U.S. Sen. Sheldon Whitehouse "rewarded Wall Street executives with millions in bonuses."
Barry Hinckley on Thursday, September 27th, 2012 in a campaign commercial
U.S. Senate candidate Barry Hinckley says incumbent Sheldon Whitehouse rewarded Wall Street executives with millions in bonuses
Republican Barry Hinckley's latest advertisement, released as part of his effort to unseat Democrat Sen. Sheldon Whitehouse, is a study in contrasts. The first half focuses on Hinckley with color images, pleasant music, and a message of trust, hard work and job creation. In the second half, the music turns ominous, the images are black and white, and the allegations roll like thunder.
"Whitehouse voted to bail out Wall Street and then rewarded the Wall Street executives with millions in bonuses," a female narrator says. Black and red lettering gives a similar message.
Here we will focus on the part about bonuses, which provoked outrage when they were disclosed.
PolitiFact Ohio looked at a similar claim last spring when Josh Mandel, a Republican, accused Democrat Sen. Sherrod Brown of giving "huge bonuses" to executives, ruling it Pants on Fire. Other fact-check organizations have looked at variations on the same theme and come to similar conclusions.
When we watched the Hinckley commercial, titled "Trust," it struck us right away that there was something else amiss in Hinckley’s attack on Whitehouse.
The ad talks about two different actions Whitehouse supposedly took -- voting to bail out Wall Street and THEN rewarding executives. Yet the source the ad cites for both alleged actions is the same, "H.R. 1, CQ Vote #64." Both in the same vote?
Hinckley campaign manager Patrick Sweeney told us that the attribution for the bailout vote was listed incorrectly. So noted.
To look at the real issue, let's look at the chronology of the Wall Street bailout and the subsequent stimulus bill, in which executive bonuses were among the issues.
We'll start with 2008 and legislation commonly known as the Wall Street bailout.
With stocks falling, the mortgage market in chaos and talk of a run on bank investments, the Bush administration proposed spending $700 billion to stabilize financial institutions.
They included the mortgage lending agencies such as Fannie Mae and Freddie Mac (which the feds took over on Sept. 6, 2008); financial institutions such as Citigroup, Goldman Sachs, and Bank of America; corporations such as Chrysler and General Motors; and one of the world's biggest insurance companies, American International Group (A.I.G).
The federal government took over A.I.G. with an initial $68 billion loan, also in September 2008. More payments to A.I.G. would follow.
To say that the law, known as the Emergency Economic Stabilization Act of 2008 and enacted on Oct. 3, 2008, was designed to bail out Wall Street is a fair characterization. To do that, the law set up a fund under the Troubled Asset Relief Program, known as TARP.
Now let's step forward to 2009, with a new president and new Congress.
H.R.1, referred to in the Hinckley ad, is the American Recovery and Reinvestment Act of 2009, known to most people as the stimulus bill. It was designed to create as many jobs as quickly as possible in an attempt to stimulate an economy hobbled by the financial manipulations that led to the recession, particularly the subprime mortgage debacle.
On Feb. 10, 2009, the Senate approved the bill and, in one provision, put a limit on executive bonuses. It banned any company receiving TARP money from paying bonuses to its 25 highest-paid employees.
But the restriction didn't stay in.
Because the House and Senate passed two different versions, a committee of Senators and House members, all Democrats, met behind closed doors to work out the differences.
At the request of the White House and the Treasury Department, the language banning such bonuses was modified to allow bonus payments that had been negotiated before the law was enacted. The Obama administration, at the time, feared that a ban would be the subject of legal challenges, and might discouraging financial institutions from accepting bailout money.
The stimulus was signed into law by President Obama on February 17, 2009 after mostly-party line votes in the House and Senate.
Then came the brouhaha over bonuses.
A.I.G., which was promised $180 billion in assistance from the federal government, announced that it had paid out $165 million in retention bonuses, including more than $1 million each to 73 employees. Almost all of them were "employees in the financial products unit responsible for creating the exotic derivatives that caused A.I.G.'s near collapse and started the government rescue to avoid a global financial crisis," according to the New York Times.
