Tags: bailout | bank | bonuses

Oink! Banks Use Bailouts for Bonuses

By    |   Friday, 30 Jan 2009 11:00 AM

Oink! Banks have used taxpayer TARP bailout funds to dole out huge bonuses.

Merrill Lynch, which lost $27 billion last year, rushed through $4 billion in year-end bonuses just before being seized by Bank of America.

New York Attorney General Andrew Cuomo, who’s investigating Merrill Lynch’s billions of dollars in bonuses paid just before its merger with Bank of America, has subpoenaed ex Merrill Lynch CEO John Thain.

Other firms begging for taxpayer bailouts quickly made dispensing 2008 bonuses top priority, says David Krasne, a partner at a private equity firm, in The New York Times.

“This speaks to how completely foolhardy behavior has overtaken our industry,” writes Krasne.

“It certainly defies logic and sensible business practice. After all, it’s one thing to reap great rewards when creditors are being repaid and shareholders are earning a return; it’s quite another to reward failure almost as well.”

He doesn’t know whether to be more upset as shareholder or a taxpayer. Then again, it’s all the same, he says, noting the government is the largest shareholder of many banks.

Bonuses, in some cases, were down less than 50 percent last year compared to the previous year despite disastrous losses, according to Krasne.

That’s shocking, of course. But what’s being missed, Krasne writes, “is how completely the culture of executive compensation has permeated the financial industry.”

Non-executives get bonuses that are much more than yearly salaries of most people, says Krasne, himself a former Merrill Lynch employee. Even a 22-year-old recent college graduate on Wall Street gets a hefty year-end windfall.

The Obama administration has vowed to clamp down.

“Part of what we're going to need is for folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility,” Treasury Secretary Timothy Geithner told reporters.

Obama himself later called the payouts “shameful.”

But the government itself is to blame, Krasne argues. Without taxpayer money, the banks would have had to choose between bonuses and solvency. The bailout made the bonuses possible.

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Oink! Banks have used taxpayer TARP bailout funds to dole out huge bonuses. Merrill Lynch, which lost $27 billion last year, rushed through $4 billion in year-end bonuses just before being seized by Bank of America. New York Attorney General Andrew Cuomo, who’s...
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Friday, 30 Jan 2009 11:00 AM
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