The Auto Bailouts

In September, 2008 the Big Three (Chrysler, Ford and General Motors), asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs, and Congress worked out a $25 billion loan. By December, President Bush had agreed to an emergency bailout of $17.4 billion to be distributed by the next administration (Obama) in January and February.

In early 2009, the prospect of avoiding bankruptcy by General Motors and Chrysler became nearly impossible as new financial information about the scale of the 2008 losses came in.

Ultimately, poor management and business practices forced Chrysler and General Motors into bankruptcy. Chrysler filed for chapter 11 bankruptcy protection on May 1, 2009 followed by General Motors a month later.

Enter the Pay Czar In 2009 Ken Feinberg was appointed by the U.S. Department of the Treasury to manage compensation issues for companies receiving federal bailout money and became known as the Obama administration’s “pay czar.” After taking this position, he announced that seven companies receiving "exceptional" amounts of taxpayer aid would have the annual salaries for their 25 top executives slashed by an average of around 90 % from 2008 levels.

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President Obama praised the move to cut executive pay by his pay czar saying, "This is America. We don't disparage wealth. We don't begrudge anybody for doing well. We believe in success. But it does offend our values when executives of big financial firms that are struggling pay themselves huge bonuses even as they rely on extraordinary assistance to stay afloat."

Saying that Feinberg has taken "an important step forward today," the president said, “That more work needs to be done, and called on Congress to pass legislation giving shareholders a voice in executive pay packages.” The cuts applied to executives of AIG, Citigroup, Bank of America, General Motors, Chrysler, GMAC and Chrysler Financial, which still owe a considerable sum of taxpayer dollars.

Responding to criticism that curbing pay might cause an exodus of top talent and in fact hurt the companies and American taxpayers, Feinberg said "it's a big concern" but that his "primary obligation here is to make sure under the law that the taxpayers get their money back that was lent to these companies." This did prove to be effective as in order to avoid these executive compensation restrictions, most TARP participating firms paid back the government as soon as possible.

President Obama praised the move to cut executive pay by his pay czar saying, "This is America. We don't disparage wealth. We don't begrudge anybody for doing well. We believe in success.”