New York AG Report: Wall Street Stole Bonuses from Taxpayers

I have been unequivocal in characterizing the excessive “bonuses” paid out by members of the U.S. financial crime syndicate as “theft”. Now a new report from Andrew Cuomo, New York's Attorney General confirms that characterization in objective terms.

The report analyzed 2008 earnings and bonuses of Wall Street banks, but also looked back several years – in order to place 2008 compensation in context with other years. Not only did those Wall Street banks who reported “profits” pay out more than 100% of those profits as “bonuses”, but even the fraud-factories which reported losses paid out bonuses near the same level as when they were reporting record profits.

The conclusion of the report was that there was absolutely no connection between employee performance and the bonuses he/she received. However, such a conclusion is much too timid. Paying out “bonuses” which exceed 100% of profits, or paying out any bonuses at all when a company loses money is plainly and simply theft.

In the case of Merrill Lynch, even this characterization is inadequate. Merrill Lynch lost $7 billion in 2007, while paying out $16 BILLION in total compensation. It was on the way to losing much more than that in 2008, when it went “belly-up”, but still shoveled out another $15 billion in compensation even though it didn't manage to survive to year-end.

However, even more interesting (or repugnant) was an additional observation by the New York AG: Merrill's losses in 2007 and 2008 erased more than 100% of the profits earned between 2003 and 2006 (and, of course, it paid out enormous bonuses in those years, too). Thus, we have a Wall Street fraud-factory which had less-than-zero net earnings for a six-year period from 2003 through 2008 – the era of Wall Street's “record profits”.

Regrettably, the report did not provide numbers for Merrill Lynch's bonuses from 2003 to 2007. However, if bonuses exceeded $3 billion in the year where it reported its largest losses in history, a conservative estimate would be that Merrill paid around $20 billion more over the previous five-year period. This means that during a six-year period where Merrill Lynch had less-than-zero earnings, it paid its employees somewhere in excess of $20 BILLION, in bonuses alone. Put another way, without that extended bonus-orgy, Merrill Lynch would have remained solvent (or, at least no more insolvent than the rest of the U.S. financial crime syndicate).

Obviously, this establishes clear legal liability for the senior executives responsible for this suicide-through-bonuses compensation policy. In this case, the corporate greed went beyond simply stealing from shareholders. Indeed, with all these firms slashing their dividends while retaining their huge bonuses, every penny of dividend-reduction (and more) was confiscated by these thieves.

Yet, with Merrill, this excessive greed goes well beyond merely stealing the dividends of shareholders. Merrill's executives wiped-out their own shareholders solely through paying out excessive bonuses. I have been very outspoken since the collapse of Wall Street began, that once the litigation started against these thieves and fraudsters that litigants should not only be attempting to claw-back the “bonuses” paid out in 2007 and 2008, but also all the bonuses paid out in several previous years – when Wall Street pretended it was making record-profits.

I have referred many times to the interview of former senior, banking regulator William Black – on Bill Moyer's PBS news program (see “U.S. bank-fraud SYSTEMIC and INTENTIONAL – William Black”). In that program, not only did Black unequivocally accuse Wall Street, its regulators, and senior U.S. government officials of conspiring together in Wall Street's multi-trillion scamming, but Black also referred to the entire fraud as a “Ponzi-scheme”.

I should remind people that during the same years where Wall Street was claiming it was “earning record profits” that Bernie Madoff was making the exact same claims. We no longer consider Madoff's claims of “profits” as credible, so why is anyone still taking claims of “profits” seriously from a bunch of fraud-factories whose own Ponzi-scheme made Madoff look like some mere nickle-and-dime operator?

Here is a table of Wall Street's shareholder-theft just from 2008, along with their reported “earnings”:

.................................2008 “earnings”....... 2008 bonuses......TARP hand-out

Citigroup (C) ................-$27.7 billion .......... $5.3 billion .............$15 billion

Merrill Lynch ..................-$27.6 billion.......... $3.6 billion ............ $10 billion

Goldman Sachs (GS) ....$2.3 billion .......... $4.8 billion............. $10 billion

Morgan Stanley (MS) ..... $1.7 billion........... $4.5 billion ............ $10 billion

JP Morgan (JPM) ............ $5.6 billion .......... $8.7 billion ............ $25 billion

Wells Fargo (WFC) .... -$42.9 billion ..............$1 billion .............$25 billion

__________________________________________________________________________

Totals.................. -$88.8 billion .........$27.9 billion .............$95 billion

While these numbers for the six largest survivors on Wall Street tell a clear story, I'll add a few quotes from Mr. Cuomo's report:

...when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.

Cuomo concludes that “there is no clear rhyme of reason to the way banks compensate and reward their employees.”

Here I must completely disagree with the New York Attorney General. There is a clear guiding “principle” on how Wall Street compensates itself: they steal as much as they can every year. If anyone can remember back to last fall, there was no talk of “bonuses” coming out of Wall Street until after they had walked away from the U.S. Treasury with their TARP-cheques in their greedy hands.

For those who point to the “profits” Wall Street is reporting this year, and claim that 2008 was nothing but an aberration, there are two obvious rebuttals. First of all, with all categories of U.S. debt simultaneously hitting record default-levels, there would be no “profits” without the fraudulent accounting legitimized by the U.S.'s “accounting watch-dog” (now there is an oxymoron!).

Secondly, what has driven Wall Street's “earnings” this year are their “trading profits”. Who are they doing most of their trading with? The U.S. government, of course.

