Killing those bonuses might make you feel better ...
By Matt Carter, Friday, March 20, 2009.Bookmarking Sites
...but it won't bring back the economy.
The "national rage" at bonuses paid to AIG executives (and other companies that have received billions in government TARP funding) "reflects our dangerous mood, and also says we have no idea what is important," says mortgage broker and syndicated columnist Lou Barnes.
Writing for the New York Times, Joe Nocera makes the same point.
"By week’s end, I was more depressed about the financial crisis than I’ve been since last September," he says. "Back then, the issue was the disintegration of the financial system, as the Lehman bankruptcy set off a terrible chain reaction. Now I’m worried that the political response is making the crisis worse."
Legislation passed by the House Thursday, HR 1586, would impose a 90 percent tax on bonuses granted to employees earning more than $250,000 at companies receiving at least $5 billion in TARP funds. Citi, JPMorgan, BofA, Goldman Sachs Group Inc., Morgan Stanley, PNC Financial Services Group Inc. and U.S. Bancorp all fall under that umbrella, the Wall Street Journal reports.
Rep. Barney Frank, D-Mass. the chairman of the powerful House Financial Services Committee, says he also wants Federal Housing Finance Agency Director James Lockhart to cancel retention bonuses for executives at Fannie Mae and Freddie Mac.
Barnes takes a position not unlike that of the leaders of some of the companies themselves -- that in the grand scheme of things, the AIG bonuses are chump change, and if the government moves to take them away, it "will freeze efforts at repair."
Here's how Citigroup CEO Vikram Pandit put it in a memo to employees:
"The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees."
Pandit said the executives who got Citi into trouble are gone, and those who remain must be encouraged to stay.
BofA CEO Ken Lewis fired off a similar memo further explaining the rationale for such thinking. Taking away bonuses has "the potential to damage the ability of the government to engineer a financial recovery," Lewis said, because if investors and private sector companies "believe that the rules can change quickly and indiscriminately, they will be unwilling to participate."
That was presumably what Treasury officials were thinking when they asked Senate Banking Committee Chairman Chris Dodd, D-Conn., to dilute language in last month's economic stimulus bill that would have created restrictions on bonuses at companies receiving TARP funds (see CNN story).
For Fannie and Freddie, Lockhart said, the loss of "key personnel" would be "devastating to the companies and to the government's efforts to stabilize the housing system" (Freddie Mac just lost its new government-approved CEO, former U.S. Bancorp executive David Moffett, after only six months).
Lockhart noted that four of Freddie Mac's top paid executives and seven of the top eight at Fannie Mae have left since August -- and are not getting retention payments.
Although people have a right to be angry, Barnes says the real target of that anger should be the boards of directors of companies like AIG, Citi, Merrill, Bear, Lehman, WaMu, Countrywide, who were supposed to "protect stockholders and ride herd on CEOs."
You have to be pretty angry not to see Barnes' larger point -- that Congress won't really be solving much of anything if it does take away "retention bonuses," and might even make things worse.
But it will be interesting to see whether the 93 House members who voted against HR 1586 (six Democrats, 87 Republicans) can make that case to constituents who have lost their jobs, their homes and perhaps a good deal of their retirement savings.
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Submitted by Matt Carter on March 23, 2009 - 8:14am.
Nice roundup of views from the blogosphere from Mick Weinstein over on Yahoo! Finance: http://finance.yahoo.com/expert/article/stockblogs/149419 Links include a post by the New Yorker's James Surowiecki, who is aware of the arguments against government intervention, but says that the costs of "clawing back" the AIG bonuses "are trivial at best, while the public satisfaction at seeing what feels like justice being served will be great. Getting all worked up about this money may not, strictly speaking, be rational, but I think that paradoxically, if some of this money is clawed back, it'll increase the chances that we’ll be able to keep dealing with the ongoing crisis in a rational way in the future."Submitted by Julie Yates on March 24, 2009 - 7:39am.
Fed wanted to block AIG bonuses
Federal Reserve boss Ben Bernanke says he wanted to take legal action to stop insurer AIG paying millions of dollars of bonuses but was advised against it.
I think this goes to show this is a difficult situation for all involved. A financial crisis like this has never happened before and there are bound to be some mistake along the way.
