Bank lobbyists have a job I would not want. Their clients need them to fight a tide of populist revulsion against the use of taxpayer money to pay out billions in bonuses to bankers who pushed the global financial system into bankruptcy. More specifically, those bank lobbyists are buttonholing senators, trying to convince them to vote against a House bill that passed by a vote of 328 to 93, which would tax bonuses paid to bailout recipients at 90%. These lobbyists are making arguments that lack substance.
First, they suggest that restricting bonuses will put the companies at a competitive disadvantage. That argument is content-free because the bonus tax would apply to 500 firms that have received $200 billion from the government. This means that all those financial institutions will face the same bonus restrictions and thus all be on the same playing field. Moreover, these so-called talented individuals the lobbyists are seeking to reward with bonuses are the very same ones who made the money-losing deals in the first place. I am not sure how much more of that kind of "talent" we can afford.
Second, the lobbyists argue that the bonus tax will force banks to return the government money so they won't be subject to the tax. Further, the lobbyists argue that the return of the money will lead to less lending -- lending is the reason the banks were getting the government money in the first place. This argument is silly since banks are not lending out the money due to their weak capital positions, they're hoarding the taxpayer cash and paying it out in bonuses.
As I posted earlier, there are fundamental flaws with the banker bonus system -- it rewards deal volume rather than profit. Why is this important? Because it drives bankers to load up on big deals so they can get their commissions. If those deals later sour, they still get paid the colossal bonuses. This is what allowed American International Group (AIG) to justify paying $165 million in bonuses to the very executives whose derivatives deals lost $28.6 billion. Those multimillion dollar bonuses for 2008 were based on 100% of 2007 bonuses -- regardless of the performance of the operation.
It is business operating profit that ought to be the source of a bonus. If a business makes a profit, then the people who generated that profit should expect a reward. If it loses money, those responsible should take a hit. But these bank lobbyists have a different idea -- they like the idea of rewarding bankers who make a profit, even if that profit is just a temporary accounting fiction. And if the bankers lose money, they expect the hard-working American taxpayer to foot the banker's bonus bill.
I may be the only American who thinks that's not what free markets are all about. If you agree, now is the time to let your senators know. That's because lobbyists are funneling campaign cash to Congress, and the only way to neutralize that power is to convince Congress that if it preserves the use of taxpayer money to pay bonuses to the people who drove the financial system into a ditch, you will vote them out of office.
The choice is clear: preserve the very system that has gotten us into this financial crisis or end it.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns AIG shares.
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Reader Comments (Page 1 of 1)
3-20-2009 @ 2:10PM
BHarrison said...
"Lobbyists" are like "paid mouth pieces" (sic. attorneys) for mobsters . . . who listens to them anymore anyway? Most of what they say are gross distortions orblatant lies.
The only value of the lobbyists to their clients is that hey seem to have 'access" to the Congressmen, which is something that the average citizendoesn't have any longer.
These same lobbyists were the ones who "convinced" Congress to "relax" the regulations that substantially helped to create the conditions that caused our national economic disasters.
The statement in the article that: ". . .because lobbyists are funneling campaign cash to Congress."" fairly well says it all. So, Congress is still "selling out" the American people to the special interests groups?
. . . andwhose money is it really thatt they are using to buy influence? Why it's the taxpayer money coming from the "bail out" and TARP monies. This has got to stop!
Everyone should deluge their Congressmen with emails about all of this.
3-20-2009 @ 2:52PM
joe soule said...
It is not the amount of the bonus' paid, it's the principle, the sheer arrogance of the execs. Lets cause the company to fail and give us our bonus anyway. Some of these recipients don't even wourk for AIG any longer.Personally, I think charges of fraud should be brought against all of these people. They knew this was a disaster waiting for its' time and decided to take their money and run. They knew - I know they knew because I knew from just the little information made public before the bubble burst. But I'm just an oldt truck driver and mechanic from the sticks in Michigan. Nobody would print my warnings or interview me. Now Hear This!!! Hide what ever assets you still have from the tax increases that must follow these defecits. There are taxes comming you will not begin to imagine. These legislators (federal, state and local) will tax the electricity you use to recharge your fuel efficient cars, your heating oil or gas, your water use, the solar or wind energy you produce, the miles you drive as well as the gasoline you use and I even expect a tax on your internet use. Can you see a tax on the number of bytes you get offd the net? How about a tax on the web transactions you have paying bills or getting direct deposit? How about a tax for walking your dog or owning a car more than three or four years old. Remember we have to keep these auto companies in business. If you don't like their cars, their prices or the economy of their vehicles, well, you have to pay them anyway. Remember, we're doing it now, the tax will just help reduce the defecit. Welcome to the new world.
3-20-2009 @ 3:20PM
BHarrison said...
The greatest enemy to the American people is our CORRUPT Congressmen and politicians. They have enabled and allowed the CEOs to orchestrate and to perpetuate the FRAUDS that have decimated our economy. And NOW they are allowing the recovery efforts to be led by the same CORRUPT type CEOs, and CFOs who are using the "Bail out" and TARP monies to prop up their old companies and cronnies in the financial industry. When will the CORRUPTION STOP?
3-23-2009 @ 12:46AM
Cheyenne Miranda said...
...so where is the money coming from to pay these lobbyists in the first place? Are taxpayer funded TARP monies lining their pockets too?
How about amending the legislation to include a) no TARP monies used to pay lobbyists b) no TARP monies to be used for campaign or PAC contributions c) no banks receiving TARP funds allowed to lobby congress or contribute to campaigns or PACS. Oh wait, you mean cut off the gravy train to our elected officials?