This is an unfolding story.
Scandals continue rocking the bailouts. Bonuses to failed executives should remain front and center. People are furious. They are losing their homes, jobs, retirement savings, and health, while executives who ran the world's economy into the ditch are taking (were planning to take) huge bonuses as if they merit such compensation.
88% of American adults say the executives of companies that need federal money to stay in business should not receive bonuses. A new Rasmussen Reports national telephone survey found that only 8% believe the bonuses are okay while 5% are not sure. - Rasmussen Reports (February 2, 2009)
Merrill Lynch $10M Bonuses from Bailout Funds
Right before Merrill Lynch was sold to Bank of America, Merrill Lynch's 11 top executives were paid over $10 million each in bonuses. That was more than the year before and despite $27.6 billion in losses for the year for Merrill Lynch. They paid out $3 billion in bonuses. New York, State Attorney General Andrew Cuomo issued subpoenas for some of those executives to testify as to the legality of those bonuses.
How did Merrill Lynch get into the position where the politicians would look the other way?
During the last years before the collapse, the financial sector made political contributions and official lobbying expenditures of $5.1 billion aimed at Washington politicians. They poured in that money to influence legislation to bring about continued deregulation that has resulted in the collapse in real estate and toxic securities. It also reflects the revolving door, since many of the lobbyists went in and out of government.
Fannie Mae Bonus Scandal
Fannie Mae too is planning to hand out millions in retention bonuses. Why retain failures? Fannie Mae had been taken over by the government for all intents and purposes.
AIG Still the Bonus Debate
American International Group (AIG) (some call it "Ain't I Greedy") CEO Edward Liddy was still planning to use taxpayer-provided-bailout money ($173 billion) to pay out $165-218 million in bonuses for senior AIG executives at AIG Financial Products, the division that did the investing in worthless, toxic securities. The amount is being reported differently in different publications. Some have it at $450 million in total bonuses throughout AIG. The bonuses are variously referred to as "retention pay."
This is nothing short of outrageous.
Mr. Liddy has repeatedly taken billions of hard-earned tax dollars from the American people-many of whom have lost their homes, their savings, and their jobs-and then slapped those people in the face with that very money. Mr. Liddy continues to display reckless and irresponsible behavior at the helm of this company, and we simply cannot afford to accept it any longer. - U.S. Rep. Elijah Cummings, D-Maryland, member Joint Economic Committee (Source: "," by Matt Jaffe. ABC News. March 15, 2009.)
Larry Summers, the director of the White House National Economic Council, also called it "outrageous"; however, he said that the federal "government cannot just abrogate contracts." Oh, there is no doubt whatsoever that the government can and does abrogate contracts. The bailout funds could have strings attached such that using the funds to pay bonuses would be nearly impossible. Doing that would not be illegal. The government did exactly that concerning union concessions and the automaker bailouts. If AIG was too big to allow to fail, then the U.S. should have nationalized it outright and kept the important part going - the part that didn't recklessly invest in dodgy, toxic securities. There would be nothing difficult in handling things in that way. Larry Summer is still just working for Wall Street and the banks against what is best for you and yours. It's that simple. We at The Real Liberal Christian Church though work on your behalf. We tell it as it really is for your sake.
AIG was bankrupt. There was no money for bonuses. If the bankrupt AIG had been nationalized, all contracts would have been canceled, as the government would have seen fit. Whatever the people's government would have chosen to honor would have been honored, such as regular insurance policies of Main Street businesses and regular, hardworking, taxpaying, citizens - exactly part of the fold.
You see, arguments such as Larry Summers' show that he is not competent and should not be handling any part of the people's business (government).
We believe that it is only a matter of time before Barack Obama will be forced to clean house. His current crop of main financial and economic advisors for the most part is incompetent, and that's putting it mildly.
(See: "Obama's economic saviour savaged as Keating lets rip," by Peter Hartcher. Sydney Morning Herald. March 7, 2009.)
