Let the Good Times Roll
By Brian Beutler
David Cho reports:
The Obama administration has finished drafting the central elements of its plan to rescue the financial markets and is gathering feedback from regulators and Wall Street executives, sources familiar with the matter said yesterday….In finalizing the plan, officials have made a policy decision that could dismay lawmakers. The administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid but instead retain looser requirements initially included in the Treasury’s $700 billion rescue program, a source familiar with the deliberations said. Officials are concerned that harsh limits could discourage some firms from asking for aid.
Meet the new boss. You’ll recall that the “looser requirements initially included in the Treasury’s $700 billion rescue program” are the same ones that allowed bailed out banks on Wall Street to hand out $18 billion in bonuses to the very people whose combined efforts drove those banks into the ground. It’s worth repeating that $18 billion is a significant percentage of the total funds the government distributed to them, and that if the money had been loaned to other banks–for brief stretches at high interest–it would still be there, keeping them afloat. Instead, it’s gone.
Of course, there could (and should) have been stricter compensation requirements written in to TARP in the first place, to make it something like an opt-in emergency fund. That would have discouraged (at least to some extent) solvent banks from walking away with unnecessary taxpayer money, and had the ancillary benefit of isolating zombie institutions from those in greater health. Instead, Paulson forced all the major banks to take billions and billions of dollars. He sunk the cost. And now Obama officials believe (or say they believe) that imposing pay restrictions will lead executives to run their institutions (further) into the ground.
TARP could have been better in many ways, obviously, but this underscores once again one of the obvious advantages of short-term nationalization–that if the government controls the bankrupt companies, there’s no real need to hash out the terms of compensation restrictions, and, therefore, no cottage industry dedicated to finding loopholes in those provisions. But, in the words of our new Treasury Secretary, “we have a financial system that is run by private shareholders, managed by private institutions”. And that’s true, it seems, even if those institutions’ only value lies in the hope that the government will green light billions of dollars in upward wealth redistribution to their executives and shareholders.
40 Responses to “Let the Good Times Roll”
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January 31st, 2009 at 1:45 pm
It’s time to start advocating violent revolution. There is nothing wrong with America that couldn’t be fixed by completely eliminating (by extreme violence) the political/media/financial classes in this nation. I think that it could be done without killing more than a mere 5% of the population,.
January 31st, 2009 at 1:49 pm
“It’s worth repeating that $18 billion is a significant percentage of the total funds the government distributed to them”
2.6%, if my math is correct. I’d quibble with the word “significant” in your post.
I’m against letting banks distribute $18b in government funds to their management, but I’m also against elevating the sideshows of the crisis to central points.
“this underscores once again one of the obvious advantages of short-term nationalization”
Yup, but it’s only a minor part of the reason why short-term nationalization seems the best available solution.
January 31st, 2009 at 1:50 pm
Whenever you hear that Wall Street is paying itself 18 billion in bonuses, make a correction — it was congress that paid the bonuses. Giving billions of dollars in no-strings public money to a bunch of executives distinguished mainly for fleecing their shareholders is the same as giving the money directly to the executives.
January 31st, 2009 at 1:52 pm
So much for a Democratic Realignment.
Sadly, Voice of Reason may be right. A Violent culling of the ruling class may be the only way to right this country.
January 31st, 2009 at 2:11 pm
Petey,
Eighteen billion is 2.6 percent of the full $700 billion. Not of the $350 or so billion that the government actually distributed, as I stipulated in the post. And it’s an even greater percentage of the money the government distributed to the banks on Wall Street.
Still quibble?
January 31st, 2009 at 2:30 pm
Re: You’ll recall that the “looser requirements initially included in the Treasury’s $700 billion rescue program” are the same ones that allowed bailed out banks on Wall Street to hand out $18 billion in bonuses to the very people whose combined efforts drove those banks into the ground.
Most of that 18 billion went to lower echelon people– middle class secretaries, tellers, phone answerers, processors, mail room clerks, security guards, etc etc. And the amounts were fairly small– a few hundred dollars a person. And at some firms at least (Morgan Stanley, Goldmann Sachs) the CEOs refused bonuses. I really don’t think you can blame Citibank’s receptionists for causing the market meltdown.
