisted on strict limits on compensation for the managements of banks that would take advantage of the program. In Baucus’s view the executives should be entitled to next to nothing—and at the very minimum they should be forced to give up golden parachutes and other perks.
As Baucus railed on, raising his voice until he was virtually shouting at the Treasury staff, Paulson finally interrupted him with, “Let’s not get emotional,” and tried to explain his rationale. The reason he was loathe to put in executive compensation limits, he said, was not because he wanted to protect his friends but because he believed the measure was impractical. Banks, he said, would have to renegotiate all of their compensation agreements, a process that could take months, preventing them from accessing the program.
Paulson’s efforts to calm the group’s nerves with practical reasoning, however, didn’t appear to be working; other congressional leaders rushed in to express their own outrage, focusing now on the lack of oversight and accountability. While the three-page piece of legislation he had originally submitted the week before had since grown in size, it still contained little in the way of any watchdog provisions to guarantee that the program would be maintained properly. Paulson had been resisting the Democrats’ demands to appoint a panel that would not only oversee the program, but also have the authority to determine how it operated and made decisions, as he feared that it would inevitably become politicized. “All we’re talking about is having Groucho, Harpo, and Chico watching over Zeppo,” said Frank to laughter.
The conversation dragged on into the night, as the staffers from Treasury and Congress tried to find a middle ground, with only the same sticking points raised again and again.
“It’s impossible for us to go to hundreds of banks across the country and have them renegotiate all their employment contracts,” Kashkari said, reiterating why they couldn’t include more compensation curbs. “It’s just going to take