Yesterday our brilliant House of Representatives rushed through another bill that was created because they failed to notice something in a prior bill that was rushed through. Note to House: Read what you try to write into law, please.
Yes, AIG (NYSE:AIG) was bailed out and would never have been able to pay the bonuses had the government not bailed them out. Congress has a case to want the bonuses back. But for them to tax bonuses 90% going forward only puts these companies at a huge disadvantage, which will make it much harder for the taxpayers to get their money back. Companies like JP Morgan (NYSE:JPM), who would fall under the 90% bonus tax, were pretty much forced to take money from the government, and for the government to now put them at a competitive disadvantage to non-bailout firms is astounding. Jamie Dimon must be furious.
Below we highlight the performance over the last two days of the 20 largest non-bailout global financial firms along with firms that would fall under this 90% bonus rule. We excluded AIG, Fannie Mae (FNM) and Freddie Mac (FRE), since they're essentially already gone. As shown, the non-bailout firms are down an average of 1.38%, while the 90% bonus tax firms are down an average of 14.02% (including AIG, FNM, and FRE would make this figure even worse). While the companies that would fall under this bonus tax rule are heading lower, their competitors are probably licking their chops for the top talent to come their way. And the government still hopes to get the taxpayers their money back. Good luck with that.