The main thing to catch is that even Europe lacks the resolve to demand that banks receiving bailouts stop executive bonuses. Instead, they are asking for “restraint.” You’d think bonuses in failing banks would be a bailout nonstarter. Instead, Europe is just encouraging banks to “be very moderate” on bonuses because some bonuses were already guaranteed.
This is the stuff that makes my head pound. As I point out in my new ebook based on articles I wrote ten years ago, this is just, yet again, another rinse-and-repeat cycle of the head-popping stupidity that existed back in the Bush days (and Obama days). I think you’ll find the following excerpts from the book both amusing and aggravating in the extreme because of how exactly the pattern matches.
Here’s my criticism from a decade past:
Alan Schwartz, the CEO of Bear Sterns, boldly told the world that his company had no liquidity crisis. In fact, he claimed they were sitting on a fat cash cushion. That was easy for him to say because he personally was sitting on a fat cash cushion of a $16 Million bonus from 2007. That was on top of his $35 Million salary.
Unfortunately, the corporation’s cushion turned out to be a whoopee cushion and Schwartz full of gas because Bear Sterns was sold five days later in a fire sale for about a penny on the dollar of its former worth. Schwartz is being very quiet about his cash cushions these days….
In July, Chairman Bernanke (I like to call him that, now that he runs one of the organizations in charge of socializing the American economy) told Amerika that Fannie Mae and Freddie Mac were “in no danger of failing.” Two months after his assessment, this same man nationalized Fannie and Freddie because, apparently, conservative Republican administrations know one thing well: the best-run economies are centrally controlled by government.
Liberals, on the other hand, had nothing to do with this because they didn’t even know it was happening. So, they had to be innocent. You see, as Congressman Barney Frank said in September, “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems… the less we will see in terms of affordable housing.” Again, it is reassuring to know that a man with keen intuition like Barney was in charge of the House Financial Services Committee!
… By November, [Treasury] Secretary Paulson comforted us all again by telling us, “Our major institutions have been stabilized. I believe that very strongly.” Apparently, the program was a smashing success because, immediately, the largest bank in America and some of America’s biggest blue-chip manufacturers went bankrupt. Again, I was reassured in knowing that the Economic Czar still had no idea what was happening in the economy and that he felt very strongly about that.
Of course, Paulson was another man making whoopee on a cushion. He had made as much as $50 Million in a bonus one year. That does take the bottom out of a recession. (The reassurance I keep feeling, by the way, is not that the country is strong, but that my own thinking is still clear because I keep watching those I disagree with skid on their faces in spectacular style. The odd thing is how they keep doing it! I would have thought they would have lost face a long time ago.)
Well, here we are a decade later, and they still haven’t lost face. Everyone just keeps right on letting them get away with it. As you listen to Mr. Europa talk, it’s clear times haven’t changed at all essentially claiming, “European banks are doing fine, well capitalized, even though we’re bailing them out.”
Do you hear any ring of familiarity on the bonus bonanzas with the following from a decade ago?
In December, Merrill Lynch dispensed $4 Billion in bonuses to its top execs … after receiving bailout money. Bank of America, which acquired Lynch, then became aware that Lynch’s loss of blood was equal to a head injury from falling off its corporate tower. So, it asked the federal government for another twenty-billion-dollar transfusion. If the bonuses had not happened, BofA could have asked for a quarter less (or about $16 billion) to save it from its problems.
While BofA claimed they had no idea that Lynch would have twenty billion in fourth-quarter losses, they certainly knew about the four billion of it that their own people got at the last minute on the way to their Christmas parties. Yet, the government didn’t even blink and handed over the full twenty-billion request. This is the revised theory of trickle-down economics in action. Bail out millionaires, and they will spend their new mint-green money on cars that will put middle-class automakers to work. Or yachts.
So far, the government has transfused its liquid gold into the banks’ main arteries with not much more than a wish and a prayer for recovery of the money. So much money flowing so freely is a situation ripe for abuse. In fact, obtaining interest-free billions in these financially pinched times (if you’re a millionaire) has been easier than getting a small-business loan from the government in plush times.
If the government had any brains (or were not governed by corruption that protects the greedy from their own greed in the pretense of protecting the rest of us — you decide which), it would have noted that BofA bought Lynch in a firesafe that was fully considered and negotiated over the course of a weekend and that any major CEO who is such a business whiz that he thinks he can give only a weekend’s consideration to buying a major bank that is being sold in a bankruptcy situation HAS TO KNOW he’s buying a bank that undoubtedly has enormous heaps of buried bad debt that he and his team could not possibly ferret out in a weekend.
He had to have been counting on more government bailout money to come if such problems were discovered after the buyout. To prove he was right, the government accepted his excuse that they “couldn’t possible have known” and gave BofA another $20 billion bailout for having been so kind as to buy a major bank at bottom-of-the-bank-basement prices negotiated by Team FedGov.