Paul Keating said, "Tim Geithner was the Treasury line officer who wrote the IMF program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis." Keating explains how Geithner's bungling unnecessarily ruined East Asia's economy for years. Keating further explained, per the article, that:
Australia's banks, by contrast, are strong, said Keating, because of his decision as Treasurer to create the "Four Pillars" policy. This requires that the four big banks remain separate, barred from taking each other over. This prevented them "cannibalising each other", in Keating's words. As protected species, they had no need to mount risky takeovers to bulk themselves up defensively.
You see, cannibalizing each other is exactly what the Wall Street driven banks have been doing with the bailout funds rather than getting Main Street moving. Keating is absolutely correct. What's more, Geithner is well aware of the criticism but does nothing to adopt the Four Pillars for example.
The only positive thing that will come of this longer delay in doing what is right is that it is simply driving the stake deeper and deeper into the heart of the vampires who suck the lifeblood out of all of us on Main Street. They are truly zombies running zombie bank and investment houses. Very few in their circle know what they're doing in terms of good, sound management choices.
Wherever and whenever you have the opportunity to spread the word about what is really going on and at stake, please do that. We must be heard about Wall Street. Our numbers must speak louder than do the Wall Streeters' false figures and false promises.
What's even worse is that AIG transferred more than half of their bailout money to Goldman Sachs ($12.9 billion) and European banks ($77.1 billion). Remember now that Henry Paulson is a Goldman Sachs man. He was in charge of the bailout funds under George W. Bush. That's when AIG transferred the funds.
Furthermore, they asked for yet more money and their fourth quarter losses for 2008 were put at $61.7 billion - the largest quarterly loss of any corporation in U.S. history. We presume that's adjusted for inflation as well.
With public outrage building over bonuses paid to executives of the bailed-out American International Group (AIG), 68% of Americans now believe most of the taxpayer money given out as bailouts is going to the very people who created the country's current economic crisis. Seventy percent (70%) of investors hold that view along with 67% of non-investors. - Rasmussen Reports (March 20, 2009)
In addition, what about the campaign funds that have been shelled out by AIG? Shouldn't those go back? Most politicians don't think so. As kids say, "Go figure."
Citigroup received $45 billion in bailout funds and paid its Chief Executive, Vikram Pandit, $10.82 million in 2008.
Bank of America
BofA also received $45 billion while giving its CEO, Kenneth Lewi, a paltry $9.96 million.
CEO's Hit Bottom in Approval Ratings
Is it any wonder why "The chief executive officers of the nation's largest corporations are viewed favorably by just 22% of American adults, lower even than the ratings earned by members of Congress[?] The latest Rasmussen Reports national telephone survey shows that 26% now have a favorable opinion of the nation's legislators." - Rasmussen Reports (February 18, 2009)
TAXES TO CLAW BACK BONUSES?
Congress was threatening to tax AIG and other executives and former employees to recover the tax money used for the bonuses. Those who received the bonuses would be taxed in a way to get it back. Mundanely speaking, everything that was done from the very beginning of the bailout should be thoroughly examined and anything that was done which should not have been done by virtue of its having been illegal should be rolled backed. Divinely speaking, everyone should repent. The very best of the mundane won't cut it.
Retroactive laws are not always illegal. They are not always ex post facto under the U.S. Constitution. If it is not punitive, it is not necessarily unconstitutional. Would raising taxes on bonuses already received be punitive?
More importantly is the question of whether or not the enterprises involved in receiving the bailout funds could withstand a full auditing in terms of whether or not any illegal conduct would nullify the bonus contracts, at least for the top executives.
The Libertarian Position
The sums involved are not relatively large compared with the total bailout. However, if earnings are not damaged by bad-management decisions - reckless-management decisions - it is more likely that such bad choices will be seen as a worthwhile gamble in future rather than prohibitively risky. It's not Christian though.
Now, it's important to distinguish between the company and the employee. The taxpayers don't want the bonus money back from the company. What they want back from the company is the $180 some billion. They want the bonuses back from the executives and former executives and employees. Getting back the bonus money from the company would be the government (people) paying itself back with its own bailout money. The Treasury could turn right around and give the companies more bailout thereby canceling out any amount retrieved on account of the bonus scandals. It's a ridiculous plan.
