The Bank Executive Bailout Shame

Michael,for once I agee with you. I find it preposterous that despite the mismanagement, shortsightedness, MBA-driven failings of the auto industry the government is only willing to bail them out to the tune of 17 billion dollars. They actually make something. The financial industry- AIG alone- is into us for hundreds of billions more. My bank, PNC, instead of using the money to aid people with imminent foreclosure, is out buying up another bank. I think I’ll go watch “It’s a Wonderful Life”.

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I’m glad to see the outrage, Scherer.
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Michael, once again you miss out on the real stuff.

Do you recall who was fighting to put in place limits on executive compensation before the bailout was passed?

And who agreed verbally to do it while botching the details: http://www.washingtonpost.com/wp-dyn/content/article/2008/12/14/AR2008121402670.html?hpid=topnews

Just in case anyone was cheered by any aspect of MS’ post, I offer this quote from Robert Patterson in a Fallows piece:
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The search for efficiency and the urge to consume has set us all up like a row of dominoes – there is no buffer, no resiliency. As one problem rises it causes another. As one solution is tried it drives another problem. We all pull back and the consumer economy stalls. The auto industry and credit firms feeds the media (40% of conventional advertising). Papers and TV and Radio networks, many subject to LBO’s will have to fail as per the Tribune. Every sector will be laying people off. Sales of all things fall off a cliff – driving more business failures and layoffs. Cities and states that depend on sales tax and property tax and the credit markets can rely on none of these. So they too will have to lay off millions – thus making all the problems worse. National governments will be asked to save us all and of course cannot. As States and Cities get squeezed and cannot borrow, they will too lay off millions – teachers, firemen police. No one will be safe.
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Fallows follows the above cheery thoughts with this:
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This is very close to what I was trying to explain three and a half years ago in my "Countdown to a Meltdown" imagined-history article in the Atlantic. The way that everything really is connected — I recently saw a school in southern China that will be in trouble because its donors are losing money through the Madoff fraud in New York — and that no one has "any buffer, any resiliency" is something we’ve known in theory but are only now comprehending in its daily, cascading reality. It’s worth looking at the summary for similarly uplifting thoughts.
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Happy Holidays????????

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Still, I’m glad to see a DC journo drop, even for a moment, that blase cocktail-party disinterest in domestic affairs.
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Write about it in Time. Every week. What reason do they have to believe that they can’t get away with it?
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A fine post– this isn’t intended as a complaint. Thanks for highlighting this.

Michael, you are as priceless as your cited H.L. Mencken quotation.

I read his memoir about fifteen years ago. He was an incredibly hard-working and disciplined person. His daily routine consisted of a large breakfast after which retired to his writing room and wrote for ten straight hours, with only bathroom breaks interrupting his writing. At 6PM each day he would get up from his chair refresh himself in the bathroom, dress for dinner, and go out on the town. After dinner, he usually joined a group of friends at a local bar and like a good German he loved his beer. He would retire around midnight, and wake up 7 the next day and repeat the whole thing again. His epitaph read: “If, after I depart this vale, you ever remember me and have thought to please my ghost, forgive some sinner, and wink your eye at some homely girl.” And this: “When a stripteaser asked him to coin a “more dignified” term for her profession, Mencken suggested ‘ecdysiast,’ meaning ‘one who sheds’.”

Twitter.com/bobpeo

P.S. Is Joe Tumulty (trusted Woodrow Wilson adviser and friend) related to Karen’s husband?

I’m not sure if it’s the time off or just events in general that you find so libertating but let me just chime in to say I appreciate the more aggressive tone your writing style has taken. Even in situations where we don’t agree, its nice to get the feeling that your speaking honestly and from the heart rather than sticking to a script.

Thanks….

It’s hard not to think that this kind of greed and hypocrisy presages something like the fall of Rome. How can these people look themselves in the mirror, play with their grandchildren, keep their lunch down?

Shall we start taking bets on when the High Sheriffs will notice that Jay Carney is still listed as Time’s Washington Bureau Chief? And no fair tipping them off, Michael.

Scherer
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In the third paragraph I think you meant “should damm well pay the fee himself” rather than “should not”
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I am still amused at the game the Fed gets to play because they are not legally a govt entity though they act like one. How they are getting away with not disclosing who they gave money to is beyond me.
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As for the executive compensation, I wonder why there aren’t any articles or Swampland posts comparing and contrasting the Southern Republican Senators reactions to the wages of these CEOs of failed companies to the reactions of wages of union members of failed companies. What makes them think that those banks/insurers will do any better than they have in the past? AIG has already blown through their money but has any executive been fired or had his compensation mandated that it be lowered by Congress or the President?
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Of course not. If they don’t get paid, who would contribute to the RNC right?

sgwhite, I think i have it right. I am daring someone who supports Dimon’s corporate compensation to stand up. That is, I am daring someone to stand up and say his company should keep paying for his plane–that he should not pay for it himself. Obviously, it is confusing, but I have been reading a fine biography of Mencken on my vacation, The Skeptic by Terry Teachout, which encourages me, if nothing else, to more ornate rhetorical flourishes.
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Bobpeo, those are fine quotes. I would add this one, which Mencken wrote to describe a bestselling novel of his day, and which still be easily applied to much of what we now produce in books, television and film:
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“Its aim is to fill the breast with soothing and optimistic emotions–to purge the tired businessman of his bile, to convince the flapper that Douglas Fairbanks may yet learn to love her, to prove that this dreary old world, as botched and bad as it is, might yet be a darned sight worse.”
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Fine stuff.