But, hey, at least everyone got their bonuses … in the bailed-out, bought-out bankrupt bank run by the Lynch mob. And maybe that’s why they want those bailouts so badly. Maybe they’re not sure how their going to pay themselves bonuses in a cash-strapped company.
Ah, but surely this part from another chapter a decade ago rings with familiarity today. I offer it for the tone-deaf who haven’t caught the similarities yet (or to those who just want more masochistic entertainment):
Maybe it’s because of news this week that AIG is using 165,000,000 of that bailout to pay additional executive bonuses, and the US government is allowing that. Showing unprecedented restraint, the chairman of the board has agreed to try to trim these bonuses down a little … next time.
Now that just puts my head in a whirling dervish like a washing machine on a spin cycle, for this very same month AIG reported that those superlative (or is that expletive?) executives created the largest quarterly corporate financial loss in world history — $61,700,000,000 down in one quarter. I’m not sure what the opposite of cross-eyed is, but my eyes are splitting like a chameleon’s just to read that wide number.
Mr. Europa, in the video above, could have just as easily been talking about AIG’s bonuses when he said essentially, “We’re asking them to consider toning down the bonuses a little.” (As window dressing for the public.) Would that be because there might be some public outrage if we do all this again? I doubt it. The public seems to be sleepwalking right through this just like last time.
So, this week, we read …
“It’s a bit early to talk about the bonuses for 2020, but we are definitely thinking along the lines of showing solidarity,” Credit Suisse’s Gottstein said in the interview…. As Bloomberg reports, Deutsche Bank is considering scrapping bonuses for top management this year as regulators urge banks to preserve capital and keep lending through the coronavirus pandemic. Cutting bonuses is just one possibility….
Oh, so those asked to tap down a little on the bonuses are thinking about it! But still holding out their hands for big bastardly bailouts while they think about it.
And, so far, not much public outrage!
Still, it’s because I hope to stir outrage that I put this little book from the past together, thinking maybe people will see all the parallels and recognize that none of it worked; we’re right back at it. I hoped they’ll ask themselves, “Why are we doing all of this all over again” or “Why are WE LETTING them do it all over again?”
Well, of course, that all comes down to the same old answer, too. We’re afraid that banks that are too big to fail will fail on top of us. But, then, why aren’t people asking, “Why did we allow these banks that were too big to fail to get even bigger?” Where is the outrage?
Still not convinced the rinse-and-repeat cycles repeat exactly? Read how AIG’s excuses for not cutting the bonuses is the same excuse being used today in the video above:
Notch it down? AIG says, they cannot because it is a pre-existing contractual obligation. First, how many alligator-brained corporations do we have that are writing contracts that guarantee bonuses if you obliterate your company? Second, the government has every legal right to stipulate that no bailout money will go to corporations whose executives are receiving any bonuses at all. That would put the onus on the executives to sign consent to their loss of bonuses or lose their jobs because their business fails entirely. Then they would lose their bonuses anyway due to corporate bankruptcy.
It’s not the banks’ place to be calling the terms with their hands out! You see, the solution is this simple: “Oh, you already have a promised bonus, but you want a bailout. Fine. Come back to us after you haven’t given out any bonuses for a year if you still need a bailout then. Otherwise, have everyone sign this form that agrees to not taking their contractually promised bonus in exchange for the bailout you’re begging for.”
Trump is the “great negotiator.” so let’s hope he can negotiate this no-brainer a little better than Bush did (or than Europe is now doing):
Don’t our leaders have any ability to negotiate? This is a slam-dunk: “Everyone sign a new agreement to lose your bonuses, or we don’t bail you out.” There are ways to terminate the bonuses.
If they want to forego their bailouts in order to keep their bonuses, LET THEM! They will be unemployed before they can cash their bonus checks because their companies will go broke. And, if the timing works out right, we might even be able to forego paying them their contractual bonus checks as we settle in bankruptcy court. At the same time, we can claw back all the stock buyback money by using all shareholder value to pay off all company debt.
I’m hoping we’ll use our national downtime to do a little reading and reflection to consider whether we really want to keep repeating these cycles. I’ve extended free copies of my ebook, DOWNTIME: Why We Fail to Recover from Rinse and Repeat Recession Cycles to patrons who support me at the $10 a month level, and I’ll do the same for anyone who signs up at that level between now and April 4th with a free day of prerelease copies on April 5th.
It’s a terrible bargain, really. The book will normally sell for $3.49, and you’ll be paying $10 a month in patronage, but that’s because you’re not really buying a book. You’re supporting an effort to keep trying to wake people up to this nauseating endless greed, and the free ebook is just a thank-your for your support.
I hope the book is a quick, easy and sometimes entertaining read in order to get people to think about what we’re doing right now; and you will be supporting that effort at a time when maybe people will think about it because they have a little downtime to sit and think. Maybe! And you’re getting to be one of the first few to read it and review it. So, think of your contribution as more of an effort to break the central banks’ rinse cycle on their money-laundering machines while being agitated (and a bit amused) by the Keystone Kops of Kommerce.