The Bonuses Can Still Be Stopped

by: Chris Bowers

Thu Jan 29, 2009 at 19:55

Yesterday it was reported that Wall Street banks dished out $18.4 billion in bonuses during 2008. Today, President Obama and Senator Chris Dodd had some harsh words for those bonuses:

Bonus round: Obama, Dodd hammer Wall Street over $18.4B largesse

Following the report that Wall Street firms had handed out $18.4 billion in bonuses last year amid the financial meltdown, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said he would look for "every possible legal means" to get the money returned.

"I'm going to be urging - in fact not urging, demanding - that the Treasury Department figures out some way to get the money back," Dodd said. "This is unacceptable."

However, here is what you didn't hear from either President Obama or Senator Dodd as they blasted the bonuses: legislation they are blocking makes it possible to retroactively strip those bonuses. Two weeks ago, the House passed legislation, Finance Chair Barney Frank's HR 384, which retroactively strips recipients of bailout money from receiving bonuses (more in the extended entry):

Chris Bowers :: The Bonuses Can Still Be Stopped
Emhpasis mine:

[HR 384] Adds the stricter executive compensation limits from the auto bailout bill to firms that receive TARP money. The stricter limits include a ban on bonuses and incentives for to the 25 most highly compensated employees of a company, "any compensation plan that would encourage manipulation of such institution's reported earnings to enhance the compensation of any of its employees," and a mandate to divest in private airplanes. Notably, these stricter limits would apply retroactively to executives from companies that have already received TARP money.

This legislation was passed by the House only eight days ago, over the objections of all but 18 House Republicans. It is still be possible for Senate Democrats to pass a mirror to HR 384, and send it to President Obama's desk. In fact, such a bill would have to first be passed through the Banking Committee, chaired by Senator Dodd. Further, if Democratic Senators were urged to pass this legislation by the Obama administration, it is likely that such legislation could be passed next week, given the massive influence President Obama has with Senate Democrats. And then, poof, the excesses of the bonuses would be solved.

However, as reported on multiple occasions on Open Left, this simply isn't happening. Instead of passing this law, and stopping the bonuses, Senator Dodd and White House NEC chair Larry Summers simply exchanged letters of assurance. They could have stripped these bonuses, but they themselves chose not to do so.

There are some very good things happening with the Obama administration (check out today's new campaigns against Republicans on the stimulus, for example) but this simply isn't one of them. It is disingenuous for President Obama and Senator Dodd to complain about Wall Street bonuses when they are the two major obstacles to passing legislation that would actually strip those bonuses. This legislation isn't abstract, either, as it already written, and has already passed the U.S. House.

Quite frankly, either Senator Dodd and the White House needs to start pushing for mirror legislation to H.R 384 in the Senate, or they need to stop complaining about Wall Street bonuses. If they actually believed those bonuses were a bad idea, and were not simply just scoring political points by complaining to the media about them, then it would be easy for either of them to strip those bonuses. It is time to take on the responsibility that comes with being in the majority.

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So I'm looking at HR 384... (4.00 / 3)
And I'm wondering, where's the part about what happens to you if you pay these bonuses anyway?

Here's Sec. 102, which purports to be able to stop these bonuses:


     (a) In General- Section 111 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5221) is amended by adding at the end the following new subsections:

     `(e) Across-the-Board Executive Compensation and Corporate Governance Requirements-

           `(1) STANDARDS REQUIRED- Notwithstanding any provision of, and in addition to any requirement of subsection (a), (b), or (c) (other than the definitions in subsection (b)(3)), the Secretary shall require any institution that became an assisted institution after the date of the enactment of the TARP Reform and Accountability Act of 2009 to meet standards for executive compensation and corporate governance while any assistance under this title is outstanding.

           `(2) SPECIFIC REQUIREMENTS- The standards established under paragraph (1) shall include--

                 `(A) limits on compensation that exclude incentives for senior executive officers of such institution to take unnecessary and excessive risks that threaten the value of such institution during the period that any assistance under this title is outstanding;

                 `(B) a provision for the recovery by such institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later found to be materially inaccurate;

                 `(C) a prohibition on such institution making any golden parachute payment to a senior executive officer during the period that the assistance under this title is outstanding;

                 `(D) a prohibition on such institution paying or accruing any bonus or incentive compensation, during the period that the assistance under this title is outstanding, to the 25 most highly-compensated employees; and

                 `(E) a prohibition on any compensation plan that would encourage manipulation of such institution's reported earnings to enhance the compensation of any of its employees.

           `(3) APPLICABILITY TO PRIOR ASSISTANCE- Notwithstanding any limitations included in subsection (a), (b), or (c) with regard to applicability, the Secretary may apply the requirements of and the standards established under this subsection to any assisted institution that received any assistance under this title before the date of the enactment of the TARP Reform and Accountability Act of 2009.