Such people as these should be incentivized by the lack of a prison sentence.

I’d rather hire monks to run the banks. The worst they could is what…screw up?

Scherer
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I just reread it and I was wrong. So many words that the sentence threw me for a minute.

even as his company continues to suck from the public tit
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Heheheh, titties.
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No, but seriously, who cares about this? I want to hear why Obama hasn’t confessed to being Blagejovich’s BFF!
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Also this:
which encourages me, if nothing else, to more ornate rhetorical flourishes
leads to this:
So many words that the sentence threw me for a minute
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which to me indicates bad journalistic writing.

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Ah. Not outrage but ornate rhetorical flourish. My bad..
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No worries guys…

Maybe some of you played already the famous game “grand theft / san andreas” .. If you want to know how the future looks like … play it again.

Actually, MS, this is a Republican shame.
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No doubt about it. After all, Micheal, just what are the party affiliations of these execs?
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Just who is handing out the 7,600,000,000,000 dollars.
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And, Micheal, just who is it that will not reveal, even under the FOIL, the particulars of just who is getting what?
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Micheal, I think, at this point, besides holiday greetings from blizzardland, a clue:
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They isn’t Democrats, neether…

littlebonaparte:
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“…”grand theft / san andreas”…
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Let me guess. I’ve never played the game, but this sounds like looting after a major earthquake.
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Now I propose that you are in fact referring to the present:
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“Grand Theft / 2008 Election”
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In this game, its about looting taking place after a major election…

There are lots of people who have been shaming themselves in recent years. It’s good to have some adults back in charge.
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Speaking of adults, I just forwarded this to my congressional delegation:
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http://www.desmogblog.com/big-ask-act-now-global-warming-video
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(It would be good if we had a *lot* of people forwarding this to their delegations…)

This is swamp blogging Mr. Scherer. You know very well that Wells Fargo and J,P. Morgan did not request or do they need TARP money which was forced on them by Hank Paulson. We are still a capitalist society and there is no need to drag two well run institutions into the mire.

Amazing how much whining the GOP is doing over the unions with the auto bailout yet nothing much over the outlandish actions of the financial industry with their share of the government pie.

http://www.political-buzz.com/

Mavisbank, I did not mention Wells Fargo above, though I would note now that the bank will soon be the beneficiary of a tax break, written by its oppressors at the U.S. Treasury that will grant them a $25 billion tax break.

http://swampland.blogs.time.com/2008/11/15/the-silent-change-to-section-382/

And the fact that Dimon ran an institution that was, perhaps, better capitalized and less reckless than some of his peers does not erase the fact that he is sitting on about $25 billion in U.S. government investment, which, incidentally, he is not lending out without as much alacrity as many had hoped. Though I know Dimon has made this case, I have trouble seeing him as a victim here of an unwanted bailout. As the NY Times said at the time, Dimon was “receptive, saying he thought the deal looked pretty good once he ran the numbers through his head.” He called it a “fair deal” according to the Times.

http://www.nytimes.com/2008/10/15/business/economy/15bailout.html

In 2007, Dimon made nearly $60 million, according to the Forbes, using values at the time. Maybe he deserved every penny. Maybe he was profiting on an irrationally unregulated financial system. My broader point is simple. The nation needs leadership. It needs public confidence. And the public was sold on the notion that executives would get “a haircut” in exchange for bailout funds. As it stands, we have mortgaged about half the nation’s GDP to solve a credit crisis that is quickly becoming a liquidity trap. Dimon, by his choice, to his benefit, or otherwise, is now running a company with government funds. I think he can afford his own flights.

53_3, It’s tough to fit this stuff into partisan holes. The “they” who are not telling people what banks are getting what includes one Timothy Geithner, who is Obama’s choice for Treasury Secretary. And with a few isolated examples, there was no great rallying cry to regulate all the shadow banking products that led to this mess, not from Democrats nor from Republicans. (One big-time Democrat, Charles Schumer of New York, was actually took some positions that seem pretty embarrassing in retrospect)
http://www.nytimes.com/interactive/2008/12/12/business/20081214-schumer-table.html
Deregulatory Republicans have certainly been proved wrong here, but the major issue with this mess was not deregulation. It was never-regulation. And that is, for the most part, a pox on both houses. Everyone liked the going when the going was good.

