$33 Billion in Taxpayer Money Subsidized Wall Street Bonuses

According to information released by the office of the Honorable Andrew Cuomo, Attorney General of the State of New York, as published in the Wall Street Journal, yesterday:

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year -- including more than $1 million apiece to nearly 5,000 employees -- despite huge losses that plunged the U.S. into economic turmoil.

There are a number of people on Wall Street who are now criticizing Mr. Cuomo for having the nerve to investigate executive pay rates at the big investment banks in New York. They claim that the pay rate situation "may or may not be immoral" but is not "criminal" and, therefore, Cuomo has no business investigating it. Most of these critics, however, are simply the beneficiaries of the current system whereby banks take money from the taxpayers and give it to their executives.

In fact, Cuomo has done a great service to America by bringing this important issue to the forefront of debate. What his detractors choose not to understand is that Cuomo is not merely a "District Attorney", and not merely charged with criminal prosecutorial duties. He is the Attorney General and, as such, is charged with a duty to investigate all actual and potential frauds upon the public. That includes the issue of excessive bank pay being taken directly, or indirectly, from the American taxpayer.

The information he has released indicates that we have a group of essentially civil servants, who are still being called bankers, but whose jobs have been "guaranteed" by the government, whose companies have recieved hundreds of billions of dollars worth of either overt or backdoor bailouts, and who are being paid millions of dollars in salary and bonuses. No one would tolerate such pay rates among civil servants who are called what they are.

The only way to justify these excessive pay packages is by a deception. First, you call yourself a "private" industry (even though you are being heavily subsidized by the government). Then, you claim that excessive pay rates are "needed to retain talent". Finally, you allege that, if you don't pay ridiculous amounts of money to these people, someone else, somewhere, will.

I am not sure what kind of special "talent" it takes to destroy the world's financial system, but I have no doubt that it does require very special skills. Ordinary human beings, like you and me couldn't possibly do such a thing. But, given that they are all still on the public dole, if banks like Goldman Sachs (GS), Citigroup (C), JP Morgan Chase (JPM), Merrill Lynch/Bank of America (BAC), and so on, want to pay such money, let them first break up into little trading divisions, with each unit so small that it poses no systemic risk. Tiny boutique trading houses would not have the financial clout to bring down the financial system, nor political clout to obtain bailouts. If they lose, let them go down in flames, and be forced into bankruptcy.

Subsidized bankers, of course, will not willingly do that. High pay rates are now possible with the help of a parasitic attachment to jugular vein of our Treasury and Federal Reserve. The big banks are the beneficiaries of FDIC bond guarantees, making their bonds as good as U.S. Treasuries, and allowing them to obtain cash at ultra-low rates of interest. They are also the beneficiaries of a host of giveaway programs through the TARP, the "loan windows" of the Federal Reserve, and the Fed's "cash for trash" program designed to clear away toxic debt securities, whilst sticking taxpayers with the liability. Most of the loan "window" borrowings are perpetually renewed, making them gifts, not loans. However, even if this situation were to eventually turn around, with the banks paying back all that they owe, they will be back sucking at the Federal teat, again, as soon as their wild bets go bad again.

In short, they play with taxpayer money. It is not important whether the money came to them in the form of overt "TARP" giveaways, backdoor bailouts through AIG, FDIC guaranteed ultra-low-rate bonds, TALF, the Fed discount windows, or otherwise. The fact is that, when they win, they take the profits. When they lose, they threaten worldwide economic implosion, and by doing so, we are forced to shoulder their losses. Gains are privatized, whereas losses are nationalized. That is just plain wrong.

An important point to remember is that the employees of all major investment banks are now essentially civil servants, whether they like that label of not. They should be paid accordingly. That includes the ones who "paid back their TARP obligations". TARP is the smallest part of their bailout from the U.S. government. These corporate welfarite companies are able to support their traders mainly because they are all on the dole, or will be on the dole, again, as soon as things go wrong.

Wall Street's executives are being allowed to continue taking huge profits, while sticking losses and/or risk of losses, to the rest of us. The only "talent" I can see is the uncanny ability to fleece America and the world.

Disclosure: No positions in any company mentioned in the article.

Comments

[Davewmart]

Thanks for your on-going efforts to awaken the sleeping masses to the bare faced swindles that are being perpetrated.
In my view the whole mess of these bankers should have a Rico investigation, and penalties for insider trading, false accounting etc should include having their assets seized just like drug dealers, as they do considerably more damge than those comparative innocents.

2009 Jul 31 02:37 PM

[Rich Tehrani]

Bravo!

blog.tmcnet.com/blog/r...

2009 Jul 31 03:13 PM

[Graham and Dodd Investor]

The "pitch" is more like, "let us pay these huge bonuses, or we'll blow up the financial system." That's blackmail, and well within the purview of an AG.

