bonuses

Losing talent in these perilous times

by Fran Smith on March 26, 2009

in Bailout Watch, Economy, International, Nanny State

We’re beginning to see the talent exodus from TARP-funded financial institutions.  Yesterday in an op-ed Jake DeSantis of AIG-Financial Products wrote his “resignation letter” saying why he was leaving AIG.  One major reason was the raging mob calling for the heads of those who received retention payments, now called bonuses, and the tepid defense that AIG’s $1-per-year chairman gave before Rep. Barney Frank’s rabid committee.

Today we learned from the Wall Street Journal that several top managers at Banque AIG in France are leaving, which experts say could cause defaults in $234 billion of derivative transactions.  That’s because Banque AIG has to get French banking regulators to approve their replacements.  If the regulators instead put in their own manager that could lead to defaults, since under the derivative contracts, such an appointment would mean a change in control and could null the contracts.

On top of that, two top Merrill Lynch strategists are leaving Banc of America Securities-Merrill Lynch research unit.

Retention payments to try to keep good managers in these trying times — to help resusitate ailing and failing financial firms — seem like a good idea, but not in the face of mob frenzy whipped up by policymakers and so-called community groups like ACORN, which has been leading protests and bus tours to point out “bonus” recipients’ homes.

An earlier post had speculated that London’s financial center could grow in power with U.S. financial talent being driven out.  But that was before vandals attacked the Edinburgh home of the former head of the Royal Bank of Scotland, where they broke windows in his house and his car.  Is London still safe from the anti-capitalist mobs that have threatened chaos at the G-20 meetings next week?  Don’t bet on it.  They too have been stoked up by policymakers’ — and world leaders’ — anti-capitalist rhetoric.

Blind to Obama’s Broken Promises

by Hans Bader on March 23, 2009 · 13 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

In 2008, Obama promised a “net spending cut” (although he never did come up with cuts to offset his proposed spending increases). Obama broke this campaign promise in a big way with his proposed budget, which could bankrupt the United States, according to senior Senators.

Obama’s budget would increase spending levels so much that budget deficits would rise by $4.8 trillion to $9.3 trillion while taxes would increase by $1.9 trillion, according to the Congressional Budget Office.

Yet Obama’s campaign workers have apparently learned nothing from this. Across the country, they are now volunteering their time to lobby fellow citizens to support his budget. “It’s the change we all voted on,” said Althea Thomas of Evanston, Illinois. Well, it’s not the “change” that was sold to me by my Uncle Ernie, a California campaign worker for Obama. He didn’t say anything about trillions more in debt, and tried to get me to vote for Obama based on George Bush’s costly war in Iraq.

Obama has broken at least ten campaign promises, including seven promises in signing the economy-shrinking $800 billion stimulus package, and one promise in signing the Lilly Ledbetter law and the SCHIP tax increase.

After it covertly inserted language into the stimulus package to protect millions of dollars in bonuses at AIG, a major liberal donor, the Administration later switched course and sought to curry favor with an outraged public by praising the House for passing a 90 percent bonus tax, a tax broadened to cover not just AIG but also employees at other, healthy TARP banks. On March 22, the New York Times reported that the Administration wants to impose vague compensation limits on all banks and financial institutions, whether or not they receive any taxpayer money at all, and perhaps all public companies as well. To avoid stringent application of those limits, companies’ executives would have an incentive to curry favor with their federal masters, by making campaign contributions to Obama and his liberal Congressional allies (the way AIG did). Meanwhile, the Administration is now backtracking on its earlier praise for the legislation that would tax the AIG bonuses.

Obama claimed the $800 billion stimulus package was needed to avert “disaster” and “irreversible decline.” But the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package will shrink the economy over the long run, in reports and studies released before and after the bill’s passage.

In other news, Obama nominated a former fundraiser for the left-wing group ACORN to serve as a judge on the Chicago-based Seventh Circuit Court of Appeals. ACORN, a beneficiary of the stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Herbert W. Obama

by Hans Bader on March 20, 2009 · 5 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

In the Great Depression, President Herbert Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. He also signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Obama is on the same path. His deficit-exploding $800 billion stimulus package blocked 97 Mexican truckers from U.S. roads. That NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade.” The CBO admits that the stimulus package will actually shrink the economy in the long run.

