TARP Payback Widens Losses At BofA

Bank of America lost $5.2 billion over the last three months of 2009. Things aren't going so well over there. Losing 5 BILLION dollars in three months is quite an accomplishment. However, $4 billion of that was in charges related to its repayment of $45 billion in TARP loans. At least the taxpayers recouped 45 billion dollars. More>>>

Has anyone seen a summary of what was loaned under TARP, what has been paid back, and what the American people are out of pocket to date?

New AIG Chief Threatens to Quit Over Pay

It's tough working for the government, with politicans making business decisions.

Unhappy over constraints imposed by U.S. government overseers, AIG Chief Executive Robert Benmosche told the company's board last week that he is considering stepping down, according to the Wall Street Journal. Benmosche is said to be unhappy over a recent compensation review by Kenneth Feinberg, the Treasury bailout program's special master for compensation. More>>>

Pay Czar Targets Salary Cuts

The Obama administration's pay czar is planning to clamp down on compensation at firms receiving large sums of government aid by cutting annual cash salaries for many of the top employees under his authority, according to people familiar with the matter.

Instead of awarding large cash salaries, Kenneth Feinberg is planning to shift a chunk of an employee's annual salary into stock that cannot be accessed for several years, these people said. Such a move, the most intrusive yet into corporate compensation, would mark the government's first effort to curb the take-home pay of everyone from auto executives to financial traders. More>>>

Criminal Probes into Bailout Funds

Why am I not suprised. The LA Times reports that there are 20 different criminal probes ongoing of corruption in the $750 billion financial bailout program. The probes are looking into securities fraud, insider trading, tax violations and other crimes.

Unfortunately, there should be no surprise to the statement that TARP funds were "inherently vulnerable to fraud, waste and abuse" but why is that? Why couldn't the government, with all its resources, and 750 billion dollars at risk, take steps to insure accountability and the safety of those funds. Is the government really this dumb?

And why is the intelligence of the government becoming a recurring question. The taxpayers are becoming more and more disenchanted with our government leaders, with the constant "mistakes" and mis-steps that have led us into this recession, and which may very well have allowed billions of dollars to be wasted.

Prosecute the criminals, get the money back, of course. But what about the accountability of the politicans and federal staffers who allowed this to happen?

Is there any accountability for this nonsense?

http://www.latimes.com/news/nationworld/nation/la-na-tarp-fraud21-2009apr21,0,2443377.story?track=rss

SEC eyes whether BofA broke law on Merrill bonuses

So, you are about to merge with a competitor. You need shareholder approval of the merger. The competitor has 27 billion dollars in losses, and is about to pay its employees 3.6 billion in bonuses, right before the merger.

And you don't disclose that bonus payment to your shareholders? Hmmm, maybe 3.6 billion was not material............

SEC eyes whether BofA broke law on Merrill bonuses

Financial Pros Jumping the TARP Ship

Law firms like mine, that represent financial professionals and firms, have seen a significant upswing in the number of brokers and analysts who are changing firms. With some firms offering over 200% of a broker's trailing 12 as a foregivable loan, this is really not surprising.

Many brokers would have a difficult time rejecting an offer that gave them similar products, platforms and working conditions plus a check for 200% of their last 12 months production. Of course, wire houses are not all the same, and there are significant issues to be resolved in the agreements surrounding such a move. But 200% in a check is a significant amount of money, regardless of what your trailing 12 has been.

That trend appears to be moving to other financial professionals, and we are seeing analysts starting to move. Many Merrill professionals were not happy about the move to Bank of America, and other firms, notably UBS, grabbed those unhappy brokers with those bonus offers.

Not investment bankers are moving. Smaller investment banks are enticing wirehouse investment bankers to jump ship.

These moves are undoubtedly a sign of the times. The neverending attacks on the large investment banks are causing a flight of talent. Why stay with a Merrill and risk losing your compensation because Congress has decided to pander to the masses, when you can take a package at a smaller bank, that is financially sound, and not saddled with TARP issues.

It is a growing trend. Not too good for the large investment banks, but good for the smaller ones, and  maybe good for the economy in the long run.

Just make sure those new employment packages are documented and negotiated by someone who knows the ropes.


Merrill Lynch Loses More Bankers to a 'Boutique' - WSJ.com

Goldman to Return Bailout Money

Stating that it never considered TARP funds to be long term capital CFO David Viniar said that it was the firm's duty to return the funds to the taxpayers as soon as it could, without negatively impacting the firm's financial profile.

