Bail Out Bonuses

I was heartened to see President Obama yesterday express outrage at bailed out banks using that money to hand out bonuses.

Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.

"That is the height of irresponsibility," Mr. Obama said. "It is shameful. And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility." [...]

"There will be time for them to make profits, and there will be time for them to get bonuses," Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. "Now's not that time. And that's a message that I intend to send directly to them, I expect Secretary Geithner to send to them."

New York Attorney General Andrew Cuomo also spoke out against the practice of Wall St. paying out billions in bonuses to executives out of the bailout money and signaled he may even demand the return of $4b from Merrill Lynch:

New York Attorney General Andrew Cuomo may demand the return of $4 billion in bonuses paid by Merrill Lynch & Co. just before it was acquired by Bank of America Corp., a person familiar with the matter said.

Cuomo also wants to know what Bank of America Chief Executive Officer Kenneth Lewis, 61, knew about the accelerated bonuses and about Merrill's surprise $15 billion net loss in the fourth quarter, the person said. Lewis fired Merrill's CEO John Thain this month after the losses required more federal aid. [...]

"No longer will this country stand for wasteful spending of tax dollars on bonuses for executives whose companies have taken huge losses and required taxpayer bailouts," Cuomo said today in a statement about bonuses paid at Wall Street firms that received funds from the Troubled Asset Relief Program or TARP.

Not surprisingly, one voice that stands out from those rightfully outraged by the excess of Wall St. even as tax payers are saving their ass is Rudy Giulilani who made the case that the real danger would be if executives weren't paid those bonuses:

"Those bonuses, if they are reversed, are going to cause unemployment in New York," the self-described fiscal conservative said. "I remember when I was mayor, one of the ways in which you determine New York City's budget, tax revenue is Wall Street bonuses.

"Wall Street has $1 billion, $2 billion in bonuses, the city had a deficit. Wall Street has $15 billion to $20 billion, New York City had a $2 billion, $3 billion surplus, and it's because that money gets spent. That money goes directly into the economy. First of all, it gets taxed as income. Secondly, it gets taxes again when somebody buys something with it."

A bit tin ear, don't ya think, Rudy? I'd like to see him go on the campaign trail running for senate on the pro-bonus platform. There's a winning strategy!

The fact is, this crystallizes the differences in priorities between the two parties. As Josh Marshall points out:

This is the definition of trickle down -- give huge amounts of money to a small number of individuals, most of which will be socked away but a relatively small percentage of which will be spent on luxury goods.

Update [2009-1-30 13:24:40 by Todd Beeton]:Sen. Claire McCaskill will be introducing a bill this afternoon to cap salaries (including bonuses and stock options) of executives at companies receiving bail out funds:

U.S. Sen. Claire McCaskill, D-Mo., plans to introduce legislation Friday afternoon that will cap compensation for employees of any private company that accepts federal dollars because of the economic downturn.

Employees would not be able to make more than the president — $400,000 — until the company no longer relies on federal assistance from the $700 billion bailout of the financial sector, McCaskill’s office said.


Tags: Barack Obama, bonus, wall st. andrew cuomo (all tags)



Re: Bail Out Bonuses

As I've said before on this site, the only time my support for Obama wavered was right around the time of the bailout.  I'm glad to see him express some outrage at how the banks spent the money now.  But, really, did he think these people had our best interests at heart?

Don't get me wrong, I'm an Obama supporter and have been ever since I tasted my first bit of arugula.  But it's kind of surreal to see people express shock and horror at what was a very natural outcome to the bailout the way it was structured.

by the mollusk 2009-01-30 08:18AM | 0 recs
Re: Bail Out Bonuses

I agree, the outraged shock was kind of an act, and I also am disappointed at all these players, though mostly I would like to see Hank Paulsen strung up by his thumbs...

All these guys are too close, every politician in both parties counts on these rich crooks to fund them.

I don't trust ANY of them, Barack, Rahm, etc.

But, I sure trust the other side less.

I just have trouble imagining a modern day Teddy Roosevelt.

Remember, that was McCain's hero, Teddy?  

Yet, he is out pissing and moaning about the Lilly Ledbetter act.

He is about as much for the little guy as any of them.

