Seriously, Give Us Our Bonuses, Or We Will Destroy the Economy

by: Chris Bowers

Tue Mar 24, 2009 at 06:00

The Wall Street Journal has an article up about the Obama administration's outreach efforts to Wall Street. Among the cute stories about hashing out the housing plan over pizza with banking executives, comes the underlying story of how the bonus tax threatened the Wall Street bailout itself. Far from being a side issue or a petty amount of money, the message of the banking industry to the Obama administration was clear: give us our bonuses, or we will blow up the economy. From the story:

Meanwhile, Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say.

Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.(...)

Bankers were shell-shocked, especially when Congress moved to heavily tax bonuses. When administration officials began calling them to talk about the next phase of the bailout, the bankers turned the tables. They used the calls to lobby against the antibonus legislation, Wall Street executives say. Several big firms called Treasury and White House officials to urge a more reasonable approach, both sides say. The banks' message: If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses.

There are a couple of extremely noteworthy items here. At the top of the list is the way that the financial services industry is directly threatening to blow up the entire private-public bailout plan unless they get their bonuses. They don't want any new regulations, any limit to their compensation, and even any angry rhetoric. They just want the government's money, no strings attached. And if their demands aren't met, they will destroy the entire country. It is pure economic terrorism.

More in the extended entry.

Chris Bowers :: Seriously, Give Us Our Bonuses, Or We Will Destroy the Economy
This should also be a clear sign of the fatal mistake in giving the financial services industry any more money before new regulations and compensation limits are in place. Not only is getting even richer more important to them than helping the country, but the industry as a whole will actively work to bring down the country just to spite attempts to take away their bonuses. There is no way we should deal with institutions like these unless we have legal guarantees beforehand that they won't fuck us all over in 2009 just as they fucked us all over before 2009. Cries about the sanctity of contracts ring more than a little hollow when any attempt to put legally binding conditions on the money we give them are met with threats to destroy the economy.

It is also noteworthy that the bonus tax apparently almost ended the private-public partnership bailout plan, and the delay might have saved it. If a bonus tax had passed into law this week, participation could have been significantly lowered. Instead, the delay in the legislation might mean all the bailout money is spent before the bonus tax becomes law in late April. Dang.

As far as the Obama administration telling Wall Street it is opposed to the bonus tax in personal phone calls, after issuing press releases saying they would sign the legislation, well, I don't really know what to make of that. It is a lot of cognitive dissonance, a lot of anonymous sources, a lot of vague rhetoric flying on both directions. What we do know is that a bonus tax just passed the House with 49% Republican support. As such, if a bonus tax doesn't pass, there won't be anyone to blame except the Obama administration. If it wants this bill passed, it will pass. If it fails to pass, then they didn't really support it.

I don't know how much the article's claims of the newfound friendship between the Obama administration and Wall Street are true. However, no matter the veracity of the claims, the whole article still has great comedic value, in that it reveals the internal psychosis the financial services industry. Did you know the anguish they went through when they lost total control of United States governmental policy for a few weeks? It was a long, dark, horrible time, but now, finally, finally, after a whole nine weeks, everything is restored to normal! It's hard losing total control of the country for, like, five or six weeks. Truly, rough times for Wall Street.

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Give Us Our Bonuses (4.00 / 1)
This is an interesting post. It has its problems, however. First, I don't think for a moment that the bankers have the power to sabotage the banking sector or the economy or the recovery plan. They are as shell shocked by the events of the last months as any of us, probably more shell shocked.

Second, credit is not flowing despite the massive infusions of government money. Why is that? Because these very same bankers do not trust their counterparts at rival banks. That is a symptom of a loss of confidence. How can you assume, when trust is missing, that these same bankers will cooperate and collude in bringing the economy to its knees? It doesn't make sense.

Last, but not least, is the specter of continuing hubris and tone deafness displayed the bankers' attitudes, if your post is accurate. I happen to think that the hubris is still there. After the Great Depression, it took bankers and business people thirty years to begin to recover their reputations as seers, sages, and valuable parts of society. I think another trip to the wilderness is in store for the bankers.

They will be replaced by men and women who wish to do their jobs, make loans, and have careers less exalted the current crop. I dare say, that would be very good for all of us.

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New Negotiator wishes you peace and prosperity.

Based upon what empirical information (4.00 / 2)
can you support any of the claims you're making here?  It reads like the sort of thing that should be prefaced with, "Well, I know a few bankers, and they say..."  

