Although Treasury Secretary Timothy Geithner told congressional leaders on Tuesday that he learned of AIG's impending $160 million bonus payments to members of its troubled financial-products unit on March 10, sources tell TIME that the New York Federal Reserve informed Treasury staff that the payments were imminent on Feb. 28. That is 10 days before Treasury staffers say they first learned "full details" of the bonus plan, and three days before the Administration launched a new $30 billion infusion of cash for AIG.
"Treasury staff was informed about the new bonuses in a Feb. 28 memo that the March 15 [bonus-payment] date was upcoming," a Federal Reserve source tells TIME. A Treasury Department source, speaking on background, confirmed the e-mail memo and its contents, saying, "Everybody knew that [AIG] had a retention issue." (See the top 10 financial collapses of 2008.)
The New York Fed even went so far as to warn Treasury staffers that the bonuses were a hot-button issue. In the past, the memo says, the "retention," or bonus, issue has drawn the attention of both Capitol Hill staffers and the media. The New York Federal Reserve forwarded further details of the plan to Treasury on March 5 and even more specifics in a March 9 memo, which Treasury officials had previously said was their first detailed warning of the bonus trouble.
The Treasury Department official says the fault appears to lie with career staffers at the department who failed to report the imminent bonus deadline up the chain to Geithner. This failure may be a by-product of the difficulty Geithner has had staffing up at Treasury. But he still has personal vulnerability on the issue. It was Geithner, as head of the New York Federal Reserve, who negotiated the AIG bailout last September. At that time, he could have sought to get bonuses repealed as part of the massive government loan.
Geithner's supporters argue that the AIG bailout was pulled together in less than one business day and that it's understandable that the bonus issue was not central to those negotiations. They also argue that in subsequent negotiations with AIG and others about further infusions of government cash, Geithner has imposed tough conditions limiting bonuses and executive compensation.
Geithner received solid backing from President Barack Obama on the South Lawn on Wednesday before the President left for California. "I have complete confidence in Tim Geithner and my entire economic team," Obama said. "Nobody is working harder than this guy. He is making all the right moves in terms of playing a bad hand."