Saturday, February 7, 2009

Bank Bonuses Unquestioned In Corporate Media

President Obama, following the lead of Senator Claire Maskill of Minnesota (who perhaps introduced the idea to provide political cover for her ally?) recently decided to propose that executives at banks who accept TARP funds should have their compensation capped at $500,000 a year

This corporate media account of course neglects to put much emphasis other than a clause at the end of a 43 word sentence:

Under Obama's plan, any executive of a company accepting federal aid will be able to increase their $500,000 basic pay through the award of shares but they will not be able to cash these in until all taxpayer funds have been paid back.

The fine print at the end of this long-winded piece of prose is that executives can accept stock-based bonuses that they cannot cash in after TARP funds are repaid, i.e. after those stocks are worth much, much more than they are currently, which is not much of a "cap". And it still allows for performance bonuses for people whose "performance" has sunk the world into a global financial crisis.

Bank representatives have wisely been quiet on this issue, but corporate media sources have frequently quoted financial experts about the alleged threat that capping bonuses presents, alleging that capped execs may leave the country in protest to work for foreign banks. Few voices are presented to illustrate the ludicrousness of this claim (as prior attempts to limit executive pay or even generally increase taxation on the wealthy have almost never resulted in any significant exodus). This is customary when an official source is quoted from the corporate elite, as heads of corporations and individuals critical of corporate power are almost never treated equally (or given anything close to equal time) in the corporate media.

Of the few critical voices given room to speak on this issue in the corporate media, former JP Morgan investment banker and author William Cohan discredits the criticism that bonuses will lead to "banker flight" the best:

“There’s this fallacy that everybody will leave” if bonuses are restricted, said William Cohan, a former investment banker at Lazard Ltd. and JPMorgan and author of “The Last Tycoons” about Lazard. “What do they do? They push paper around. Where else can you get paid $500,000 to do that?”

Notably, autoworkers were not given the same amount of airtime and inches of newsprint to question whether their benefits should have been limited under the auto bailout terms that much richer (and much more incompetent) banking executives are given to vent about their bonuses being capped at a "mere" 1000% of the median salary of the average American worker.

Any critic of the banking industry might have been quick to note that (1) beggars can't be choosers and if banks want taxpayer funds, they have to accept pre-conditions just like they would from any other massive equity investor (2) executives whose pay is capped still have the benefit of a wide range of performance bonuses (even though their performance so far has led to a global banking crisis and thereby their performance barely justifies their base salary, let alone a bonus) and (3) due to layoffs throughout the banking industry globally, executives whose pay is capped have nowhere else to go. The third point is key. Arguing that caps on salary will prevent Bank of America from tapping quality banking talent is erroneous on its face because layoffs have resulted in a massive pool of very talented, currently unemployed people in the banking industry.

Ken Lewis, who runs Bank of America, received $20m in 2007. BoA needed federal aid after its takeover of Merrill Lynch.

Considering that B of A bought Merrill Lynch for pennies on the dollars and will write down any bad assets they have, it's hysterical to assert that Bank of America needs financial assistance *and* must pay its top executives millions of dollars. If these top executives had made smart business decisions worthy of earning the bonuses they are taking home, their company's profitability would have been high enough to absorb the underpriced Merrill Lynch purchase without missing a step. As is, B of A is loaded down with its own share of bad debt and absorbing Merrill only exasperates the problem, thanks to poor judgment by the same Bank of America execs asserting their right to earn performance bonuses. Rewarding ineptitude is the *opposite* of how the free market is supposed to operate.

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