Bank Bonuses and TARP

There are nine banks that received $175 billion in taxpayer money last year under TARP. Of these nine, only $50bn have has been paid back. We now know that these nine banks will be handing out a total of $32.6 billion in bonuses for 2009. The headline in the WSJ read "Nine Lenders That Got U.S. Aid Paid at Least $1 Million Each to 5,000 Employees"

Is this our money, or theirs?

If it is ours, can we, or do we have the right to seizure?

Do we leave this alone and just let them pay back at their schedule?

Unless the TARP loans contain covenants that address bonus payments and executive compensation, as repugnant as the idea may be, the banks likely have legal foundation for their actions.

If the TARP loans contain no such restrictions, then shame on the Bush administration for not putting them there, shame on Dear Leader's administration for not putting them there before shelling out the second half of TARP, and shame on Congress for creating such an uncontrolled mess in the first damn place.

Only if the loans contain covenants and restrictions that permit the government to object and intercede in such bonus payments should there be any effort to claw those payments back. If such language is not in the loan agreements, government should take its lumps and move on (and not make any more such stupid loans in the future).

They have the legal right to conduct their business as usual. This needs to change, but it needs to be changed properly, through the Legislature, and not by Executive fiat.

As much as it might make stoke populist sentiment to say "gosh dern them bankers takin all er money and millions ta boot!", I don't really see the problem in most cases.

First, for those banks that have paid back TARP, who gives a **** what they do with their bonuses?

Second, even for those that haven't, these payments serve a purpose. While $100m to Hall might seem outrageous in a vacuum, Phibro has earned Citi $2b in profits over the past 5 years.

The end result of positions like yours is this:

http://www.nytimes.com/2009/08/07/business/07phibro.html?hpw

Phibro is enormously profitable for Citigroup, which is struggling to turn around many of its other units. The trading operation generated about $2 billion for the bank over the last five years.

But whatever the economics, bailout politics are straining the relationship. Mr. Hall is the star of Phibro, in Westport, Conn. There is little doubt he is owed the money under his contract. But Citigroup was saved with roughly $45 billion in taxpayer aid, so its pay practices have come under public scrutiny.

While Mr. Hall is making headlines for demanding that the bank honor his $100 million contract, lesser lights at Citigroup and beyond expect to pull down at least seven figures this year, too.

The prospect of big paydays raises thorny questions for the government pay czar, Kenneth Feinberg, as he prepares to start reviewing compensation structures next week at companies that received bailouts. While Mr. Hall’s contract with Citigroup is not in doubt, the prospect of paying large sums, even to the head of a unit raking in profits for Citigroup, could be untenable.

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Citi will likely have to spin off Phibro and thus lose out on huge amounts of revenue, all because idiots across the country can't understand why some banker is worth $100m of "their" money.

There's a reason why Congress is ****ing terrible at running businesses. This is it.

As others have stated if there is no agreement what that money should be spent then they should be free to do with what ever the hell they want with it as long as the pay back the tax payers. Don't want tax payer loans being used for CEO bonuses,private jets, country clubs and other things the call your elected representatives and tell them to make a law requiring stipulations for any Future bailouts. It is stupid to say that we should confiscate this money or assets from them when no stipulations was made on how the money was supposed to spent.

This whole economic mess seems to be fairly good indication that bankers aren't very good at running them, either. I don't want the banks nationalized-- or failing that, heavily regulated-- because I think it will improve profits. I want them controlled because when 40% of the world's wealth can just ****ing vanish in eighteen months without a shot being fired, there is apparently a profound and worrisome disconnect between the economy and reality.

Profit is a good thing. But profit needs to be based on providing tangible goods and services, not pushing imaginary "wealth" around on paper until it multiplies.

Korimyr the Rat said:

Profit is a good thing. But profit needs to be based on providing tangible goods and services, not pushing imaginary "wealth" around on paper until it multiplies.

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Well that's a fiat economic system for you.

Korimyr the Rat said:

Profit is a good thing. But profit needs to be based on providing tangible goods and services, not pushing imaginary "wealth" around on paper until it multiplies.

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How is the current system that different from banking 200 years ago?

