How short their memories. Wall Street firms on the brink of failure until rescued by a controversial taxpayer bailout continue to show their unabashed greed by claiming entitlement to massive amounts of money earned on funds “invested” by American taxpayers. Without those bailouts, most, if not all the Wall Street firms would be bankrupt or teetering on failure. Nevertheless, undeterred by the rising anger on Main Street and the populist backlash in Washington D.C., and flush with record revenues of $449.6 billion, Wall Street firms are on track to pay over $145 billion in bonuses for 2009, according to the Wall Street Journal.
JPMorgan Chase announced Friday that it will pay out a record $9.3 billion in bonuses, averaging $379,000 per employee, according to Reuters. Perhaps hoping to dampen the people’s fury over the TARP banks’ bonus plans, Citigroup may cap cash bonuses for 2009 at below $100,000, with additional bonuses to be paid in stock that cannot be sold for a number of years.
To put this in perspective, median U.S. household income in 2008 was reportedly $50,303.
The government bailout of Citigroup includes two separate infusions of capital, a $290 billion guarantee of its toxic assets, and a conversion of preferred shares into common stock. The government owns about one-third of Citigroup. Citigroup repaid $20 billion of TARP funds and cancelled the guarantees.
New York Attorney General Cuomo’s has been conducting an inquiry into executive compensation at Wall Street banks. On January 11, Cuomo sent letters to eight Wall Street banks that received TARP money. The banks are Citigroup, Inc., Bank of America Corp., Bank of New York Mellon Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corp., and Wells Fargo & Co. The letters request the banks to provide information about the amount of the 2009 bonus packages and their structure. Cuomo also asked for information as to how the bonus pool changed as a result of the firm’s receipt of TARP money and how bonuses would have been impacted had the firm not received TARP money. Cuomo requested that the banks provide this information by February 8.
President Obama has proposed a $90 billion dollar “financial crisis responsibility fee,” 60% of which would come from the 10 largest firms recipients of TARP money. Congress would have to approve the measure.
Whether or not Congress enacts measures to control executive compensation, these TARP firms already have the power and the responsibility to prevent this waste and self-dealing by management. They have not done so. They have failed in their essential function to responsibly direct the policies and management of their companies, and they should be held to account.
The situation cries out for sweeping changes in our financial markets regulation. Unfortunately, too many Washington politicians, undoubtedly swayed by lobbyists and special interest groups, continue to pander to Wall Street and ignore Main Street America. Maybe the sweeping change needs to include a lot of those politicians too.