These ideas are coming from Tim Geithner but also Larry Summers, who was the Clinton Treasury Secretary when the Glass-Steagall Act was unwisely repealed and when the Commodity Futures Modernization Act of 2000 went through with Summers pushing it. That Commodity Modernization Act allowed for the totally unregulated trading in the very toxic securities, such as Credit Default Swaps, that have so compounded the mortgage crisis.
Michael Greenberger who headed the CFTC Division of Trading and Markets in the late 1990's at the time of the financial deregulation acts, says that banks and hedge funds "were betting the subprimes would pay off and they would not need the capital to support their bets." The unregulated Credit Default Swaps, he says, have been at "the heart of the subprime meltdown. In 1998 Greenberger proposed regulating the growing derivatives market. At the prospect, he says, "all hell broke loose. The lobbyists for major commercial banks and investment banks and hedge funds went wild. They all wanted to be trading without the government looking over their shoulder." (Source: "AIG, Larry Summers and the Politics of Deflection," by F. William Engdahl. Global Research. March 18, 2009.)
Engdahl says, "AIG is 'too big to save'." He says that because he says, "US and European banks whose toxic assets are supposedly insured by AIG would suddenly be sitting on immense losses." So, this was risk transfer. The banks transferred the risk of defaults to the underwriter, AIG. The "policies" were tradable, at profit, all over, over and over. The underlying subprime and Alt-A mortgages though were blended, good with bad, in tranches that were over rated by rating agencies being paid by those they were rating. That was the self-regulation that the Invisible Hand was supposed to handle. People were supposed to act in their rational, best, self-interest and not, repeat not, take wild gambles. The whole market and economy of the world though was swept up in the irrational bubble while the vast, vast majority of people didn't even know there were hedge funds and exotic derivatives and the like. That's what the lack of oversight, regulation, and examination in the daylight brought us: Economic collapse. Engdahl rightly calls it a huge "Ponzi scheme." Why was it bailed out? It should not have been. We should have stimulated Main Street, the real economy, only.
No "loss reserves" were required of AIG. Since they weren't required, they just didn't bother to set enough aside. They couldn't have anyway. There wasn't enough money to do that no matter what. AIG would have to have printed it. In an indirect way, it attempted to do just that, betting that the Ponzi scheme would go on indefinitely. It was insanity. There's no other way to describe it. It was a complete house of cards, no better than what Madoff constructed. Just like offering those who invested with Madoff a tax deduction as victims of crime, it's a crime that the people are bailing out AIG and the other insane gamblers who need help with their addictions and not a huge fix from the government/people.
This risk transfer "gave banks the legal illusion of BIS minimum capital requirements, so they could increase their leverage and buy yet more 'risk-free' assets," writes Engdahl. With the fractional-reserve requirements being reduced down to 30:1 (and even 50:1 as in parts of Europe), we have a possible $600 trillion bubble that Ben Bernanke, et al., are still attempting to keep inflated, as if there are all good assets in there. It's a farce and a continued rip-off. Ladies and gentlemen, you, we, are being had.
Engdahl goes on to suggest, "The idea is simple and not that radical. A US law banning OTC derivatives and moving them to regulated exchanges would end a colossal 'shadow banking' fraud."
Thousands of angry U.S. workers took to the streets Thursday to protest some major banks and insurance companies that have handed out extravagant bonuses on the taxpayers' dime, as the U.S. House of Representatives voted to get some of the bonus money back.
"Banks get bailed out and people get sold out!" yelled janitors, hotel workers, security workers and others pounding on makeshift drums outside a Wells Fargo bank in San Francisco.
The protesters, from ACORN, Catholics United, Jobs with Justice, the powerful Service Employees International Union (SEIU) and other groups marched in Boston, Chicago, Denver, New York and other cities. The actions were aimed at raising support for strong banking reform, the right to unionise and health care for all.
(Source: "ECONOMY-US: At Failed Firms, No Bad Deed Goes Unrewarded," by Adrianne Appel. IPS. March 20, 2009.)
In France, they were protesting in the streets by the millions.