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Eight ways the Wall Street bailout is adding insult to injury

Posted Oct 28th 2008 7:00AM by Amey StoneAmey Stone RSS Feed
Filed under: Goldman Sachs Group (GS), Barclays plc ADS (BCS), Lehman Br Holdings (LEH), Financial Crisis

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As if the economic recession wasn't hard enough on Americans, seeing the government spend billions to bail out Wall Street has made it all even harder for the average person to take. Yes, we all want to avoid global financial collapse. But the way the government rescue of the banking industry is playing out seems to be adding insult to injury.

Here are eight recent examples:

Wall Streeters can still expect big bonuses this year
When the government agreed to bail out Wall Street, the goal was to provide funds to shore up banks' capital bases so they would start lending again. It wasn't to help them fund the bonus pool. But estimates run that as much as $70 billion will get paid out in bonuses to bankers this year. That amount equals 10% of the $700 billion bailout. Sure, the bonuses will be smaller than last year and fewer people will get them, but there will still be lots of six-figure payouts to go around.

A Goldman hot shot got the job of doling out all that money
Neel Kashkari, a 35-year-old former Goldman Sachs whiz kid who believes in free markets, is getting the job at the Treasury Department of dispersing the government's $700 billion rescue. Is he really the right person for the job? Gawker has been merciless, publishing his high school yearbook page that features a Ferrari and lyrics from the rock band Rush. But lots of observers have wondered if a seasoned vet with a little more political experience might be a better fit for the task at hand.


AIG spending its $123 billion on what?
AIG sent salespeople on a lavish luxury retreat at the same time it was getting billions in government aid.
The retreat at the St. Regis resort in Monarch Beach, Calif., cost AIG $440,000 and came right after it received an $85 billion line of credit. Even worse, it planned another lavish retreat soon after. But when the press caught wind of that one, it was cancelled. Of course, sales people often get rewarded with such trips in many industries. But AIG execs should have pulled the plug on such spending, recognizing a public relations nightmare on their hands -- and the potential to burn through their credit line too quick.

For Lehman ex-bankers, isn't getting to keep their jobs bonus enough?
Some Lehman executives got signing bonuses to stay at the banks that acquired their divisions in bankruptcy proceedings. The Financial Times reported that Nomura, which bought Lehman's European and Asian divisions, gave bankers cash equal to last year's bonus if they agreed to stay at Nomura for a year, for example. Given massive firings on Wall Street, were those payouts really necessary?

Most CEOs of failed financial firms still get to keep their millions
2008 has been a year of watching CEOs at failing financial firms get fired -- but with a few million to soften the blow. The gargantuan compensation they enjoyed was at least theoretically tied to profits earned while they were running the show. But all the profits have vanished. Massive write-downs at Wall Street firms have essentially wiped out any profits they earned since 2004, according to The New York Times. Most will get to keep their money, although AIG's former CEO may not. Blogger Elizabeth Harrow suggests implementing the Reese Witherspoon pay cap. Going forward, CEOs can earn no more than the actress netted for her role in Walk the Line -- $15 million. Sounds like plenty.

They want our pity
Lehman's ex-CEO Richard Fuld seemed to want pity when testifying before Congress and spoke about how he lies awake at night wondering what he could have done differently. Former Federal Reserve Chairman Alan Greenspan wasn't much better when he told Congress, "I made a mistake," when he reasoned that Wall Street could police itself. Many people feel a lot more pity for families now at risk of foreclosure who have yet to benefit directly from the government bailout. Some relief for homeowners may be coming.

Aren't banks supposed to use the money they are getting in the bailout to keep the economy humming?
Nope. It turns out that banks can use the money however they want. Banks that are getting government bailout money are contemplating using it for other things -- like buying other banks -- not adding it to the lending pool so they can make more loans and end the credit squeeze. Next up, insurance and car companies may get to tap into the funds.

Lawyers are big winners in all this
Wall Street law firms are getting a bonanza of billable hours from the government bailout. Not only are they representing firms in contract negotiations that come as part of the bank bailout, but they are also helping firms that are now in trouble with regulators. There are few sectors that are making hay from this crisis, but law firms that represent investment banks are one of them.

Tags: bailout, featured, financial crisis, FinancialCrisis, Goldman Sachs, GoldmanSachs, investment bank, InvestmentBank, Wall Street, WallStreet

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