Goldman is seeking to return over 10 billion dollars in TARP funds. While it's motivation may not be all noble - it would like to get out from under the compensation restrictions - it's desired outcome is certainly welcome.

A quick return to profitability may also help boost investor confidence, and the government could certainly use the 10 billion.

Well, the New York Times gets it. We have much bigger problems than the AIG bonuses.

And why do Merrill executives get to keep their bonuses when everyone else is going to have it taxed away? Because they were paid in December. Another piece of lunacy of the AIG bonus bill.

The Problem With Flogging A.I.G

Congressional Pandering and the 100% Income Tax on Compensation

Congress does a number of things very well. Pandering to the populace is one of them, and nothing demonstrates this as well as the House's attempt to punish AIG. The other thing they do well is pass a bill that has popular appeal, and then hope that someone else stops them, or there is a presidential veto, or the courts strike it down. Then they get to say "we tried to fix it but the [opposing party][the President][the Courts] wouldn't let us!"

We all know that Congress screwed up on the AIG bonuses. They prevented the use of bailout funds for bonuses, but exempted any bonus payable pursuant to a contract that existed prior to February 2009. That might not have been a screwup, on some levels, it makes sense. However, as we all know, there was a huge backlash from the public, since the bailout money was going to pay "executive bonuses." Congress, in its usual pandering, fueled that fire. Ignoring the fact that they expressly permitted those bonuse payments, they began railing against "bonuses" to "executives" at AIG too.

Mixing terminology is another thing Congress does well, since those "bonuses" are not really "bonuses" and the majority of people getting those bonuses are not "executives" but rather technical staff, analysts, assistants, in-house counsel, etc.

Then the House passed legislation on Thursday to impose a 90% surtax on bonuses granted to employees with household income of more than $250,000 at companies that received at least $5 billion from the government's financial rescue program.The Senate is considering a similar plan that could be up for a vote as soon as next week.

Let's follow the bouncing ball. First, the tax is on HOUSEHOLD incomes over $250,000. That covers a whole host of families. Two professionals, a nurse and a lawyer; a stock broker and a teacher.

Second, almost everyone on Wall Street has a compensation package that is salary plus "bonus." Wall Street structures its compensation packages this way intentionally. You see, they don't pay the "bonus" until March of the following year. Not only do they keep the float on the employee's money for the extra months, if you are not at the firm when the "bonus" is paid, you don't get it. So, folks stay until bonuses are paid in March. By then, the employee has worked three months, receiving a vastly reduced "salary" and is 1/4 of the way towards earning next year's bonus. Makes it hard to quit, since you will lose 1/4 of your compensation if you do. And round and round it goes.

Back to the tax. The tax applies to any bonus paid to any employee of any company who received more than $5 billion from the TARP funds, which includes Citi, JPMorgan, BofA, Goldman Sachs Group Inc., Morgan Stanley, PNC Financial Services Group Inc. and U.S. Bancorp.

Morgan Stanley staff gets paid salary plus bonus. Secretaries, IT folks, internal accountants, attorneys, all get bonuses as part of their overall compensation. It is almost guaranteed that most of those folks who are married with a working spouse make over $250,000 a year, combined. It's relatively easy, given the cost of living in a major city these days. An in-house attorney makes something on the order of $200,000. Her husband probably makes over $100,000 and BAM, they get hit with a 90% tax on her bonus, and she has absolutely nothing to do with the bank's current problems. Some of the IT professionals make over $200,000. Same situation. There are assistants who make significant amounts of money working at these firms, who get paid with a bonus, and the government is going to tax them too at 90%.

Congress cannot possibly justify this. They have created this mess and they are now pandering to the public. AND, they are too lazy to write a bill that actually addresses what they are trying to address. While I wouldn't agree with it, if you want to get the bonuses that were paid to executives, use the power of additional TARP funds to do it, not the tax code.

If you want to use the tax code, then apply the tax to bonuses over one million dollars. I would still have a huge problem with that, but you would not be taking money from the innocent secretary, bookkeeper and IT guy.

