« Holder's Challenges: Restoring Law to Government, Eliminating Politicization in Justice | Home | Why are the Feds Bailing Out the Highway Privatization Industry? »
Claw Back The Bonuses
The New York Times revealed this morning that Wall Street Paid out over $18.4 Billion in bonuses for last year's great work by their executives.
That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller. While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.
When asked why he authorized a huge bonus pool in the face of the firm's largest loss ever, newly booted Merrill Lynch CEO John Thain put forth the standard line.
He defended the reported $4-billion bonus pool, saying that "if you don't pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave."
Excuse me, but where are they going to get jobs that pay $10 million a year? I don't think their rival firms are actually in a hiring mode. This is total malarkey. The Treasury Department should sue any firm that got TARP funds to claw back bonuses paid for last year. Of course the Rush Limbaugh bootlickers in the House will oppose this because Rush thinks this is class warfare.
Advertisement
I'm with you, Jon. These bonuses make me so mad I get sick to my stomach.
But would the Treasury have a legal leg to stand on, if they did sue? Unless there is some catch-all provision in the TARP agreement, I think this was just a mistake, or lost opportunity, or intentional loophole.
I imagine Paulson gave them all a clear wink when he encouraged them to take the TARP funds last fall. Wink, wink, nudge, nudge, say no more.
-- ARG
January 29, 2009 12:47 PM | Reply | Permalink
But would the Treasury have a legal leg to stand on . . . ?
You're asking Taplin?
Taplin's from Hollywood. He delivers the pitch; someone else has to write the script.
January 30, 2009 3:37 AM | Reply | Permalink
"Those best people can get jobs other places, they will leave."
Oh yeah? Where?
It's bizarre that by their own admission, bonuses don't have anything to do with the performance of the firm. Strange.
And they're all convinced that they deserve it. They truly think that their work pusing papers at such-and-such bank is worth 1000 times the pay of the janitor down the hall. Our country is fucked.
January 29, 2009 12:48 PM | Reply | Permalink
Incredible.
Everybody in the financial sector is a thief. Every last one. If not an exec that is directly sucking money and value from Americans, eveyone else is aiding and abetting them by showing up to work.
And please spare the "I'm a low-level drone and had nothing to do with the economy or my company's losses." Guess what? You do well when your company does well, and you should feel the pain when it fails.
January 29, 2009 1:02 PM | Reply | Permalink
I can't argue with you there.
But I have to add that it's too bad that it's all one big myth, the whole idea that the rules that most of us have to follow are the same rules that the thieving upper class has to follow. But that's OK, there are many interests that will do a lot to keep that myth alive.
January 29, 2009 1:48 PM | Reply | Permalink
Ditto that!!!
January 29, 2009 4:33 PM | Reply | Permalink
I'm with you in the spirit of your reply, if not in the substance.
I work in the financial sector, though not on Wall Street. My 2008 bonus was cut by 35 percent even though the company made a profit that was substantial, but less than expectations.
Even at 100 percent, I stood to gain far less than the $112,000 average on the Street.
This is what happens when you combine complete arrogance with being completely and pathetically out of touch.
C'mon guys. You broke it. The whole thing. Ruined five of the country's biggest financial institutions. Toppled the global financial system like a house of cards.
January 29, 2009 9:29 PM | Reply | Permalink
Thank you Mr. Jon Taplin!! This is what I'm talking about!! There's no reason in the world ill-gotten money can't be retrieved... Keep up the fight my friend...
January 29, 2009 2:33 PM | Reply | Permalink
These rats looted the sinking ship before deserting it.
January 29, 2009 3:45 PM | Reply | Permalink
Um, I believe this is very clearly class warfare, on everyone who pays taxes but doesn't get 6-8 figure bonuses for helping bankrupt the company. Paid for by your government with your money.
I mean if that's not class warfare, what does it take?
January 29, 2009 3:51 PM | Reply | Permalink
Jon,
How could it ever, ever possibly be any of your business what is paid by someone to someone they hire to work for them? Just where do you come in on such a private transaction? Is it your business what I make? What I pay for my car?
JUST WHO?? IN THE HELL?,, DO YOU THINK,, YOU ARE?
January 29, 2009 4:32 PM | Reply | Permalink
@renaye-If It's my taxpaying dollars that are going to these bankers, I should have a say. I asume you are not getting a government bailout, so I don't care what you pay for your car. When Citigroup wants to spend $45 million of the taxpayer's money on anew jet--I care.
January 29, 2009 4:53 PM | Reply | Permalink
This is hilarious.
January 29, 2009 5:56 PM | Reply | Permalink
What's the legal basis for trying to claw back a bonus that's already been paid, without restriction?
