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.
Reader Comments (Page 2 of 2)
11-20-2008 @ 7:09PM
John C said...
When are the American people going to revolt? Every one of those CEO's deserve nothing, including taking every one of their assets. The British put government accountants on the Boards of all Banks, once they gave money to their Banks. Why doesn't the USA. There should be strict oversight and penalties to the individuals that abuse these monies. Basically, Reagan's Trickle Down Economic philosophy, exposed by our government doesn't work. It never trickles down. It stays with the theives at the top. What would you do with a thief stealing your money?
11-26-2008 @ 7:34PM
JULIUS ROMANOFF said...
CHANGE OUR APPROACH TO BAIL OUT FROM RECESSION
Economists are debating whether we are in a Recession or a short term doldrums period.
The so called “Experts” offer various explanations as to the cause of our current economic problem. Government Leaders hold Summit Meetings to decide on the best way to solve the economic problem. The consensus seems to be to provide money to Banks, Investment Firms, Auto Manufacturers to prevent their declaring bankruptcy, and the loss of jobs.
Wall Street had encouraged speculation in the market by encouraging individuals to buy issues without having the funds to cover the purchase. Since more sales meant larger commissions and bonuses, realistic practices were ignored. In this optimistic deficit spending setting, individuals bought homes far beyond their capacity to repay the loans, and banks profiting from the mortgage sales overlooked the facts. Now the banks are faced with high numbers of foreclosures which means further losses. For years Auto Manufacturers made gestures of developing cars able to run on alternate fuels than gasoline. As soon as the price of oil dropped, they returned to manufacturing gas-guzzlers, since they return a greater profit when sold. However, governments also share in the blame. In their desire to provide needed services to their citizens, they ignored their budgets, and spent far more than they received in revenue. Wars and natural disasters are not included in budgeting, and generally are deficit financed. However, the past years have been atypical, and more and more deficit spending occurred.
As a retired Psychologists, who is now 86 years old, I wondered how this change in thinking could have occurred. As a teen-ager I remember the difficulties of the Depression years. My father was always self-employed as a Candy manufacturer so the Depression did not bring hardship to us. However, I remember people living in junked cars, cardboard cartons, on subway grates in Brooklyn trying to keep warm. No one could find a job, so they were begging for help. My mother was a Volunteer Investigator for a Society of Russian immigrants, who investigated the families applying for help. This experience taught me the necessity to save, and spend only what I could afford.
This year I read a book "Secret" by Rhonda Byrne. I was surprised that it was on the New York Times list as a Best Seller. It's message as shown in it's summary "The only thing you need to do is feel good now" If you want money, act as though you have money, and you will attract money. Great advice for a Bi-Polar individual in a Manic state, who will now feel justified to spend all their money, and wait for money to come back to them. All those individuals who took out loans for homes far above their means will now have the government revise their mortgage payments so they can avoid foreclosures. In this instance the theory did work.
As a member of the "Great Generation" who served in the Air Force during World War II, 1943-1946, we are also "Notch Babies". All those born between 1917 to 1924, receive less in their Social Security pension, than those who earned the same amounts as we did , but were born before or after our birth year. This was done to avoid having the Social Security funds run out. Thus, the warnings that something must be done to prevent Social Security from going bankrupt, and turning it into private retirement accounts is just a maneuver to get Wall Street more business. No mention is ever made of the Notch Babies in the news. However, there is an organization that each year conducts a survey asking whether you wish to get $5,000 paid to you in 4 annual payments, or by an addition to your monthly payments for the next 4 years. The gimmick is that this has been done for many years, and it annually claims the bill is close to passage by Congress. However, there also is an appeal for funds to help get the bill passed. How many of us are still living? When we are all dead, Congress will pass the bill, and it will cost nothing, and this organization gets funds without working.
We all have our own, unique life style. As I mentioned earlier living through Depression years made Saving money part of my personality. I dutifully invested money in IRAs and 401 Accounts. I left the Interest in the Accounts, and lived adequately. I withdrew the Mandatory Distributions each year after I became 70 I/2 years old. I deprived myself by not joining a private Golf Club because of the expense involved. Now my Retirement Accounts have lost 40 % of their value since 1/1/2008, and I regret that I did not act as the present generation, spend as fast as you earn or can borrow.
I, therefore, offer the following solution to our world Recession. Instead of giving money to Banks, Wall Street, Auto Manufacturers, give to Retired Seniors the funds their Retirement Accounts have lost, provided they will spend the amount for example to buy a new car. As cars are sold, new cars must be made to replenish inventories, and the economy is stimulated. All Capital purchases can be included, such as Refrigerators, Stoves, Air Conditioners, Heating units, Retirement Living Homes or Apartments, Nursing Home Admission, etc.
Since I do not know the number of Retired Seniors, it may be helpful to include all consumers, who lost money in their retirement funds, in the group receiving funds as long as they will spend the funds within a specified time period. Consumer spending is the key to overcoming the Recession without needing to impose advance regulations on Banks, Investment Firms, Manufacturers, etc. which has prevented immediate acceptance in Congress. This approach permits our Congressional personnel time to develop a plan to prevent another Recession.
Does this approach meets the Change promised by our Pesident-Elect ? By focusing on the individual rather than economic institutions, such as Banks, Auto Manufacturers, Wall Street, it will bring back optimism to the people? Then it will be up to Educators, Psychologists and the Media to re-educate our citizens to avoid deficit spending.
11-29-2008 @ 6:25PM
Robin said...
Only when we act on "our" Constitution that was pain stakingly developed from men who would rather have give up their lives and did, then sell out every American in this country for a buck. We have strayed from home and need to return back to our roots of Life, Liberty, and the pursuit of happiness for "ALL" NOT JUST FOR THE GREEDY AMERICANS who can get over the weak and poor ones. For shame, maybe those that are paid well,(from his neighbors hard earned monies) should defend this country most. Go fight some "true" enemies that are trying to kill us and take our land instead of it being brother taking brothers' properties and wealth.