Don't believe it? Read it yourself, it's only one page long - The House Bonus Bill

AIG Executive Start Returning Bonuses

Good for them. More honorable than the politicans...."Under intense pressure from the Obama administration and Congress, the head of bailed-out insurance giant AIG declared Wednesday that some of the firm's executives have begun returning all or part of bonuses totaling $165 million."


http://news.yahoo.com/s/ap/20090319/ap_on_go_co/aig_outrage_168

More Details on the AIG Bonuses

NYS Attorney General Andrew Cuomo has some details on the AIG bonuses, and the situation is not getting any better for the Administration or AIG.

First, please understand my ire. The details of these bonus payments are not yet public. Some reports say they are for executives, others say that 400 employees are included in the bonus payments. Some reports say they are retention bonuses, others say they are performance bonuses. All reports say that AIG entered into these contractual obligations in early 2008. The details make a difference, and I am not in favor of simply abrogating those contracts, nor of creating a retroactive tax on them. Ex post facto and all that other legal mumbo jumbo. In our system of jurisprudence, you simply cannot do that, and any court would strike down such attempts. Arguing for 90% taxes and intentional breaches of contract makes for some very nice pandering to the public, but it is not going to work.

My anger is directed at this Administration and the Bush Administration. I cannot fathom how they gave AIG 170 billion dollars without knowing where the money was going to go, and how it was going to be used. And forget about conditioning the use of the money. They could have conditioned that money on renegotiated bonuses. Not a problem at all, and we can assume it would have worked, since no bailout money, no AIG, no bonuses at all.

Mr. Cuomo has released some facts about the payments. It seems that his office, an outsider in the transactions, was able to do what the Fed and Treasury was unable or unwilling to do - get the details.

According to Mr. Cuomo's letter to the House Committee on Financial Services:

1. The top recipient received more than $6.4 million;
2. The top seven bonus recipients received more than $4 million each;
3. The top ten bonus recipients received a combined $42 million;
4. 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
5. 73 individuals received bonuses of $1 million or more; and
6. Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million.

First the retention bonuses. My understanding is that the agreement is "stay with us another year, and at the end of the year we will pay you $X since you agreed to stay." If that is the case, AIG needs to pay those bonuses. The parties entered into an agreement, the employee did what hew as supposed to do, and is entitle to the payment. This really can't be an issue, and yes, it is a lousy agreement, AIG management is a bunch of irresponsible fools, etc. But hindsight is wonderful, those are agreements that were entered into over a year ago, and should be honored.

Mr. Cuomo has identified payments of approximately 1/2 the $165 million, but without the details, it is difficult to comment on the payments, except to remind everyone, again, that these are contracts that were entered into over a year ago.

Do you really want the government forcing companies to breach employment contracts? Think about your own employment or business situation. You enter into a major agreement, do everything the agreement calls for, and when it comes time to get paid, the company refuses to pay. Or the government enacts a new law that puts a 90% tax on that type of contract.

Not in our system of jurisprudence. We need competent government leaders, not proponents of illegal and unconstitutional "fixes."

Obama Admin Didn't Know About AIG Bonuses Until This Month!

Something is drastically wrong. Geithner cannot possibly be this stupid. Frank and Dodd cannot possibly be this stupid. What responsible person, using billions of dollars in taxpayer money does not know that the entity receiving the money has contractual commitments that are coming due?

Sorry, I don't buy it. It's impossible for anyone to be that stupid. And if Geithner is that stupid, he should be run out of office on a rail.

This is simply outrageous. ABC News has a run down of who knew what when.

The Case for Bonuses at A.I.G.

Dealbook at the NYT points out the legal arguments, and policy reasons behind honoring contracts. If we let the government retroactively abrogate valid employment agreements, what is the impact on business in the US?

Still, was the fact that bonuses were part of AIG employee's compensation really a surprise to the administration? If so, we have really big problems ahead.

The Case for Bonuses at A.I.G.

Why all the Moaning over AIG Bonuses?

In case you missed it, there is quite a bit of consternation over AIG's bonus payments to its executives and employees. With AIG accepting bailout funds, the fact that they are paying $165 million to executives and employees after accepting the money has become a rallying point for the Obama administration and for a segment of the general public.

While creating diversions is a favorite sport of politicians, it appears that they are simply missing jumping on a publicity bandwagon that they themselves created.

Those bonus payments are contractual. The company entered into employment agreements and severance agreements with its executives and employees long before this economic crisis, and the government had no right, and no ability, to interfere in those contractual arrangements. The general public can object to executive compensation all it wants, but (and excuse my bluntness) it is none of the public, or the government's business. These are matters for shareholders and boards of directors, not senators and politicans.