I like the idea of limiting bonuses on firms that the government assists, but I don't see how it can be made retroactive. Is there a point I'm missing here?
January 29, 2009 8:23 PM | Reply | Permalink
Fraud? Misrepresentation?
If you claim that you're short by $100 billion and need gov't assistance, then within days payout $50 billion in bonuses before you get your $100 billion in assistance, then you're probably ripping somebody off.
January 29, 2009 8:47 PM | Reply | Permalink
This may well be a fair indictment of the banks that pay such bonuses. However, taking money from the banks doesn't do the US any good, since we'd just have to give it back to them.
What you want is to take the money back from the bankers that have already received the money. I just don't see any legal way to do this.
January 30, 2009 7:01 AM | Reply | Permalink
I hear you OhioGuy. Someone needs to face some real consequences ASAP. A very public shaming. Thain's perp walk is helping. Madoff on house arrest only is NOT helping. He should be wearing a pink prison jumpsuit like Sherriff Joe Arapaio makes his inmates wear.
We need to affect their behavior BEFORE they loot/bonus themselves anymore...
PS - Thank you for helping turn OHIO blue. :) That's the way things should be...
January 30, 2009 11:57 AM | Reply | Permalink
I'm a free-marketer and usually don't like government interfering with business.
That being said, if I am going to have my pocket picked to keep a bank afloat, then the bank has (well, should have) lost all claim to freedom in its pay decisions.
If they want to give big bonuses, let them give back every dime that the government stole (or rather counterfeited*) for them and do it with their own money.
*One thing that people don't realize - the money for this bailout is not wshat is being stolen from taxpayers - it is being counterfeited by the Federal Reserve, and will ultimately steal not taxpayers' dollars, but the value of their dollars, something far more insidious and destructive.
January 29, 2009 8:26 PM | Reply | Permalink
Jon - nobody got a $10mm bonus this year. The average bonus was about $100,000. Most bankers have base salaries that are well below normal (usually capped at around $150,000). If they went to work as CFO or internal M&A at a fortune 500 company they'd get paid more than this.
"Wall Street" is a lot bigger than just Citi, BofA, MS, GS, etc and the other bulge bracket firms that are close to get nationalized right now.
It includes commercial banks, asset managers, hedge funds, etc. Alot of them didn't get government funds or cause the credit mess and some still actually made money last year and paid people bonuses.
January 29, 2009 9:15 PM | Reply | Permalink
Alot of them didn't get government funds or cause the credit mess and some still actually made money last year and paid people bonuses.
And those banks should be able to pay their CEOs, etc. whatever they want. It is the banks that received TARP funds which we are talking about.
Their bonus policies should at least be up for review by the government if the government serves as their benefactor.
January 30, 2009 8:42 AM | Reply | Permalink
Some good banks (like JPM) were forced to take TARP money which complicates your point (which in theory I can't disagree with)
January 30, 2009 9:00 AM | Reply | Permalink
It took 30 years, but this is the culmination of Reagan's vision. In Sopranos parlance, this is a "Bust Out." The Debtor Barrons load up their LBO'd companies with debt, and walk away letting the original company (& its employees) or the public to bear the burden. [WIKI: A "bust out" is a common tactic in the organized crime world where a business's assets and lines of credit are exploited and exhausted to the point of bankruptcy. Richie and Tony profit from busting out Davey Scatino's sporting goods store in [the "Bust Out"] episode.]
http://en.wikipedia.org/wiki/Bust_Out_(The_Sopranos_episode)
January 29, 2009 9:18 PM | Reply | Permalink
Short response to John Thain: looks to me like your "best people" already destroyed the franchise. Does it matter where they go next?
January 29, 2009 9:19 PM | Reply | Permalink
Firms not taking taxpayer money should not be counted in the figure. Is 18.4B the figure for TARP-only firms?
Also, even in down years or times, sometimes bonuses are warranted for employees who managed to greatly minimize losses, for instance. Of course at Merrill Lynch it sounds like employees greatly enhanced losses last fall, so if there were any bonuses there, that would be wrong.
January 29, 2009 9:33 PM | Reply | Permalink
$18bn includes hedge funds, insurance companies, commercial banks, etc, etc, etc. It's much more than just TARP firms
Merrill paid on average a bonus of $50,000 per employee. And there were lots of workers at Merrill that actually generated revenue for the firm in 2008. I doubt the employees who were responsible for the massive writedowns got much bonuses at all.
January 29, 2009 11:10 PM | Reply | Permalink
So are you saying that 80,000 Merrill employees got bonuses?