Yesterday, Obama praised the House’s passage of a bill to impose a 90% tax on bonuses at banks that received federal funds. He did so even though some of those banks are healthy and accepted federal TARP money under federal pressure so that unhealthy banks that also took TARP money would not be stigmatized. The bill passed in the furor over bonuses that AIG, being bailed out by taxpayers, paid to its employees. (Republicans only wanted to block the bonuses at AIG, which is a major donor to liberal politicians like Obama and the corrupt Sen. Chris Dodd (D-CT); Democrats successfully extended the tax to major companies receiving TARP money).

The AIG bonuses were publicly disclosed in November, as Michael Kinsley and others note in the Washington Post today. The Administration became aware of them and signed off on them long before a public furor arose over the bonuses, at which point Obama switched positions and began cynically condemning the bonuses to curry favor with the public. (Treasury Secretary Geithner has steadily backtracked about what he knew and when, first falsely claiming that he didn’t know of the bonuses until less than a week before they were paid; then falsely claiming he knew of the bonuses but didn’t know quite how big they would be — even though AIG’s public SEC filing last November predicted the full amount of bonuses ultimately paid; and even though the Administration was reminded yet again by a Congressman in a committee hearing on March 3 about $163 million in bonuses to be paid “in the coming weeks“)).

The Administration now admits that it itself suggested to Senate banking committee chairman Chris Dodd (D-CT) the very language Dodd added to the stimulus package that shielded AIG’s bonuses. “After explicitly denying responsibility, Senate Banking Committee Chairman Christopher Dodd eventually admitted to including the exception under pressure from the administration,” notes a columnist in the Washington Post.

Meanwhile, AIG’s current employees, who don’t deserve big bonuses, but are needed in their current positions to clean up the complicated mess left behind by AIG’s managers (and unload the arcane financial instruments in its portfolio), are receiving death threats aimed at them and their families as a result of all the demagoguery by disingenuous politicians claiming to be shocked by the bonuses. The politicians are feigning surprise even though many of them (like Elijah Cummings (D-Baltimore)) have known of the bonuses since as far back as November 27. AIG employees’ homes are being staked out by left-wing demonstrators.

If the Administration didn’t want AIG employees to receive their (mostly undeserved) bonuses, it should have quietly blocked them by putting limits in prior legislation it helped pass — not publicly demonized them, which will drive them away, leaving AIG (which is now 80-percent government-owned) losing even more money at taxpayer expense. Bonuses cost the taxpayers money; but so do death threats, which discourage talented employees from working at banks and companies taken over by the government.

Obama’s more than $8 trillion in new spending commitments will require far larger increases in marginal tax rates than he proposed in his 2008 campaign.

Some of the employees subject to the 90 percent federal income tax on bonuses passed by the House will actually end up with negative pay, not only receiving nothing after taxes, but having to pay countless thousands of dollars they don’t even have. This is because they will have to pay other income-based charges on top of the 90 percent rate, including but not limited to Medicare tax (1.45%), state income taxes (up to 10.3%), and other legal obligations, such as family-court orders based on pre-tax income (in Massachusetts, divorced fathers pay 25% of pre-tax income, for just one child, in child support! Child-support payments are not tax-deductible. Some courts have formulas for alimony that are based on pre-tax income, ranging up to 30% of gross income.).

The combination of death threats and negative pay will discourage talented employees from working at AIG and other companies being propped up by the government, resulting in even greater taxpayer losses.

Will talent flee to the City?

by Fran Smith on March 20, 2009

in Bailout Watch, Economy, International, Personal Liberty, Politics as Usual, Sanctimony

A different take on possible effects of lawmakers’ rabble-rousing on TARP bonuses. Jeffrey Goldfarb at breakingviews.com says that driving out talented financial executives in the U.S. may be a boon for foreign-owned banks in the U.S. in getting new talent, but most especially for London and its global financial powerhouse, the City. Sarbanes-Oxley already caused financial institutions to flee New York for London. The 90 percent tax rate on TARP bonuses might provide a new impetus for savvy executives to relocate.