Your narrative as to why credit is not flowing could be as easily replaced with a number of others - for example, how about credit isn't flowing because the bankers have no incentive to make loans as long as the taxpayers just keep handing them money for free?  In the minds of these bankers the banking system exists primarily to generate their personal income.  Since the taxpayers are paying both their salaries and bonuses in exchange for no actual work on their part, why should they do any work?  It's not that they don't trust other bankers, it's that they don't trust that there are many good credit risks - so why take that risk?  I'll leave it to others to come up with narratives that are equally plausible as ours.

If you're going to be so faux-authoritative as to use condescending phrases like, "This is an interesting post.  It has its problems, however" how about backing that claim up with some actual information rather than idle speculation and opinion?

[ Parent ]
Seriously (4.00 / 2)
Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money.

Why don't they do this in the first place? I mean, nothing is holding them back from accepting investment from private-equity funds... except the fact that private-equity funds aren't really willing to invest in institutions they can't trust.  

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This raises my populist hackles (4.00 / 2)
You should post it at dKos-- people keep their hackles high over there.

I wish the phrase "economic treason" were in the vernacular (0.00 / 0)
I'd settle for "economic disloyalty", I suppose.

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I call it extortion (4.00 / 2)
Give us the money and no one's economy gets trashed.  

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

[ Parent ]
It will be ugly (4.00 / 2)
when the bandages are removed and we see the wound. There is no doubt in my mind that a lot of criminal behavior has taken place--not just greed. So now, all of a sudden, Goldman Sachs is threatening to repay their bailout money early? But the Administration is concerned that that would be dangerous (NYT)? What? I smell a rat.

A fishy rat (0.00 / 0)
no less.

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

[ Parent ]
You misread the article.... (0.00 / 0)
The Times reporter implied that the administration would ask them to hold off, but it was complete speculation on the reporters' part. The administration hasn't said a word about it.

Personally, I think the administration welcomes this move by goldman to force the other banks to participate with the toxic asset plan with more gusto....

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

[ Parent ]
This is why nationalization IS SUCH A GOOD IDEA! (4.00 / 6)
It stops all of this dead in its tracks. Ok, you want to threaten the entire global economy with extortion. As of now, we taking over your bank. If you have assets available to cover your bets you'll get it back. If you do not, you and all your buddies are fired and we'll break your bank up and sell the pieces to other financial organizations. And while we're at it, we'll determine whether or not any of you people should go to jail for felony fraud and criminal negligence. Simple enough. It's the S&L approach. It worked then when the last real estate scam threatened to put the U.S. economy in the ditch. It should work now.

Teddy Roosevelt would have understood the problem as or more clearly than anyone in the current administration. There's no carrot big enough for these people. They need a stick.

Excellent post, Chris. (4.00 / 1)
I wrote about this also on Daily Kos.

The Big Banks Tell Obama To Back Off, Don't Touch Bonuses.

Their is a real split in the netroots, as one can see in the comments.  For a few, there is an almost knee jerk reaction to defend the system and professional pay, and, I assume, President Obama, to the extent they see him doing that.  I think President Obama actuaally is to the left of many of those supporters.  

While this Giethner Plan drives me up a wall, and the bowing to Wall Street extortion offends me, I still have hope that there will be EFCA.  Without that, we always will lose the class war.

Anyway, great post, Chris.

Coming to Open Left is a breath of fresh air to me.

In solidarity.

To me, there is an obvious way to (4.00 / 3)
get Wall Street bankers to back off from their own threats of extortion: make a credible threat of your own, namely, threaten to take over the banks in receivership, and replace the management.

Why aren't the Wall Street bankers in any way afraid of that existential threat? Because they know that the Obama team and Obama himself will never carry through with such a threat.

That is the great downside to the refusal of Obama and his team even to entertain the possibility of a Swedish solution. If they indicated any seriousness in going down that direction, the entire dynamic of negotiations with Wall Street would change overnight.

[ Parent ]
The 401K makes us all slaves to wall street... (0.00 / 0)
Unfortuantely, people's retirements are linked to those bastards, so they get a bigger say than they should.  The Obama administration started off being anti-wall street, and wall street decided to make the American people pay for that stance...  So, the administration had to make the decision... work against them, get some populist cred for awhile, but tank the economy.... or work with those bastards and maybe get some positive things done and the economy improving...

We can burn wall street down, but then what?  I don't want to live in the middle ages!  I'll take the pragmatic approach if it means more jobs, etc.  Yes, I'm compromising my principles, somewhat... but, I'd rather get something done than put these people's heads on a pike....  

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

[ Parent ]

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