2009 Jul 31 04:08 PM

[Destin]

Fantastic commentary that summarizes my own views to a T. Generations of Americans yet unborn are stuck with the tab for this mess and yet it's back to business as usual on Wall Street which unfortunately includes the very systemic risk these programs were supposed to address. How much more obvious can it be who is really running the show in DC, meanwhile the fleeced public continue the usual partisan bickering. Elephant dung and donkey dung smell about the same to me.

2009 Jul 31 04:19 PM

[homogenik]

You are right for the most part however goldman and jpm didnt need the bailout but were forced into it. I do object to the money from tax payors going to AIG and then goldman then goldman pays huge bonuses. What is upsetting is the bonuses being paid at citi, merrill etc when the firms completley imploded. It is also extremely upsetting that there have been no criminal prosecutions of executives at Lehman, Merrill and Bear Stearns where there may have been alleged cooking of the books. The government needs to determine was there massive accounting fraud at Lehman and these other firms and if so then when will there be indictments of Dick Fuld and its CFO

2009 Jul 31 05:31 PM

[William Taylor]

The real problem is that almost none of us will bother to write our political representatives and force them to take action against this prime example of "wretched excess".

This overpayment and greed disgusts me. Totally disgusts me.

2009 Jul 31 06:22 PM

[Davewmart]

The bailout money for AIG went to repay at 100% holders of derivatives - Goldman Sachs being prominent amongst them.
Paulson is in it up to his neck, letting Lehman go and eliminating competition, then 'saving' AIG so that they could pay GS's malodrous derivative claims.
That's why he demanded immunity from prosecution in his ransom demand to Congress.
Give him credit for the scale of his larceny - it takes real imagination to defraud the public that grandly.
Most still cannot believe that he has the effrontery that is needed for the scam and think that he is in some way sincere.
Obama hopefully is amongst them, and is a deluded fool rather than a grifter, but the open scam that he and the divine Michelle carried out with her being employed part time for huge money, and then this essential post being unfilled when she left.
No wonder the medical establishment has survived intact after all the huffing and puffing about reform.

2009 Jul 31 06:55 PM

[wghanna2]

The talking heads of CNBC and Fox Business all want to keep the Government out of setting limits on the financial world. Their own greed gets in the way of reporting the facts. The loud yelling about Government not being able to run anything is great for sound bites but does not consider the fact that the banks got us into this mess. The Government with all its faults could not have screwed it up as badly. Salaries and bonuses should be capped at $500,000 per year. Any compensation beyond that could be provided with stock obtions based on the actual price of the stock at the time the obtion is awarded. These obtions should be required to be held at least three years to be vested from date of issue. If the stock price has not increased then the obtion will not have value but if it increase five fold or more then the obtions will truly reward the company executive. The maximum obtion value for all company employees should be capped using either ten percent of the most recent annual profit. or one percent of the shares outstanding.
This method would provide incentives to the executives to make profits for the shareholders since their big bucks would come from stock appreciation. It will never happen but it would certainly be a big improvement and fair for everyone!

2009 Jul 31 11:45 PM

[stockwatcher66]

This country is screwed. When this kind of behaviour is now so blatent that they don't care, we are all going to be in a world of hurt... we are heading towards the second massive recession, which will lead us to a Depression and may even collapse our government.

But that okay since quite a few on Wall Street will have pocketed their millions and can go anywhere in the world to begin the thieving and pilfering all over again.

Washington is a bunch of first grade idiots.

2009 Aug 01 12:06 AM

[DavyJ]

Just for the record, Goldman Sachs converted from an investment bank to a traditional bank in order to receive TARP funds. That hardly seems that they "were forced into it".

It seems to me they saw the huge one time investment opportunity using taxpayer money and couldn't resist.


On Jul 31 05:31 PM homogenik wrote:

> You are right for the most part however goldman and jpm didnt need
> the bailout but were forced into it. ...

2009 Aug 01 12:29 PM

[BRUCE E. W.]

Apparently the monetary theories of the Chicago School are still being orchestrated and the economy is being split into a financial schism that is cataclysmic and soon to be irreversible. The oligarchy is stealing our economy and our future. It's a shame we don't have a Bastille to STORM; but I think I know where we might start:: online.wsj.com/public/... It appears that YOU are all being transformed into human cattle; oh I meant chattel; oh, jeez; I meant human capital. Financialization will be the downfall of not just this economy, but of the American Constitution itself. Americans have been shocked into believing that the financial trickle down is essential and are traumatized from acting responsibly. The economy must be built from the ground up with equity and real assets not "fiat capital and created wealth made from creative destruction." This is not all a blended mistake; the sharks and baracudas are feeding in a frenzy and the American business sector and real bankers have the power and intelligence to stop it and correct it if they act now. SEE: prospect.org/cs/ar... SEE: globalresearch.ca/... SEE: letters.salon.com/opin...

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A WISE OWL KEEPS HIS EYE ON THE DEVIL BUT DOESN'T BLINK! Good Health to everyone (your goining to need it). Bruce, Cultural Anthropologist

2009 Aug 02 10:50 AM