Still, with London house prices down, and no “Keep Out” signs for foreigners – think TARP-related Visa restrictions in the U.S. – many of those who can choose their continents may soon be thinking the City is something of a safe haven with better job opportunities, as long as the UK doesn’t wind up succumbing to mob rule too.

Maybe London could adapt the Statue of Liberty’s quotation to: “Give me your tired, your rich, your huddled masses yearning to breathe free.”

“Going Galt”– 90 percent tax may provide impetus

by Fran Smith on March 20, 2009 · 3 comments

in Bailout Watch, Economy, Personal Liberty, Politics as Usual, Sanctimony

Already there’s confusion over what the 90 percent bonus tax bill passed by the House really means. Targeted at the AIG bonuses, which sparked bi-partisan demagogism, the bill would really apply to all firms that received more than $5 billion from the Troubled Asset Relief Program (TARP). Here’s what the text of the bill states:

· (1) IN GENERAL- The term `TARP bonus’ means, with respect to any individual for any taxable year, the lesser of–

(A) the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or

(B) the excess of–

(i) the adjusted gross income of the taxpayer for such taxable year, over

(ii) $250,000 ($125,000 in the case of a married individual filing a separate return).

Here’s what Henry Blodgett thinks it means (by way of MarginalRevolution:

If the “TARP bonus” bill the House passed today becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every dollar they make that puts their household income over $250,000.

That’s household income, not individual income.*  If you’re married and filing singly, you’ll have to surrender anything over $125,000.  Indefinitely.

It does seem to mean that if somebody is making $125,000 or a couple filing jointly making $250,000 gets a bonus, the amount above that income level gets taxed at the confiscatory rate.

It’s not likely that those thousands of employees around the country will be happy with this confiscatory taxation. There’s been lots of talk in recent months about “going Galt,”but so far it hasn’t really caught on at the big firms. Caroline Baum at Bloomberg thinks the time may be ripe for that to happen, and this was written before the 90 percent tax vote.

Somewhere John Galt is smiling.

The hero of Ayn Rand’s “Atlas Shrugged” is smiling because he’s seen it all before: the government’s intervention in the private sector; the constraints placed on business in the name of the people; the desperation on the part of government bureaucrats when they realize their leverage is limited; and — this part is still fiction — the decision on the part of business leaders to walk away from the enterprises they built.

Wonder how AIG head Edward Liddy feels after his contemptible treatment by lawmakers this week. And this is the guy who took over the firm in September 2008 and pays himself $1 in salary. He should have been praised for taking on this almost-impossible job. But no, legislators were too busy posturing for the cameras and venting their outrage. But he would be a hero if he “goes Galt.”

A Cynical Poison-Pill Bill

by Hans Bader on March 19, 2009 · 2 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

Yesterday, liberal lawmakers, after publicly blasting the multi-million dollar AIG bonuses as undeserved and excessive, privately voted down GOP proposals to limit them. (AIG is a major donor to liberal politicians, such as Obama, who received more than $100,000, and Chris Dodd (D-CT), who received $280,000. AIG’s contributions over the last 6 years have gone mostly to Democrats).

Today, however, they are pushing legislation to impose a 90 percent tax on bonuses, not just at AIG, but also at other, healthy banks that received federal funds (which did so under pressure at the Treasury Department’s urging so that less healthy banks that really needed the money would not be stigmatized by receiving it). The legislation just passed the House by a 328-to-93 vote.

They are doing this for transparently political reasons. If conservatives vote against the proposal, liberals can turn it into a campaign issue, and neutralize their own political damage from having previously protected the AIG bonuses. (The Senate Banking Committee Chairman, Chris Dodd (D-CT) inserted language into the stimulus bill protecting the AIG bonuses, then lied about it. He says he stuck in the language at the request of the Obama Administration. Dodd has attracted ethical controversy for receiving a sweetheart deal from the sub-prime mortgage lender Countrywide, which helped spawn the mortgage crisis).