However, that all changes with the bailout money. When the government gives you money to help your business, in my view, it has the right to condition that money in reasonable and necessary ways. One condition could have been to limit bonuses and executive compensation, much as the administration attempted to do with the bailout money for the investment banks.

However, that did not happen here. While moaning and whining about the bonuses, even the Obama administration acknowledges that these are pre-existing contracts. Lawrence Summers, President Obama's chief economic advisor is quoted in the NYT as saying - "[w]e are a country of law... There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”

The first half of the statement is correct. A private contract between a private employer and his employee is not something the government should be meddling with. But what about the last sentence? Is the government really doing everything it can?

What is it with government officials? The Bush administration gave out TARP money without sufficient regulation and monitoring, and much of it was wasted. Now we have the Obama Administration doing the same thing. Are our politicians this stupid? Undoubtedly not. In my view, they did not "overlook" the bonus and compensation issue. The President talks about it often, and does so often enough to be accused of starting class warfare.

So why wasn't the renegotiation of these contracts discussed during the bailout process? Did anyone try to condition bailout funds on the scaling back of those bonuses by agreement with the employees? If not, why not?

If the decision was made not to do so, why do we have all of this posturing by government officials when they did in fact have the ability to negotiate these items before turning over the TARP and bail out funds?

Dick Fuld Plans Investment Advisory Firm?

Dick Fuld, the former chief executive of Lehman Brothers, is planning a
comeback and has told friends he might launch a small advisory firm to
harness his contacts in US companies once the dust settles on
Lehman’s bankruptcy, according to an article in Financial Times.

The man certainly has the contacts to get introductions to clients, but will clients have the confidence in his management skills they will need to make the investment? Many feel that Fuld was unfairly blamed for the demise of Lehman, as we discussed earlier in Is Dick Fuld a Villian?

Time will tell

http://www.ft.com/cms/s/0/5022fd98-c89a-11dd-b86f-000077b07658.html

Treasury is Understaffed

Why isn't this a surprise. Another government agency that is underfunded and understaffed

Rescue Plan Strained by Lack of Staff - WSJ.com

Financial Rescues Can Set Off New Problems

An interesting analysis of the unintended consequences of the financial bailout from the Washington Post.

Financial Rescues Can Set Off New Problems

Bailout passes Senate

A revised version of the the $700 billion financial industry bailout passed in the Senate this evening, 74-25 and is apparently gaining ground in the House.

The Senate added $110 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance, according to the AP.

The heart of the bill, and the opposition to it, remained the same. It would enable the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and keep the economy from a deep recession.


Bailout passes Senate, House foes soften - Yahoo! News

Paulson Says Bailout's Exec Pay Provisions Will Be Addressed

Bailout: Accord on chiefs' pay, Bush on TV tonight: "Treasury Secretary Henry Paulson said he was agreeing to demands from critics in both parties to limit the pay packages of Wall Street executives whose companies would benefit from the proposed bailout."

No word on the attempt to end-run the United States Constitution with the Section 8 ploy, but there are rumors on the blogs that Paulson is claiming that he was not aware of the provision (the whole bill is only a couple of pages long) and that he believes that Congress should draft the oversight provisions.

Caught with his hand in the cookie jar.......twice.

As for the problems with the executive compensation, if the executives of the companies who are receiving the benefits of the bailouts do not want to agree to lower their pay packages, there is a simple solution - tell their shareholders that they are not going to accept any help from the government, that they will work the company out of the mess that they created, and don't take advantage of the bailout funds. Not a problem.

Republicans and Democrats Angry Over Bailout

With Bernanke and Paulson speaking today, there is quite a bit of news out there about the bailout, and it seems pretty clear that some members of Congress are pretty angry with the proposal to allow the executive branch of government to use $700 billion to maybe, bolster the economy.

The AP story Bailout plan draws bipartisan anger at Capitol has a bunch of great quotes by a number of Republicans and Democrats, all of whom are against the bailout, and at least one who gets the constitutional issue that so many legal bloggers have been discusing.

Quoting Senator Dodd, the head of the Senate Banking Committee

Dodd and others indicated that the stakes are too high for Congress not to act, but they made clear they would insist on changes in the administration's weekend changes. Dodd said the administration's initial proposal would have allowed the Treasury secretary to 'act with utter and absolute impunity — without review by any agency or court of law' in deciding how to administer the envisioned bailout program.

'After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution, as well,' Dodd said."