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Savings Experiment: Snow Removal
Remember Hank Paulson's $810 billion program to save the world? It started off as a plan to buy toxic waste from banks. But as soon as it was passed, it changed into a scheme to buy stock in big banks -- some of which, like Citigroup (NYSE: C) -- are hugely unprofitable. This makes no sense to me -- I prefer cull and capitalize. With the election behind us, there's a chance to put some teeth into the plan by making sure that banks lend the money -- or refund our investment.
So far, the program has spent $159 billion for shares in 24 banks. But how are the banks using the money? Is it to make loans? No -- too risky. Is there anything stopping the banks from using it to pay bonuses? No. In fact, even if they don't use the cash from the Treasury's investment check to pay the bonuses -- our money will free up cash that would have been used for other purposes to pay those bonuses.
So how much of our money will bankers get this year? Well they received $33.2 billion in 2007 and forecasts are that they'll get 20% to 35% less -- or $26.6 billion -- for 2008. That's $147,556 for each of the 180,000 individuals who worked on Wall Street in 2007 (the number is lower now after layoffs).The banks created fake profits but they're getting huge bonuses. How so? Over the last couple of years, they reported $305 billion worth of profits but those have been wiped out by $323 billion in bad loans they charged off.
Here's an idea. What if instead of using our money to pay bonuses to those who got us into this mess, we got them to write a check to the Treasury out of their bonuses from the last couple of years. Don't have the cash? No problem -- just sell a few of your houses in the Hamptons or your art collection.
Another alternative would be to pay the 2008 bonuses in $26.6 billion worth of foreclosed real estate. Granted it might be hard to figure out what those foreclosed properties are worth -- but this proposal would be a just reward for the bankers while taking the dodgy properties off of the banks' books.
Shouldn't those who created this mess help get us out of it? If Wall Street was not getting a taxpayer bailout, this would be none of our business. Now it is.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup securities.
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Reader Comments (Page 1 of 1)
11-12-2008 @ 12:19PM
Bryon said...
Every American Taxpayer should be on the phone with their Senators and be screaming about this! If they don't step up on our behalf then lets vote them out! Wake up, the few own us, and Im damn tired of it!
11-14-2008 @ 11:09PM
Cynical Synapse said...
@Bryon:
First, Senators added a billion or so in pork to the original bailout bill. So Senators are not the place to start; they already don't represent ordinary folk any more.
Second, the election is over and we've missed the opportunity to dump the "special interest" representatives. In Michigan, voters returned 2 of 3 represenatives who voted no on the bailout on Monday, but yes on Friday. In all the other races, incumbents kept their seats.
From my experience, bonuses are only valid for companies that made money and, generally, exceeded expectation. By definition, a bank seeking to feed at the bailout trough doesn't meet that. Thus, AIG and those banks don't deserve additional money. The simple answer is to just say no!