The bonuses Thain handed out totalled more than $4 billion (so that'd be $50k x 80,000 people). I read elsewhere that Merrill only had 45,000 people in the US, and another 15,000 elsewhere, for a total of 60,000 employees. Same ballpark, at least.
Do you know for sure that everybody they employ was on a bonus plan, or are you making an assumption? I had assumed that bonuses were reserved for some sub-set of their personnel.
I've been trying to figure this out since the announcement was made about the $4 billion. If it were only divvied up among a few thousand people, the bonuses would be HUGE.
-- ARG
January 30, 2009 4:45 PM | Reply | Permalink
I used to work there and everybody gets a bonus, even the secretaries and the really junior folks all the way up to the CEO.
January 30, 2009 5:11 PM | Reply | Permalink
Paulson moved from an investment bank where he accumulated significant stock shares and deferred considerable amounts of compensation over the years. I'm not going to defend or apologize for his comp--it's pretty outrageous. Still, the Federal Reserve Bank is a quasi-public institution, and no one enters its employ thinking they'll retire on a private island.
January 30, 2009 7:09 PM | Reply | Permalink
What's your point? He sold all of his shares when he left GS to take the government job.
January 30, 2009 10:31 PM | Reply | Permalink
No point to this part of the thread. I was trying to respond to eds post further down the thread. Sort of a non sequitur here, but it packs more punch further down.
February 1, 2009 6:10 PM | Reply | Permalink
All these businesses' corporate executives should be summarily fired without pay as a precondition of any bailout. They should be permanently blacklisted from doing business with the government and prohibited from ever holding any corporate office.
January 29, 2009 11:20 PM | Reply | Permalink
Bonus are pretty widely used from the lower management ranks on up. This is true of companies outside the financial industry.
I think that the main reason for using bonuses is that it keeps your compensation flexible during periods of low inflation. If inflation is low, and you want to reduce a worker's pay, you'd actually have to hand out a pay cut instead of a raise. On the other hand, when inflation is high, you can cut easily by not giving the cost of living increase.
So about 15-20 years ago, the compensation gurus promoted the idea of not giving raises, but putting the raise money into bonus pools. Over a few years, the bonus could become a significant fraction of salary.
Now if a manager has a poor year, the boss doesn't have to give a pay cut, he just withholds the bonus. Or he can slosh the bonus pool around to the high performers (or favorites) to reward them more.
Bonuses are really a way for managers to manipulate salaries more easily.
January 29, 2009 11:39 PM | Reply | Permalink
I posted a comment on this very topic here several days ago.
This money could be easily recouped via a new tax code provision. Here's my suggestion.
January 30, 2009 10:33 AM | Reply | Permalink
If we taxpayers are being asked to spend money like we did in WWII, why don't we have comparable income tax rate schedules? 90% at the top, for example.
Question: Is it a matter of constitutional law or only a matter of tradition that Congress doesn't enact changes to personal income taxes rates which apply retroactively? That is, even if desirable could Congress change the rates on 2008 income by a law enacted in 2009?
January 30, 2009 11:52 AM | Reply | Permalink
Such a move would take even more hubris than Cheney showed us. I think an argument could be made, similar to "eminent domain".
Due process and property rights would probably be the main objection.
But why tax old income streams, why not just confiscate wealth, say 10% over $2M, up to 49% over $200M, including corporate wealth?
January 30, 2009 3:49 PM | Reply | Permalink
Ok, kids, attention has been paid to your outrage. Can the grownups get back to stimulating the econony now?
January 30, 2009 12:02 PM | Reply | Permalink
Of course the president made his "shameful" comment after a meeting in the Oval Office with Timothy Geitner, whose severence package from the Federal Reserve Bank was over $400K. That would be almost four times the average Wall Street bonus for 2008; the same period in which the Federal Reserve's long term debt grew by many multiples. Sure it's a product of the Wall Street meltdown, but why exactly is the new Treasury Secretary due for a severance package from a quasi-government post?
January 30, 2009 1:34 PM | Reply | Permalink
Great question!
But Paulson got a tax free ride worth about $200,000,000 when he moved to Treasury, so G's windfall is pathetically minimal.
January 30, 2009 3:51 PM | Reply | Permalink
- mad as hell and aint' gonna take it anymore...yOU GO girl, Sen. Claire McCaskill:
http://www.cnn.com/2009/POLITICS/01/30/executive.pay/index.html#cnnSTCVideo
*
Nonetheless, Congress has hardly been the average taxpayer's friend, as American history is replete with examples, and words of wisdom and warning about what a future may hold if we don't learn from the past or perhaps more accurately, learn from our history so as to find a better way to scam going forward:
http://video.google.com/videoplay?docid=-515319560256183936
January 30, 2009 10:15 PM | Reply | Permalink