January 31st, 2009 at 2:48 pm
jonf, got cite? To give out $18 billion in $360 chunks, you would need 50 million employees or over 15% of the US population.
January 31st, 2009 at 2:52 pm
This is a thinly-sourced article.
January 31st, 2009 at 2:57 pm
Jonf is engaged in the well known establishment tactic of “making shit up and lying out his ass.” When the revolution comes, he will hopefully be one of the first to be shot in the back of the head.
January 31st, 2009 at 2:57 pm
“Eighteen billion is 2.6 percent of the full $700 billion. Not of the $350 or so billion that the government actually distributed, as I stipulated in the post. And it’s an even greater percentage of the money the government distributed to the banks on Wall Street. Still quibble?”
Point taken.
I did admit I had less than full confidence in my math.
January 31st, 2009 at 3:24 pm
When the revolution comes, he will hopefully be one of the first to be shot in the back of the head.
Voice of reason, indeed. Our little trigger-happy Bolshy right in our midst?
Anyways, it’s sort of funny watching all the furor about bonuses. Anyone with the remotest familiarity with investment banking would know that bonus is essentially salary and salary is essentially bonus on Wall Street. The real salary comes in January with the annual bonus payout, not with the end-of-month pay stub. That somehow bonuses are supposed to be for performance is a bit of a myth; usually the performance factor influences no more than 10% of the size of the bonus given. Rather, it’s simply a different model of compensation, when you are essentially getting your pay in an year-end lump sum instead of month-to-month.
Talking about “excessive bonuses” is not only silly, but incredibly misinformed. Investment bankers don’t pay their mortgages with salary; they do that with their annual bonuses, which are explicitly factored into the compensation package. Take away the bonus and you are left with, essentially, a fraction of the actual intended level of fixed pay.
Now of course to give out multi-million dollar bonuses this year is nonetheless ridiculous and tone-deaf. Nobody is defending $5-million bonuses. But to whinge about the mid-level guys taking home their January money of say, $300,000 is just dumb and uninformed.
January 31st, 2009 at 3:31 pm
And of course, London and Hong Kong are still paying their bonuses, and by necessity London pay is put on constant parity with NYC.
Complain about useless bankers, but the smart guys who actually have a clue and are essential (i.e., the people who aren’t getting laid off) will bolt on a plane to London as soon as the bonus pipeline stops running in NYC. Nicely enough, NYC banking will keep the dim bulbs who don’t get to pick (i.e. the majority) and lose the clever ones who are supposed to turn this thing around. Way to go to make the crisis worse I say. The bonuses paid in the City are the same as the ones on Wall Street. I haven’t yet heard from the British Government clamping down on bonuses or any British papers advocating the same? (Even the Guardian)
January 31st, 2009 at 3:32 pm
Myles,
Actually I’m not a leftist; I’m a libertarian. But the complet eleimination of our current elite – almost all of whom got that way (directly or indirectly) through rent seeking and otherwise taking advantage of the government – has to go first.
As for the substance of your comment, it hardly matters. Given the fact that the prople who made the decisions in the industry knew full well what was coming, and acted as they did anyway (it’s amusing to read some of the ill-informed defenses of the industry which try to argue otherwise) out of greed. Thus, whether “bonus” or (effectively) “salary” they deserved nothing (well, less than nothing actually). Now, absent the bailout, nothing is what they would have gotten, given the ensuing well deserved collapse of their companies. But the government stepped in, and animals that in any sane society would have been lined up against a wall and shot are instead rewarded. Of course, our legislators are equally guilty, and equally deserving of an early death.
January 31st, 2009 at 3:47 pm
Take away the bonus and you are left with, essentially, a fraction of the actual intended level of fixed pay.
You say that like it’s a bad thing.
I think you’re staring to catch on, Myles.
January 31st, 2009 at 4:24 pm
You say that like it’s a bad thing.
I think you’re staring to catch on, Myles.