Maybe he just liked Teddy's romantic image charging up the hill on horseback?

by WashStateBlue 2009-01-30 08:28AM | 0 recs
Re: Bail Out Bonuses

Maybe I'm not sufficiently cynical yet.  I think Obama is concerned about the way the bailout money was used and will try to do something constructive about it.  I just think that he was willfully blind to the bailout's problems for the sake of the campaign.  I actually liked McCain's plan a lot better (this was all pre-stimulus talk, mind you).  My big concern was that we'd throw a bunch of money at Wall Street and then go back to pretending like everyone has a fair shake and that free markets and tinkle-down economics are the way to go.  That doesn't seem to be where we're at as a country right now.

by the mollusk 2009-01-30 08:51AM | 0 recs
Rudy is clueless

Heck, I would personally fund a reality TV show about one of this "big swinging dicks" master of the universe CEO's laid off, and having to go down to stand in line for Unemployment!

Besides, what kind of math is Rudy using?  

We miss the taxes these guys pay?  Yeah, I would much rather have 28% of the money, then ALL OF IT!

Anyone taking bail-out money and paying bonuses with it should be in jail.

But, of course, they trickle down the rest..buying 35K commodes and 18K wastebaskets!

by WashStateBlue 2009-01-30 08:21AM | 0 recs
Re: Bail Out Bonuses

I will believe it when I see it put into law,a nd the rule should not just be limited to right now, but as a general rule. I have no problem with people making money. I want to make money. I have a problem where the system is no longer incentives, but, instead, unjust enrichment in which the money is being handed out without regard to the state of the company. This is  bad for the general public and shareholders who both foot the bill.

by bruh3 2009-01-30 08:29AM | 0 recs
I religiously avoid right wing media....

But, it would be fun to hear Rush, Hannity, Beck etc go at the McCaskill bill.

"Socialism, while they are giving away free money to the welfare queens, they are stripping the best and brightest of their incentives!"

Their problem is, the anger and hostility at the super-rich right now is rising, and that kind a concept might sell with at least SOME of the ditto heads.

Yes, some are so gone, they are OK with their bosses making 1000 times more then they do.

Read "Deer Hunting with Jesus"; It's just amazing how totally brain-scrubbed the poor right wing folks are to accept a virtual serf/master existence.

it's no wonder the unions are dead in the redneck south.

by WashStateBlue 2009-01-30 08:39AM | 0 recs
Re: Bail Out Bonuses

The Treasury invested in the banks, it did not 'bail them out'. The investment is in preferred shares that pay a 5% dividend plus warrents that give the Treasury purchase rights plus additional income that brings the total payout to the Treasury, pre-exercise, of about 8%.

Obama disappoints me with his fake outrage at retention bonuses.

If you want to preserve and enhance the value of the banks so that they can attract additional private capital you need to retain the best people. I would say that at least 80% of the bonuses were well deserved and a probable 20% are questionable. This is always the case though as no decisions are ever 100% perfect.

For a financial firm to pay key people bonuses to retain their services is like you painting your house to preserve its value. And just like you can choose the most expensive high quality paint or the less expensive economy paint I suppose bonuses can range between expensive and economical. But it is just plain stupid to flat out say that bonuses should not be paid at all.

So two points:

First, the taxpayer money in the firms is an investment. The corporation uses money in a manner that it believes best serves its corporate interest. To the extent that it is in the corporate interest to bay bonuses then it is also in the taxpayer/investor interest for them to do so.

Secondly, keeping key people is critical to financial firms right now in order for them to have a fighting chance to recover and thrive. Not a one of the critics, Obama included, is qualified to replace the top producers at financial firms and without the producers the firms die.

by Caliman 2009-01-30 08:44AM | 0 recs
Re: Bail Out Bonuses

without the producers the firms die

Should read:  "Without the government bailing out the awful decisions made by the people receiving the bonuses, the firms die."

by the mollusk 2009-01-30 09:12AM | 0 recs
Re: Bail Out Bonuses

I call horseshit. As far as I know, there are a bunch of out of work bankers that would kill for 400k a year. If they can't retain them, replace them.

If the talent they are trying to retain is so good, then they shouldn't need TARP funds.

by pneuma 2009-01-30 11:20AM | 0 recs
Re: Bail Out Bonuses

Out of work investment bankers have no book. They are practically worthless without one. All of their clients have already been picked up by the survivors. It is the survivors who are valuable to the firm, not the ones with nothing to offer right out of the gate.

I suppose you think that a firm could just replace a top producer who they paid over a million dollars to with an unemployed person for less than half. But if they try that the guy they fire will just go accross the street with his clients in tow and get paid a million and a half by someone else.

