OK, I’m no financial reporter, but after going a little more in depth on this whole financial imbroglio (thanks to Bloomberg, WSJ, FT and NYT), there are clearly some larger, more vexing questions. Indeed, the cynic in me KNOWS that the timing of the outrage over the bonuses was at the very least engineered to overshadow the real issues.
1) What about the $2.5B in Merrill bonuses that were questionably awarded in December, prior to the merger with BOFA, which were so conveniently excluded from the House bill passed yesterday? Because the House Ways and Means Committee decided that they wanted to keep the applicable bonuses within the 2009 tax year, Merrill’s $2.5 is excluded? Did they learn nothing from the outrage of the last week over a measly $170M?
2) Why were there bailouts with no strings attached in the first place? Why so much faith in the bankers and financial institutions that got us into the mess? If this doesn’t send a clear message that government is in the pocket of special interests, and not working in the interests of who their primary interest should be – the taxpayers (nothing new here, btw) - what chance do we stand? Considering that some of the major players who crafted the bailouts used to work for the institutions now being bailed out is the fox guarding the henhouse.
3) Of the $170B that went to AIG, a good portion of it went to buy soured securities at full price from a few of the same banks which received TARP monies. In other words, Goldman, BOFA, Merrill and Wachovia were all OVERPAID, as the securities should have been paid out at current (read depressed) market prices. We are talking a difference of about $30B in overpayments to both US and foreign banks. How can we rectify THAT? Sorry, but if these institutions were honest, ethical and moral, they might have brought this to the government’s attention. Further, why do we, the taxpayers, have no value to show for what we have paid for? This is a pure transfer of wealth from US taxpayers to these banks.
4) Why didn’t foreign governments pay their fair share to salvage their own respective financial institutions? And again, why did we not get any value in return?
5) Even though Goldman has said it plans to pay back nearly $10B in TARP funds it received, it accepted $12.9B from AIG for bets it claimed for months were adequately hedged. If they didn’t need that money, why did they take it in the first place?
I am frustrated with, and disappointed in Obama and his team for dropping the ball.
With Geithner having confirmed that the Treasury department pushed Dodd to add the loophole in the stimulus bill which allowed bailout bonuses, it should be painfully clear, if it’s not already, that these guys are at best asleep at the wheel, and at worst, in the pockets of banking and financial interests (but we know that already, don’t we?)
I would caution our legislators to be very careful in crafting bills in their reactionary haste. I don’t want any surprises later on, and am mindful of throwing the baby out with the bathwater. I feel that we are justified in making corrections for undeserved bonuses and payments, but do not wish to penalize those who deserve it. (Though they could help their case with the public were they not so obscene). I really am reasonable and do believe in rewarding those who deserve it – but the question is what is reasonable if your company needs to be bailed out?
And while it is somewhat heartening to see some positive actions taken in response to the public outcry, we still have a long way to go. I don’t think I’m alone in wanting to see PROACTIVE measures. None of this grandstanding after the public gets pissed off. That is letting our legislators off the hook way too easily, and not holding them accountable.
So, yes, bailouts should have stringent conditions, especially on executive pay and bonuses. Yes, there should be an overhauling of a system which rewards short-term gain to the detriment of long-term financial health. Yes, there should be claw-backs for bonuses paid for poor performance, and on illusory profits. Yes, there should be greater regulatory oversight of the entire financial and banking industries.
The Wall Street excesses and bubble of the last 5 - 10 years has been madness and has only served to confirm my suspicions from the beginning that a lot of what has been passing for business as usual has been not only ethically problematic, but a house of cards as well.
And as far as the outcry against the “S” word – I’d like to say to those who oppose it that it has already been going on – as in socialization of risk, and privatization of the rewards.
And that is highway robbery plain and simple.
