She tried to warn them and got run out of town.

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Obama is right to clobber Wall Street

Published: January 15 2010 20:35 | Last updated: January 15 2010 20:35

The American public dreams of putting bankers on trial. The hearings of the Financial Crisis Inquiry Commission, which started this week, are a spectacle that comes close to that fantasy. With camera flashes firing, the bankers’ journeys to take the stand have had the drama of the “perp walk”. The quasi-defendants were quizzed, among other things, on the White House’s new plan, revealed this week, for a $90bn tax on banks.

The proposal is political. That much is clear from the timing. The administration announced it ahead of bank bonus season. With US unemployment continuing to rise, the spectacle of Wall Street plutocrats reporting multimillion dollar earnings from bailed-out companies will trigger geysers of rage. This policy should soothe and exploit that popular anger.
EDITOR’S CHOICE
Little European support for bank levy - Jan-15
US bank levy will be tax-deductible - Jan-15
Money Supply: One cheer for banking levies - Jan-15
Lex: Obama’s levy - Jan-14
Bankers’ fury - Jan-14
FT Alphaville: From Obama to Europe, with love - Jan-15

But this is not mindless populism. Crisis interventions made US bank creditors and shareholders hundreds of billions of dollars richer. But, for its part, the commonweal is expected to lose $47bn on its initial $125bn equity injection into the banks alone. The American state has a right to correct that imbalance.

The details of the proposal will necessarily be a cause of argument. The White House has settled on using the levy to pay for losses on the troubled asset relief programme. But the reasoning for targeting this amount of money is muddled. Some Tarp losses are nothing to do with the banks, notably expected losses from the car industry bail-outs. And some financial sector costs are excluded, particularly the price of insurance policies that were put in place, and acknowledged in banks’ funding costs, but never called upon. A further complication to the levy is that customers will probably end up paying it.

There is much for reasonable people to disagree on here – and even more for politicians to dispute. But the levy is justified, and it will force the banks to cover the cost they have imposed on society. This tax will draw in cash from banks backed by foreign governments. But other states should follow suit, as Tim Geithner, the US Treasury secretary, has said.

Debate about the levy, however, must not distract from the question of how to construct a financial system where banks can fail safely. In future, it must be easier for bank debt to be turned into common equity in a crisis, and the fate of insolvent banks’ counter-parties must be made clearer to prevent the panic that followed the Lehman bankruptcy. Capital requirements must also be raised.

For cases when regulators fear a bank may be too big to fail, the authorities should work out a model for ex ante insurance premiums, payable to the state. Such a structure, combined with extra-high capital requirements for these overgrown institutions, should create strong incentives for these companies to slim down. It should, in addition, make sure that they cannot profit from the public guarantees that their bloatedness brings them. States must not continue acting as omniline insurers, guaranteeing everything for free.

Copyright The Financial Times Limited 2010.

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Companies that liberated themselves from the shackles of the TARP are feasting on low-interest rates and other government efforts to prop up markets—and they're partying like its 2007. Goldman Sachs is setting aside nearly $20 billion in compensation for employees this year—most of it for bonuses. Morgan Stanley set aside $5 billion for bonuses in the third quarter alone. Elizabeth Warren, who chairs the congressional panel overseeing the TARP, is aghast. "I don't understand that they don't think the world has changed in fundamental ways," she says. Asked earlier this year about the prospect of megabonuses at bailed-out Wall Street firms, President Obama said: "I'd like to think that people would feel a little remorse and feel embarrassed and would not get million-dollar or multimillion-dollar bonuses."

Shame? Self-awareness? Remorse? Come on: These are bankers we're talking about.
President Obama graduated from Harvard Law School, where Warren is on the faculty. But they'd have a better understanding of Wall Street had they spent time in Harvard's anthropology department. That's because bankers must be evaluated the way Margaret Mead approached the cultures she studied—as an insular tribe with its own mores, a society with long-accepted conventions that might strike outsiders as bizarre.
Just as Tiger Woods was placed on this earth to whack the dickens out of dimpled balls, Wall Streeters were placed on this planet to dispense and receive bonuses. Sure, firms trumpet their values. Goldman has 14 business principles, many of which could apply to a preschool. ("We stress creativity and imagination.") But betting on the direction of currencies and enriching the already rich is not a particularly edifying pursuit. Bankers toil like maniacs not because they like working in creative teams but because they like getting paid. Throughout December, tense dramas play out in office suites in Greenwich, Conn., and Manhattan as bonuses are negotiated. Traders and bankers plead their cases, threaten to leave, profess undying loyalty, and complain of betrayal. Imagine a telenovela by David Mamet—an all-male cast cursing passionately.
At most companies, bonuses are paid out of profits. No end-of-year profits, no bonuses. But on the island nation of Wall Street, they're paid out of revenues. Since the 1980s, notes Brad Hintz, an analyst at Sanford C. Bernstein, it's been the standard for half of revenues to be devoted to compensation. So long as these outfits were private partnerships, that practice didn't really matter to the rest of us. But since the 1990s, when investment banks went public, compensation has evolved into a zero-sum game between employees and shareholders. Guess who lost?
In normal industries, discretionary compensation would decline when companies suffer losses and their stocks crater. But most Wall Street firms still paid out bonuses in 2008, as shareholders and taxpayers suffered. Just as chickens can run around with their heads cut off, financial firms can pay bonuses even when they've essentially failed (AIG) or clocked massive losses (Merrill Lynch).
This year, compensation will again eat up something close to a majority of Wall Street's revenues. And while Goldman and Morgan Stanley have paid back their bailout funds, other large bonus dispensers still owe huge sums of money to the public. Every dollar they pay out in compensation is one fewer they can pay back the taxpayer. Wall Street's structure may have changed a great deal in the past year, but its culture has proved remarkably resistant to change. The recession didn't alter this custom. And neither will the public opprobrium, the disapproval of President Obama, or the threat of Federal Reserve oversight. Come December and January, we will continue to be shocked by the level of bonuses—and Wall Street will continue to be shocked that we're shocked.