You give money to the bank, they use it for their own endeavors which pay a higher interest rate, they give you the lower interest rate and keep the difference. What does it really matter if the money they invest is being used to give car loans to your next door neighbor or to buy oil futures in Tajikistan? If it returns a profit, it returns a profit.

RightinNYC said:

How is the current system that different from banking 200 years ago?

You give money to the bank, they use it for their own endeavors which pay a higher interest rate, they give you the lower interest rate and keep the difference. What does it really matter if the money they invest is being used to give car loans to your next door neighbor or to buy oil futures in Tajikistan? If it returns a profit, it returns a profit.

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The key word in that last sentence is "if". As was demonstrated so vividly in the S&L crisis of the 1980s, in the Enron and WorldCom scandals of 2000/2001, and again in today's financial crises, sometimes the profits are not always real.

Wells Fargo?s Profit Looks Too Good to Be True: Jonathan Weil - Bloomberg.com

In some cases (the Phibro trader who earned a $100M bonus from Citigroup), the bonuses are legitimate compensation for work legitimately done and legitimately done well. However, when we read of Goldman Sachs' accounting trick that made their worst month ever disappear off the books completely, when AIG pleads for a bailout from the Treasury then pays out billions in bonuses, it is not hard to get a sense that somebody is gaming the system.

What troubles me about many of the bonuses that have been paid out is not that they are being paid out, but that the TARP program was so hastily cobbled together that these issues were not discussed openly ahead of time. If I lend someone money to save their business, it's not inappropriate for me to want to have a say in how they spend that money; I want to make sure my investment doesn't get wasted (and ideally I'd like to turn a profit on it). TARP should have been approached with the same mindset--of course there should have been strings (no large loan is ever without strings)--but they should have been put out in public upfront, for banks to pass or accept as they saw fit.

celticlord said:

The key word in that last sentence is "if". As was demonstrated so vividly in the S&L crisis of the 1980s, in the Enron and WorldCom scandals of 2000/2001, and again in today's financial crises, sometimes the profits are not always real.

Wells Fargo?s Profit Looks Too Good to Be True: Jonathan Weil - Bloomberg.com

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And despite those declines, the overall return on investment is still higher than it was when we were investing in local car loans. The downs are down, but the ups are more up.

In some cases (the Phibro trader who earned a $100M bonus from Citigroup), the bonuses are legitimate compensation for work legitimately done and legitimately done well. However, when we read of Goldman Sachs' accounting trick that made their worst month ever disappear off the books completely,

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Blame the FASB. It's worth noting that even if that loss were counted, they still would have had an above expected 1st Q profit and their large 2nd Q profit.

when AIG pleads for a bailout from the Treasury then pays out billions in bonuses, it is not hard to get a sense that somebody is gaming the system.

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Again, they're there for a purpose - to ensure that AIG doesn't become a total sinkhole of taxpayer money.

What troubles me about many of the bonuses that have been paid out is not that they are being paid out, but that the TARP program was so hastily cobbled together that these issues were not discussed openly ahead of time. If I lend someone money to save their business, it's not inappropriate for me to want to have a say in how they spend that money; I want to make sure my investment doesn't get wasted (and ideally I'd like to turn a profit on it). TARP should have been approached with the same mindset--of course there should have been strings (no large loan is ever without strings)--but they should have been put out in public upfront, for banks to pass or accept as they saw fit.

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I don't disagree with this at all.

sam_w said:

There are nine banks that received $175 billion in taxpayer money last year under TARP. Of these nine, only $50bn have has been paid back. We now know that these nine banks will be handing out a total of $32.6 billion in bonuses for 2009. The headline in the WSJ read "Nine Lenders That Got U.S. Aid Paid at Least $1 Million Each to 5,000 Employees"

Is this our money, or theirs?

If it is ours, can we, or do we have the right to seizure?

Do we leave this alone and just let them pay back at their schedule?

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Pfft, Bankers are beyond lucky they do not have someone like me in charge.

I would strip every single one of those CEO's who played a role in this mess by their neglect or mismanagement of their private fortune, stop them from getting anymore bonuses and laugh in their face if they asked for a bailout and direct them to the trash bin

Maybe that'll teach the others to toe the line