The real world does not work the way you think it works.

by Caliman 2009-01-30 11:29AM | 0 recs
Re: Bail Out Bonuses

But you're assuming that these people really are worth their salary.  There can be salary (or bonus) bubbles the same way there are housing bubbles.  I'm not saying these people aren't smart and talented, but are they really 30 times smarter and more talented than a scientist or a doctor?

by the mollusk 2009-01-30 11:41AM | 0 recs
Re: Bail Out Bonuses

No, the world works exactly the way I think it does. These people are not worth their salary; their clients are. If another firm has been properly managed such that they do not need TARP funds, then they deserve the new business, and the other firm does not. What's the problem?

by pneuma 2009-02-05 06:16AM | 0 recs
Re: Bail Out Bonuses

The argument is that top flight talent deserves the big bonuses. If the banks were flush and solvent, making Exxon-like profits, I'd agree.

But these banks have, for all intents and purposes, failed. It's difficult to argue that they have top talent, given that outcome. The time for bonuses is when they recoup a nice return on our investment.

by Neef 2009-01-30 10:43AM | 0 recs
Re: Bail Out Bonuses

It may be difficult for you to believe that banks have top talent. You talk as if you have no clue concerning what it takes to produce tens of millions of dollars in revenue each year, year in and year out. The revenue does not miraculously appear all by itself. It must be generated through commission sales, putting together deals, gathering assets, trading, etc.

The people who do this generally at the top of their class intellectually, have paid their dues to reach the top of their profession and work incredably long and stressful hours.

During go go years it all looks easy. But it is during times like these that the real talent rises to the surface. No one knows ahead of time who is going to be able to tough it out and bring in the money to keep the firm going.

But the truth of the matter is that in a finacial firm the only assets worth anything are the producers who can generate revenue. Nothing else really matters. That is why retention bonuses are ok in principal.

I understand that you don't get it. But for Obama to be so ignorant of how things work is pretty dissapointing.

by Caliman 2009-01-30 11:22AM | 0 recs
Re: Bail Out Bonuses

But it's not like there's been a bonus freeze on for the last ten years.  And look where that system has gotten us.

by the mollusk 2009-01-30 11:28AM | 0 recs
Oh boohoo

Salesmen struggle to meet ever-larger quotas in essentially flat dog-eat-dog, zero-sum industries. When they don't make quota, when they fail, they don't get compensated the same as if they succeed. Walk down the halls of the big consulting firms, and watch people burning out trying to maintain high-rate bill hours, and tell me they don't bust their asses. I've seen young men cry over blowing a deadline, you have no idea how hard people outside your little bubble work.

Your attitude seems to indicate that only financial workers have to fight terrible odds in a workplace. I'm sure everyone on the floors below you think that sounds as conceited and shortsighted as I do. Everything you said applies to half the people in a typical corporation. Everyone has to do more with less, not just your wunderkinds.

The difference is, when they blow a huge project and make the government rush in to save it, they don't expect 2 million dollars and a pat on the back.

by Neef 2009-01-30 01:13PM | 0 recs
Re: Bail Out Bonuses

Add me to the nonbelievers of Obama's "outrage."  Too bad Obama and Chris Dodd didn't do anything about it sooner.

However, here is what you didn't hear from either President Obama or Senator Dodd as they blasted the bonuses: legislation they are blocking makes it possible to retroactively strip those bonuses. Two weeks ago, the House passed legislation, Finance Chair Barney Frank's HR 384, which retroactively strips recipients of bailout money from receiving bonuses [...]

This legislation was passed by the House only eight days ago, over the objections of all but 18 House Republicans. It is still be possible for Senate Democrats to pass a mirror to HR 384, and send it to President Obama's desk. In fact, such a bill would have to first be passed through the Banking Committee, chaired by Senator Dodd. Further, if Democratic Senators were urged to pass this legislation by the Obama administration, it is likely that such legislation could be passed next week, given the massive influence President Obama has with Senate Democrats. And then, poof, the excesses of the bonuses would be solved.

However, as reported on multiple occasions on Open Left, this simply isn't happening. Instead of passing this law, and stopping the bonuses, Senator Dodd and White House NEC chair Larry Summers simply exchanged letters of assurance. They could have stripped these bonuses, but they themselves chose not to do so.

McCaskill's bill doesn't go far enough.

by KimPossible 2009-01-30 10:44AM | 0 recs
Re: Bail Out Bonuses

TOO LATE. If someone like me with no experience in politics knew that this bonus abuse would happen even with a bailout, how come all these Democratic politicians are reacting like it is shocking? They should have been proactive on this bullshit. I knew the bailout restrictions were toothless.

by Pravin 2009-01-30 01:03PM | 0 recs


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