An interesting article I spotted over the weekend from the Financial Times pointed out that not only is the U.S. government Wall Street's largest “trading partner”, but it usually pre-announces its purchases. This is the equivalent of going to a used-car dealer and telling him “I must buy a car today,” and then beginning negotiations.

In other words, even with the aid of totally fraudulent accounting, and in the case of Goldman Sachs, hiding a bunch of losses in an “orphan month”, the only way these fraud-factories could torture a profit out of their bottom-line was through the U.S. government continuing to grossly over-pay for Wall Street feces.

Thus, the chronology goes like this: Wall Street mooches $100 billion in TARP money from the Treasury Department in 2008 in order to come up with roughly $30 billion in “bonuses”. Then in 2009, it gets the Treasury Department to buy $10's of billions of “toxic assets” which no one else will touch, and at grossly inflated prices – then it uses those “trading profits” to “repay” its loans.

In other words, all Wall Street did was use a new type of hand-out to pay off an old type of hand-out. This sham-scam with the Treasury Department is just as transparent as the sham-scam which Wall Street has rigged with the Federal Reserve: Wall Street “borrows” money from the Fed at 0% interest, then simply leaves hundreds of billions of that money in the Fed's hands, and gets paid over 1% “interest” on that money. Essentially, this is nothing more than the Fed paying Wall Street more than 1% for simply holding the Fed's money!

The fact that these thieves can use their servants in government to help cover up those crimes does not change the nature of those activities.

I suspect that if any of us had a bank which would loan us money for free – and then pay us interest on these loans that we could manage to “turn a profit” on such an arrangement. And if we also had a perpetual “sucker” who would grossly over-pay us for anything and everything that we wanted to sell that we could also make fat profits on that.

However, when Goldman Sachs does this, it tells its shareholders that because it has been so skillful in generating such “profits” that its employees deserve $10 billion in “performance bonuses”. First it steals its “profits” from the federal government to put into its corporate coffers, then it steals that money from its own shareholders.

This is the Wall Street “business model” for the 21st century.

Disclosure: I hold no position in Citigroup, Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley, or Wells Fargo.

Comments

[Leftfield:]

Dodd seems to think otherwise. Although his recollection was typically fuzzy, he inserted language protecting previous contracts for management in at least one of the bailouts.
Fraud investigations seem more necessary with every piece of information. Washington knows they would be brought down too.

Aug 03 01:51 PM

[kahanov:]

Where are the class-action lawsuits from shareholders?

Aug 03 02:23 PM

[spanish moss:]

Clawbacks are appropriate in these cases. I have railed against the huberous of GS over their ability repay their TARP funds when they simply sat on the money and even hid their losses in the "orphan" month of 12/08. Wells used its money to bail-out Sheila Bair and her ill advised FDIC backed Citi takeover of WB... C was broker than WB it seems to me. Now Wells doesn't have the cash to repay like JPM or GS, but GS didn't repay its $12.9B AIG welfare and JPM didn't put anything into its takeover of WAMU.

Aug 03 04:27 PM

[DrSeuss:]

Jeff - I feel your outrage, but I also believe a legal contract is also binding. If I am an individual who has some very special skills that enable a company to make huge sums of money and they show their appreciation by negotiating an arrangement that rewards me a small piece of the profits, then I expect the company to honor that contract. It doesn't matter if the company did good or bad. Good or bad was not part of the contract language. The company would have been better off going bankrupt. Bankruptcy usually voids any past contracts. Do get mad at the skilled technician, get mad at the company for making a stupid agreement.

Aug 03 07:44 PM

[PainfullyAware:]

"... the Financial Times pointed out that not only is the U.S. government Wall Street's largest “trading partner”, but it usually pre-announces its purchases." - Jeff Nielson

Good Catch - I Saw It Too.

When I See This STUPID CRAP I Wonder Why Anyone Would Want To Give More Power To The Federal Government.

Incompetence In Action !!!

To Assume Benevolence Is Foolish.

Aug 04 02:30 AM

[Boot:]

Give'm Hell Jeff.

Aug 04 07:54 AM

[Michael Clark:]

Nice post, Jeff. Let's send in the Rough Riders, bust some trusts, save primitive capitalism from the State Capitalism we are now protecting.

Aug 04 08:03 AM

[Liverdiefree:]

Dr. Seuss: Are you even awake? You say "they show their appreciation by negotiating an arrangement that rewards me a small piece of the profits" but, contract or not, even your argument requires PROFITS, not huge losses. A % of the losses would not exactly be a bonus.

Aug 04 12:15 PM

[Mark123:]

Jeff... I love reading your articles, but when I finish each time, I have to double up on my blood pressure medication..... Excellent work exposing the truth...

Aug 04 12:55 PM

[dragonpaw:]

Dr. Seuss; "bankruptcy voids contracts"; therefore there is no bankruptcy; all "contracts" are paid off; all very "specialed-skilled" thieves are paid off. All thievery continues as in the past.
Glad to know that there are so many as naive as you who want the status quo to continue. No wonder our system is going to hell in a handbasket! Thank you basket-takers (and BS swollowers)!

Aug 05 11:29 PM

[H. T. Love:]

If I didn't know how honest all the major players are, I would suspect "hush money". I mean, if you don't give *very* knowledgeable insiders (and outsiders) what they "earned" via such astute and dedicated work, they might become somewhat vindictive, no?

So, maybe this is what we've all been clamoring for - good "risk management"? ;-))

Aug 06 07:45 AM