Julie Yates
Submitted by Jeff Stegich on March 24, 2009 - 8:24am.
Congress grills Geithner and Bernanke over AIG bonus scandal
Tough luck.
Jeff Stegich, Realtor(R)
Richardson Real Estate
Submitted by Andrew Brentan on March 25, 2009 - 1:41pm.
The AIG deal is a big deal, and worth discussing, but it has gotten to the point where we are focusing too much on it, and not enough on getting our econonmy moving in the right direction again. Everyone is outraged about the bonuses because it is something that is we can wrap our heads around. The stuff that AIG pulled to get us in this mess is on a scale that is almost incomprehensible, but needs to be addressed much more seriously than the bonus issue.
Andrew Brentan
Team Aguilar Real Estate
San Diego Real Estate | Real Estate Blog
Submitted by Brewer Caldwell on March 26, 2009 - 8:27am.
I think there are many people (myself included) that know "calwing back money" wont bring back the economy but bonuses for poor choices seems unfair, especially if you perosnally know anyone who has lost a business,home,or brokerage based on the market.
I know that if my company was to do poorly I would not expect, let alone demand a bonus.
I do realize there are employees who have stayed while many who may have caused the mess have left and can sympathize for their situation.
Look at it this way...if you gave a friend $1k because they were in a bad spot wouldn't you be upset if you saw them a week later driving a new car with a new watch and covering the bill after taking friends out, all while still having not paid you back? (happened to me and I am still owed moeny)
AIG and others are obviously on a greater scale and "apples to apples" AIG and others caused many people to lose homes, jobs, and businesses whereas all a friend did is upset me.
Which is worse and how are they different?
Thats just my $0.02
Love the site by the way,
Kyle-
For real estate news about arizona, visit Brewer Caldwell
Submitted by Jill Black on March 30, 2009 - 11:20pm.
I am getting a little sick of hearing of the AIG bonuses. On the one hand I can see retention is important and thats the bonuses need to be paid. On the other hand where are they going to go. The market for professionals in the finacial services industry is not that great.
San Antonio Real Estate
Submitted by Wei Min Tan on April 3, 2009 - 3:34pm.
The 90% bonus tax is RIDICULOUS. High bonus is the market rate for bankers. Bankers have a choice of London, Hong Kong etc. With this tax, New York (hence the US) will lose talent to other countries and the US would no longer be the financial capital of the world.
Hong Kong's tax rate is 15%. New York's tax is 40%+. Add that crazy 90% bonus tax, who wants to work here?! On bailouts, the government should let banks fail and start over. Bailouts will result in major inflation and weakening of the US dollar. The 90% bonus tax was annouced AFTER the bailouts were received. it shudl have been announced as a criteria BEFORE the bailouts were handed out. Recall that some companies did not want the bailouts.
Finally, who owns the Federal Reserve? It's owned by the consortium of banks that make up the board of directors. These are the same banks getting the bailouts. Hence, the bailouts were given by the Fed to it's own owners. Of course the banks would take the bailouts in the first place. But the employees get penalized after the fact.
W Tan
castle-avenue.com
wealthre.blogspot.com
Submitted by Paula Hines on April 6, 2009 - 4:40pm.
I really think the 90% tax on bonuses is pretty ridiculous. That's pretty much saying that bonuses aren't acceptable in today's market and that just goes against the American dream. I'm also tired of hearing about everything that's going wrong in our country every time I turn on the television. When are we going to start focusing on the positive.
Paula H.
Bank Owned Homes and Foreclosure Listings
DiscountedProperties.com
Submitted by Ron Redlich on April 13, 2009 - 10:25am.
How about the fannie mae and freddie mac bonuses paid to political hacks??? commercial real estate warehouse
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Submitted by Patty Redlich on June 29, 2009 - 8:32am.
We'll know Congress is serious when they vote a pay cut for themselves.
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Submitted by aaron williams on August 13, 2009 - 7:15pm.
I think the government should of let the companies collapse that needed help and let them go through bankruptcy court just like the rest of the companies that are not doing good in America. I think they're messing up the capitalism of this country. I also think we as a nation is giving the government too much control over our businesses and personal lives. It's a tough call too make but I think we would of better off in the long run, instead we are just giving our next generation more debt to pay off.
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