     `(f) Board Observer- The Secretary may require the attendance of an observer delegated by the Secretary, on behalf of the Secretary, to attend the meetings of the board of directors of any assisted institution that became an assisted institution before October 3, 2008, and any committees of such board of directors, while any assistance under this title is outstanding.'.

     (b) Repeal of De Minimis Exception- Section 111(c) of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5221(c)) is amended by striking `and only where such purchases per financial institution in the aggregate exceed $300,000,000 (including direct purchases),'.

I see that the Secretary "shall require" everyone to meet these standards, but I don't see how, or what happens to you if you don't. The only recovery provisions I see are for bonuses that get paid based on inaccurate financial statements. And I see the retroactivity. But I don't see a mechanism for doing anything. Maybe that's left to the discretion of the Secretary. But what do we think that gets us?

Also, is that supposed to say "exclude" in (2)(A)? "Limits on compensation that exclude incentives for senior executive officers?" I get how you could read that to mean that the standards must include limits that exclude allowing such incentives. But you could also read that to mean that the limitations mandated should exclude limitations on those same kinds of incentives.

That'd be ridiculous! But so would giving them $3 trillion, so...

Good catch (4.00 / 1)
Thanks for that.

I still think that this could strip the bonuses, however. Even if the language for what happens if the standards are not met isn't in this bill, a Senate mirror could have that language. Or, such lanague could be inserted during conference.

It would up the difficulty level a bit, but it could still get done.

[ Parent ]
There's still zero reason not to act. (0.00 / 0)
Even if you end up only acting for show. Why not put on that show?

And as a legal matter, it may well be that you just have to leave it to the discretion of the Secretary. At least we'll know who's got the power to do something and who doesn't.

[ Parent ]
Are harsh words enough? (0.00 / 0)
Isn't this robbery?

Ordinary Americans are losing their jobs and homes in record numbers because of policies and decisions by banks in interaction with the government - and yet billions and trillions of dollars of their money is going to those same banks and in a way that is not being accounted for.

In ancient Rome, Senate and Congress became so corrupted that they passed any legislation on behalf of the ruling elite. The bank bailout pushed through with the threat of martial law is also a kind of robbery, no?

The bankers with the bonuses will be buying up the foreclosed homes for a pittance. Is this why there is no legislation to alleviate foreclosure?

Harsh words for banker's bonuses is not enough, in my view. There needs to be a legal action to put those responsible for crashing the system only so they can buy up assets on the cheap.

The subprime mortgages packaged fraudulently as tripple A securities -- a repeat of the 1931 banking crisis -- in intereaction with government marcroeconmic policies has destroyed the US economy, creating record bankruptcies.

Someone will have the oil and drug money to buy up the country cheap. The people who are impoverished are to be sent to FEMA camps. What future await them there?

US's food production is set to contract due to global warming and Obama's decision to continue using biofuels will only exacerbate that problem.

What provisions were made in the stimulus package to keep people in their homes? Pay their massive debts (in 1929 a working man's wages had enough of a purchasing power to buy 90 per cent of their house) and give them a future?

None. Congress fiddles while Rome burns.

There's always the French approach (0.00 / 0)
Take to the streets

According to the report on the BBC World broadcast last night on our PBS station, the major targets for property damage were the banks.

"It sounds wrong...
     ...but its right."

[ Parent ]
Do you ever get the feeling... (0.00 / 0)
...that the President may be playing the "good cop" to Congress's "Bad Cop?"

Good Cop: I'm really trying to help you out here... I don't want to see all you guys in jail, or even worse, broke!  If it was up to me, I'd just turn you all loose.  But you know what my partner's like...he just wants to bust some heads.  I don't know if I can hold him off much longer, but if you'll just start cooperating, maybe I can keep him from roughing you up too badly.

Bad Cop: Take back the damn bonuses!  Let's have investigations of how all the TARP money is being spent!  Equal rights for everybody!  Eliminate the Bush tax cuts!  Double the estate tax!  Single-payer national health care!  I'm ready to rock and roll!

Wall Street Execs and House Republicans: you really think he'd do all that stuff?  (tugs at collar) Well, gee, I don't know...maybe we COULD give back some of the money we stole...

Okay, maybe not.  But maybe so....

What if? (0.00 / 0)
What if the Wall Street Execs and House Republicans instead turn to their lawyers and ask, "Um...can he really do all that stuff?

And what if the answer is no?

[ Parent ]
Chris Dodd is an accomplice (4.00 / 1)
Chris Dodd has spent most of his 20 years in office working for the financial industry. Why should anyone take him seriously now about revoking these bonuses?

Here's how Dodd works:

1. Dodd votes in favor of banking deregulation.
2. Major banking scandal hits.
3. Dodd voices his outrage at ...
   a. the Treasury Dept. or the SEC
   b. the President
   c.  Republicans
4. Does nothing in Congress to fix the problem.

Lather, rinse, repeat.

Another way to get rid of these bonuses is to tax them at a rate of 60% or higher.    


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