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The politicians are pandering to the ignorant, the ill informed and our naïve youth. I can't sugarcoat this, my friends. One of our greatest rights is debate, and I support to my death our freedom of speech in this great nation. I do not support the stifling of debate. I do not support a freedom to remain ignorant at the expense of others. I do not support practices absent of truth and reason from the "weak and stupid" or from the "strong and brightest" of minds. I do not support this stimulus legislation being portrayed as, a road to recovery. It's a road to disaster, my friends. It's no different than sitting in front of a slot machine and believing, "If I just put in another $2,700 that I don't have, I may get lucky. Let me go borrow $2,700 dollars from my children and my grandchildren so I can keep playing a losing game." The concept similarity with this Washington band of crooks and idiots is stunning and frankly, unforgivable. The chances of this bill working as written or as intended are far less likely to succeed than our slot machine payoff. Let's just recite some recent facts:

1. Stimulus refunds of $300 and $600 per person a year ago was not a success. On the contrary, it was a $150 billion squandering of borrowed money.

2. The $350 billion TARP funds went to corrupt banking institutions in December 2008 and we'll never see those funds working for the people as intended to restructure and write new loans.

3. The $350B remaining from the $700B total TARP allotment hasn't been allocated to fixing our housing problems to date as they, our representatives and appointed leaders, promised the funds would be, as a priority. It will also be given without stipulations.

These morons simply write, sign and implement legislation and have no fear of voter reprisals. With no real objective evidence, they cannot present truthfully what this bill will even accomplish or the specific number of jobs it will resurrect. If I would have gone to my employer with a proposal structured under vague and speculative reasoning, I would have had to pack a box from my desk and be escorted to the door. Just the thought of this unbelievable Washington charade makes my skin crawl.

Many are turning a blind eye to corruption, greed and blatant lies/deceptions from our legislators. We're all being duped by these clowns in new suits and ties who work three days a week, if that.

For heaven's sake America, lets all contribute a bit more critical thinking when selecting our representation. Now, we'll have "congressional oversight" with this stimulus bill. In Washington? By these fumblers?

Well, hold on for your life and the life of your family my fellow Americans because "everything goes, when everything is gone!" So the next time you pull the lever at the voting both or the slot machine, don't pull it thinking your playing with someone else's money and don't think you're going to win.

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Wall Street is about to learn an overdue lesson in humility.

A year removed from the global economic crisis they created, executives of the financial companies responsible have yet to disassociate themselves of the notion they deserve the obscene sums they pay themselves.

Do they make anything of value?
Do they contribute anything tangible to society?

Do they heal the sick or comfort the afflicted?

The answers, of course, are no, no and no. They simply move money from one place to another and take a cut. Yet even after being bailed out by U.S. taxpayers who will shoulder the bill for years to come, the delusional titans of Citigroup, Bank of America, AIG and their brethren believed they were still deserving of stipends that would make a king blush.

No more.

On Wednesday, a frustrated Obama administration indicated it will cap pay to the chief executives of companies the Treasury rescued last year.

According to the New York Times, details of the plan will be divulged over the next few days, but the seven companies that received the most TARP money will have to learn to live much more modestly. The 25 best-paid executives, the Times said, will be paid up to 90 percent less than last year. In fact, no top executive will receive more than $200,000 in total compensation.

It's about time.

But, as the infomercials say, there's more.

Any executive who wants more than $25,000 in special benefits -- think country clubs, private planes and limousines -- first will have to get government permission.

Obviously, Wall Street failed to understand Americans had had enough.

While the bankers who hatched the financial shenanigans in lower Manhattan continued to pocket paychecks in the tens of millions, ordinary Americans bailing them out were being handed pink slips as a consequence of the economic train wreck.

Yes, the bailout was necessary. Without it, the economy would have buckled. Unfortunately, it came with too little oversight. Even as they took billions in TARP money, executives whined that their substantial payment packages were necessary to keep them in their plush offices. Bewildered Americans asked why, but the Bush administration acquiesced.

Now, a year later, those who thought they were too big to fail are going to have to answer to those who were too small to save.