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.
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.