Outrage ensued, fueled in part by the fact that, at the time the bonuses were awarded, the federal government owned nearly 80 percent of the company.
Whitehouse, who had complained about lavish executive salaries among companies getting bailout money before the stimulus bill was approved, responded to the A.I.G. bonuses by calling on the Obama administration to "abrogate the contracts between A.I.G. and its executives under which these payments were made."
Sweeney, Hinckley's campaign manager, looks at it differently.
"The bonus controversy became inevitable the second that TARP passed the Senate and rescued A.I.G.," he said in an e-mail.
The bonuses, he said in the e-mail, "were a predictable result of corrupt and rushed 'crisis' legislation that Whitehouse supported. If he didn't do enough research to know the likely result, it simply proves that he is a bad (out of touch?) legislator -- and THIS is our claim."
But that's not the claim the commercial made, nor is it the claim we're checking here.
Barry Hinckley's commercial claims that Sheldon Whitehouse "rewarded the Wall Street executives with millions in bonuses."
Whitehouse voted for the law that provided for the bailout of big financial institutions such as A.I.G. but the law did not call for any bonuses. Whitehouse subsequently voted for a stimulus bill that limited executive bonuses in companies that accepted bailout money, a provision watered down when Democrats in the House and Senate hammered out a compromise.
The bailout may have given the institutions the resources to pay bonuses -- as impolitic as that was -- but in this case it was A.I.G., not the senators, that did the deed.
The bailout money was never intended to provide bonuses and neither Whitehouse, nor any other member of Congress, voted to approve any bonuses.
The notion that Whitehouse worked to reward anybody who caused the near-collapse of the U.S. financial system isn't just false, it's ridiculous.
For that reason we rate that part of Hinckley’s commercial Pants on Fire!
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Published: Sunday, October 7th, 2012 at 12:01 a.m.
YouTube.com, "Barry Hinckley -- Trust," Hinckley2012 channel, dated and accessed Sept. 27, 2012
E-mails, Patrick Sweeney, campaign manager, Barry Hinckley, Sept. 27-28, Oct. 2, 2012
PolitiFact.com, "Josh Mandel campaign says Sherrod Brown 'gave huge bonuses' to executives," June 15, 2012, accessed Sept. 27, 2012
FactCheck.org, "'Blame Dodd' Attacks Ignore Facts," March 19, 2009; "Mandel's Deceptive Defense Against Sen. Brown," May 29, 2012; "Bailout Bonuses Are Back," Sept. 16, 2010, both accessed Sept. 27, 2012
Propublica.org, "Bailout Timeline: Another Day, Another Bailout," September 2012, accessed Oct. 1, 2012
Wikipedia.org, "Emergency Economic Stabilization Act of 2008," "Troubled Asset Relief Program," "American Recovery and Reinvestment Act of 2009," and "American International Group," all accessed Oct. 1, 2012
TheHill.com, "Obama, Dodd clash on executive pay," Feb. 15, 2009; "Dodd's Amendment at Crux of Bonus Issue," March 19, 2009, both accessed Oct. 2, 2012
WSJ.com, "U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up," Sept. 17, 2008, accessed Oct. 1, 2012
CNN.com, "Stimulus amendment puts tough limits on executive pay," Feb. 14, 2009; "Bonuses allowed by stimulus bill," March 17, 2009, both accessed Oct. 1, 2012
NYTimes.com, "Outcry Builds in Washington for Recovery of A.I.G. Bonuses," March 17, 2009, accessed Oct. 1, 2012
E-mail, Tony Simon, Whitehouse campaign, Oct. 2, 2012
Whitehouse.Senate.gov, "Whitehouse Slams Lavish Executive Compensation," Feb. 30, 2009; "In Letters to Administration Officials, Whitehouse Shares Rhode Islanders’ Outrage Over AIG Bonuses," March 17, 2009; both accessed Oct. 2, 2012
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