And if it passes, liberal lawmakers can use it to threaten further restrictions on employee compensation in the business world, such as in conservative-leaning industrial sectors that have given them few campaign contributions in the past.

House Banking Chairman Barney Frank (D-Mass.) wants to extend compensation limits to “all financial institutions,” regardless of whether they receive public funds, and perhaps “all U.S. companies.” Given the strong liberal majorities that current hold sway in Congress, the mere threat of that happening will probably trigger big campaign contributions by companies and businessmen seeking to buy him off and avert his wrath. (Frank helped spawn the mortgage crisis by blocking reform at Fannie Mae & Freddie Mac, which are now being bailed out at a cost of more than $200 billion, and by pushing risky loans in the name of “affordable housing“).

Congressman Jerry McNerney (D-Cal.) has argued for a 90 percent tax rate on all high-income households in the U.S. Even this rate would be insufficient to pay for all the new spending proposed by the Obama Administration, given the $8 trillion in spending commitments incurred as a result of all the bailouts, which will shrink the economy, and benefit even illegal aliens, people who lied on their loan applications, and high-income homeowners with modest, conventional mortgages.

AIG Lies; Bonuses for Fannie & Freddie; Fed Explodes Money Supply, Risks Stagflation

by Hans Bader on March 19, 2009 · 2 comments

in Bailout Watch, Economy, Labor, Politics as Usual, Precaution & Risk, Sanctimony, Stimulus to Nowhere

It’s not just AIG, being bailed out for $170 billion, that’s using taxpayer money to give fat bonuses to its employees. The same thing is happening at Fannie Mae and Freddie Mac, the fraud-ridden “Government-Sponsored Enterprises” that helped spawn the mortgage crisis, and now are being bailed out at a cost of over $200 billion.

Before publicly blasting million-dollar bonuses at AIG, the Obama administration privately signed off on those very bonuses, and included language in the economy-shrinking “stimulus” bill to protect those bonuses. (AIG gave over $100,000 to Obama, and $280,000 to Chris Dodd (D-CT) the head of the Senate Banking Committee, who inserted the language into the bill, and then lied about it). Yet the Administration is trying to deceive the public about when it first became aware of the AIG bonuses, claiming it first learned about them less than a week before they became public. The Washington Times has a story today entitled “White House Cleared Way for AIG Bonuses.”

Yesterday, liberal lawmakers hypocritically blasted the bonuses in front of TV cameras, on the same day that they voted behind closed doors to protect those bonuses. Today, however, lawmakers want to levy a 90 percent tax on bonuses, without limiting them to the AIG bonuses — apparently extending them to healthy banks that took TARP money under federal pressure so that unhealthy banks that sought and received bailout money would not be stigmatized by doing so. Taxing away bonuses at healthy banks would be an economically-destructive mistake.

The Washington Times notes that “The Obama administration and one of its key allies in Congress belatedly acknowledged Wednesday that they were responsible more than a month ago for clearing the way for large bonuses to be paid inside taxpayer-supported companies like AIG, undercutting the White House’s attempts to distance itself from a growing political embarrassment.”

The Federal Reserve is now going to print money to buy up more than a trillion dollars worth of U.S. government debt (which is exploding) and risky mortgage-backed securities (in order to artificially depress mortgage interest rates and bail out irresponsible borrowers). In response, the dollar fell, raising worries about inflation and a return to the “stagflation” of the 1970s.

Meanwhile, the Obama Administration is wasting its time on ideological causes like trying to disarm the nation’s airline pilots, even though Congress, by a broad bipartisan majority, voted in favor of arming pilots to prevent another 9/11.

Hypocritical Posturing By Obama Over AIG Bonuses

by Hans Bader on March 17, 2009 · 2 comments

in Bailout Watch, Economy, Employment, Labor, Odds & Ends, Politics as Usual, Sanctimony, Stimulus to Nowhere

In response to public outrage, Obama is belatedly criticizing the millions of dollars in bonuses that AIG, which is being bailed by taxpayers at a cost of $170 billion, is paying to its executives. But his criticism is hypocritical and dishonest, both because his administration had known about the bonuses long before they became public, and because the stimulus package he himself signed contains language specifically designed to shield those bonuses.