Well, leaving aside the argument about whether it is on its merits a good thing or bad, that’s not the current argument against the bonus, is it? People are against bonuses not because they are nice money, but because they are perceived to be extra money in a time most unsuitable for indulgent flourishes, when in fact they are not extra at all and quite integral.
I would appreciate sniggering liberals to be a bit more honest about what exactly they are advocating. Nobody gives two pins about $3-million a year executives; why are $1.5-million a year bankers (who get the majority of the cool million from bonuses) such pain?
January 31st, 2009 at 4:27 pm
Re: To give out $18 billion in $360 chunks, you would need 50 million employees or over 15% of the US population.
Obviously a relative handful of people got some great big bonuses. I am not denying that, nor suggesting that any of its defesnible. But just as obviously there are a lot (A LOT!) more secretaries, tellers, clerks and the like employed by these firms than there are managing directors and senior VPs. So of course the median bonus will be fairly small. I’m on board with the hullabaloo over paying someone like John Thane 10 million dollars just because he managed to “save” Merril from outright bankruptcy (with an assist from Mssrs Paulsson and Bernanke). But I do think we need to differentiate that outrage from the teller at your local BoA branch getting $500 in what is basically just deferred compensation. Remember too that many (most?) of these jobs are exempt and so the employees don’t get overtime, but are often required to put in well over 40 hours a week. I’d be in favor of ending those loopholes in our overtime laws but as things stand right now these “bonuses” are justifiable payback for a lot of hitherto unpaid work.
Re: Jonf is engaged in the well known establishment tactic of “making shit up and lying out his ass.” When the revolution comes, he will hopefully be one of the first to be shot in the back of the head.
If your”voice of reason” now consists of advocating murder of strangers with whom you disagree then I really think you need to see a shrink and get on anti-psychotics pronto.
Re: Given the fact that the prople who made the decisions in the industry knew full well what was coming
Do you have god-like psychic powers by which you can prove such an unsupported assertion? Otherwise you really don’t know human beings very well. In matters ranging from smoking to majoring in medieval literature, the human mind very readily substitutes hope for reality when look ahead to the future.
Re: You say that like it’s a bad thing.
Anything that forces down middle class wages and salaries is a bad thing– I would not expect to have to make that point on this blog. (And again, I am talking about the majority of bank workers, who aren’t hedge fund managers or memebers of the executive committee. Want to go after the CEOs? Fine. I’ll grab my pitchfork and join you)
January 31st, 2009 at 4:33 pm
And in any case, pay restraint would simply be ludicrously futile, sort of like the Eighteenth Amendment; it is simply not humanly possible to enforce New York salary caps that would be lower than the going rate in London, and the British are not going to cap their banker salaries anytime soon.
In fact, come to think of it, I want to see Pelosi try to ram through salary caps, and then have the legislation blow up in her face (as it invariably would) as the only good and competent executives left all bolt for London and Dubai. Although it would be nice to see her do some shared sacrificing from her swanky spot in San Francisco Bay. (She’s loaded, isn’t she? Can’t just be helping the masses from her limousine I imagine, should try to at least get herself in there with the rest of us, or at least, with the bankers who she’s flogging)
Democrat stupidity really knows no bounds. Some of the inanity the Dems want to push through would astonish New Labour, German Soc Dems, Australia Lab, and Canadian Libs combined.
January 31st, 2009 at 5:45 pm
Wall Street has been on an extended mission to portray its top tier as part-film star, part-sporting MVP. (Thomas Frank’s One Market Under God provides the history.) They even have their own ESPN/Entertainment Tonight network, underwritten by GE. I’m well aware of the bonus structure, but if the bosses want to be treated like Hollywood stars or major league coaches, then they can suffer the same consequences of failure.
January 31st, 2009 at 6:19 pm
if the government controls the bankrupt companies, there’s no real need to hash out the terms of compensation restrictions, and, therefore, no cottage industry dedicated to finding loopholes in those provisions
That’s not true at all — you still have an agency problem, whereby the managers of the companies have the incentive to pay themselves and other employees large bonuses. The public owns these companies now — at least those that are publicly held — and the current ownership structure doesn’t seem to impede management well. There’s no immediate reason to think the government is going to do this better.