Who put that provision there? Senator Chris Dodd (D-CT), who received $280,000 in campaign donations from AIG. (Obama himself received $103,000 from AIG). Since 2003, AIG has made most of its vast campaign contributions to liberal lawmakers — including 68 percent of its contributions in 2008. (Dodd, the Chairman of the Senate Banking Committee, is under an ethical cloud after having received a sweetheart deal from the ailing sub-prime mortgage lender Countrywide).

While executives at AIG get bonuses courtesy of the taxpayer, unions will be receiving billions in inflated and wasteful contracts courtesy of restrictions on state projects contained in the stimulus package.

Liberal lawmakers have also taken steps to insure that illegal aliens and people who lied on their loan applications will benefit from the bailouts.

Obama claimed an economic catastrophe would happen if Congress didn’t pass the bloated $800 billion stimulus package, which guts welfare reform. But now the Congressional Budget Office admits that the “stimulus” will actually make the economy smaller “in the long run.”

Bailouts for Liars, Illegal Aliens, and Undeserved Bonuses

by Hans Bader on March 15, 2009 · 3 comments

in Bailout Watch, Economy, Employment, Labor, Legal, Politics as Usual, Stimulus to Nowhere

Insurance giant AIG, bailed out by taxpayers for $170 billion, is using taxpayer money to pay executives in the division that brought it to the brink of collapse millions of dollars in bonuses! (AIG may have hoped its donations to liberal politicians, such as $103,100 to Sen. Chris Dodd (D-CT) in 2008 alone, would shield it from scrutiny).

The Senate voted down an amendment by Jeff Sessions (R-AL) that would have kept federal stimulus money from hiring illegal aliens, resulting in up to 300,000 jobs being filled by illegal aliens rather than citizens.

In an unrecorded voice vote, the House of Representatives voted down a proposed amendment to keep people who lied on their loan applications from receiving federal bailout money. The vote was unrecorded so that liberal lawmakers in conservative districts (who camouflage themselves as supposedly-conservative “Blue Dog” Democrats) could hide their vote from their constituents. The stimulus package funds groups like ACORN, which helped spawn the mortgage crisis by promoting “liar loans,” and which has an extensive history of financial fraud and vote fraud.

Federal spending commitments for bailouts now exceed $8 trillion, including a “stimulus” package that the Congressional Budget Office admits will actually shrink the economy “in the long run,” and that guts the 1996 welfare reform law (contradicting Obama’s claims in his 2008 campaign ads that he supported welfare reform — even though he had fought to undermine welfare reform while in the Illinois legislature).

Law professor Ronald Rotunda, co-author of a treatise on constitutional law, doubts the constitutionality of the stimulus package’s “bypass” provisions.

Meanwhile, healthy banks that sold shares to the federal government only under pressure from the Treasury Department (which argued that they should accept federal money so that unhealthy banks also taking federal money would not thereby be stigmatized as a result) are being harassed by liberal lawmakers like Barney Frank (D-Mass.) for spending much smaller sums than AIG on deserving managers and employees, and for failing to make risky mortgage loans to people with bad credit.

Money is pouring into the Washington, DC area, as up to 250,000 new bureaucrats will be hired as a result of the explosion in federal spending (Obama has pushed through more spending in his first 60 days in office than Bush spent on the entire Iraq War, and federal deficits are at unprecedented levels, something that not even the proposed massive tax increases will fix).

(By the way, Washington, D.C. now has the highest AIDS rate in America — a rate of more than 3%, higher even than most of Africa, qualifying as a “generalized and severe epidemic.” Congress has plenary power over the District, but neglects its most basic oversight functions, resulting in a thoroughly incompetent D.C. city government).

Meanwhile, the economy faces a “litigation tax” from an explosion in lawsuits, as a result of recent changes in employment law, trial-lawyer earmarks in the stimulus package (such as HIPAA lawsuits), and a proliferation of products liability lawsuits resulting from anticipated anti-preemption bills in Congress, and the Supreme Court’s newfound reluctance (perhaps in response to liberal victories in the 2008 election) to limit runaway lawsuits in state courts.