January 31st, 2009 at 6:54 pm
You know, Myles seems to be almost intentionally undermining his own position. Those poor, poor middle level people with their measly $300,000.00 bonuses (that are being paid for by the taxpayers, 99% plus of whom don’t make that much). While it’s true that the majority of their salaries are in the form of bonues, they do also get conventional salaries, the amount of which is still more than most Americans make.
What sub humans like Myles and JonF fail to understand is that the bonues would not be an issue but for the massive subsidies. Without those subsidies, those people would not only not get bonues, they would be out of jobs.
And Jonf, middle class? Really? Are you kidding me? You are either venal or stupid – which is it? I suppose it could be both. Of course we all know what Myles is.
January 31st, 2009 at 7:11 pm
The Democrats should actually force Repubs to fillibuster this thing. It will dramatize their obstructionism, and they won’t be able to hold out for long. Of course, playing chicken right out of the gate for Obama is risky, to say the least, but the payoff could be big.
January 31st, 2009 at 7:28 pm
Myles may argue that these superstar bankers will all jet off to Dubai or London. First, I say good riddance because they couldn’t have been that great if all they did was create this financial hydrogen bomb and dumped it in the American system. Good luck elsewhere. Second, this is a global financial crisis and London/Dubai, etc are all in the same mess we are in. Third, US executives have paid themselves such a greater amount of compensation than executives any other place in the world for comparable value. They have also helped drive the hyperinflation of executive compensation everywhere. Sort of like the Yankees in baseball. Just because one country chose to massively overpay for suspect outcome doesn’t mean everyone else plans to jump on the stupid train.
January 31st, 2009 at 9:00 pm
Clearly you don’t get the concept, but investment banking pay is fixed at parity between New York and London. And Whitehall is not about to impose lower compensation. Executive compensation might have an American premium, so to speak, but investment banking compensation most certainly does not.
And you actually would end up driving out only the best people, not the vast majority, who couldn’t afford to ditch their current jobs. Precisely the people who could ditch their current jobs are the same people who will needed to be kept on and the same people who were smarter than having been knifed by this crisis.
January 31st, 2009 at 9:04 pm
That is why this sort of salary cap legislation is so ludicrous; it’s barking mad because it’s unenforceable. The American government has no jurisdiction over salaries in Hong Kong and London, and as long as they don’t kill their salaries, there is no chance of any salary cap actually having an effect on Wall Street.
This is the auto sector; national regulators simply do not have any influence on salaries in high finance, the same way that no government will be able to control legal hourly billings. This is a commission-based business, and if you don’t pay your dues, someone elsewhere will.
January 31st, 2009 at 9:06 pm
I meant to say “This is no auto sector”
January 31st, 2009 at 9:14 pm
The Korean government just took over its stock exchange. Bet they can cap executive compensation.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=80830
January 31st, 2009 at 9:16 pm
The Korean government just took over its stock exchange. Bet they can cap executive compensation.
Not sure how Korea has any relevance high-level investment banking as practised in London and New York.
January 31st, 2009 at 9:18 pm
Hey maybe the banking CEO’s give offer a crash course on extortion to the auto executives, and make a little more money on the side.
January 31st, 2009 at 10:01 pm
Myles, just what are you smoking? WTF makes you think the London banks even want to hire American banking execs who have run their banks into the ground? I would think all their top positions are filled, overfilled actually. Don’t forget the execs of the British banks who are now unemployed, as well as the American execs in the same boat.
Methinks there is a glut of financial executive talent world wide at this point. That glut is only going to grow as more banks fail. Or maybe you haven’t heard about the law of supply & demand at this point of your life?
Sheesh!!! But why am I calling you a fool? After all, it is me feeding the troll.
February 1st, 2009 at 1:37 pm
And DTM, I am positive that revenue is not the correct denominator either. If we want a compromise, maybe net income? Of course, in that case the TARP funds explicitly plugged gaps that would have likely led to greater layoffs or (wait for it) reduced compensation at Wall St. firms!
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