I’m going to give it up to Joe Klein. He represented on Chris Matthews show today
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http://crooksandliars.com/media/play/wmv/6996/24748

And that is, for the most part, a pox on both houses.
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Um, no. Who blocked regulation when it was needed? The GOP powers that be.
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Who initiated the worst deregulation? McCain’s economics advisor Phil Gramm. This was not “never regulation”, there were, in fact, acts of deregulation, and resisted regulation.
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No doubt, there is blame to go around. But the DFH contingent that was ignored? They weren’t on the right end of the spectrum. They were critics of the right’s market fundie mentality, like Paul Krugman.
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So I think “pox on both their houses” is pretty silly in this case. There are poxes on both sides, but it’s pretty clear that things would have looked differently if Gramm couldn’t have slipped his deregulation into that bill. Or if Bush didn’t have the clout to overrule the regulation efforts that were underway a few years ago. If Democrats had more institutional power, I can’t see how you could say things would have looked the same.

Commuting expenses, by auto, are not deductible. It is not valid business use to drive from home to office. I don’t see why there should be a plane exemption.
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wvng- On Fallows. Just got off a test call with him via Skype. He’ll be my first interview guest of the new year, on January 8, from China, on Skype.

I’m not excusing Schumer. I’m not entirely surprised he’d try to protect the backsides of Wall Street. They’re his constituents. But Chuck Schumer is not the entire Democratic party.

Michael-your post has something that has been sorely lacking in a lot of your blog posts. Not all of them, but way too many of them. I guess its the passion. If you bring anything back from your vacation, I truly hope you bring the passion back to share with us, your readers and commenters. Leave behind the CW and inside the beltway crap. We don’t need it and have no use for it.

And the public was sold on the notion that executives would get “a haircut” in exchange for bailout funds.
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Well, you should credit the public. They never bought that nonsense. the phone calls were running 100 to 1 against the bailout. It happened because the banks threatened to blow up the financial system if they didn’t get their money. And then the proceeded to blow up the financial system.
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It’s hard to see how it could be worse. As opposed to, say, sending out 700 billion dollars worth of gift cards with a 90 day expiration date. Or setting up a home refi fund of 700 billion, offering 50 year mortgages, tied to your 1040.
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Atrios’ running comment that there just isn’t enough money–that there weren’t that many homeowners who make enough to service those loans is true. But to think that the best way to fix this was to pour taxpayer dollars into crooked institutions (and there is no other way to characterize AIG’s CDO business) demonstrates a complete rejection of “main street.”

I am a latecomer to macroeconomic theory, but I feel I have read enough — including Krugman’s reworked, quick-read the Return of Depression Economics–to understand that there is in fact a great public interest in maintaining both the credit markets and public confidence in the banks. There are lots of ways that this all might have been done better, but I have yet to see a good argument against any kind of federal aid for institutions like Citibank, AIG and JP Morgan Chase. Most of the arguments are, rather, political ones or moral ones. (It is offensive; or the American people don’t like it; or socialism is wrong; or the sinners should be punished.) That said, the point of my post is different. Once taking the federal aid, these institutions have new responsibilities to the public.

jay, I’ll look forward to your interview with Fallows. Interesting guy.

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It isn’t so much the bailout, though clear-eyed people could see it coming for years. If you look back around 2004-2005 vintage Eschaton, this deregulated frenzy resulting in catastrophic collapse was no surprise at all.
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But okay the people who should have known didn’t act and the very much forecasted collapse occurred. It was entirely predictable that the Bush Administration would be utterly incompetent in the way the bailout has been conducted. It was a mistake to put it in their hands.
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In fact, it reminds me of the Katrina aftermath. Yes, the failure of the levees was entirely predictable, and in fact *had* been predicted. Even so, after they failed, no rational person thought there shouldn’t have been a rescue. But the Bush Administration carried it out so utterly incompetently, was so profoundly inept, that one had to wonder whether the bungling was actually malevolent. And a piece in Salon about Rove’s role suggests that it might have been purposefully bungled.
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So I see this financial bailout as Bush’s Katrina bailout. Incompetent, malevolent, and a mass transfer of taxpayer funds to the very richest, most criminally dishonest swindlers, friends of George W. Bush. For any clear-eyed person, that too was predictable.
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Heckuva a job, Paulie!
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There are lots of ways that this all might have been done better, but I have yet to see a good argument against any kind of federal aid for institutions like Citibank, AIG and JP Morgan Chase.
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You have to do more reading if you see these as equivalent. AIG did not have FDIC insurance. There was no protection for their investors. They paid no premiums. People who bought their paper knew that it was purchased at their risk. Institutions that paid for AIG’s CDOs were completely aware that there was no government backing for those instruments, that AIG has been unable to cover CDO payouts as of 3Q 2007.
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Sure, the government should have taken action with FDIC insured institutions. The Fed should have seized the banks, give zero to the shareholders, removed the executives, clawed back bonuses, paid off insured depositors up to the account limits and then taken over the banking operations, setting up the finance equivalent of the resolution trust corporation, taking their pennies on the dollar for the “capital” held by the banks.
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But this “shoulda” business starts sometime in 2006. They let this happen. CDOs, which independent analysts knew were worthless, including dirty hippies on the web, continued to be issued by institutions. Non FDIC insured institutions were permitted to run 30-1 leverage against these worthless securities. The government was complicit in this disaster. That is, the Republican government.

Jay, You are right that AIG was not FDIC insured, but wrong that the government had no responsibility to prevent an AIG collapse. The unregulated instruments at AIG propped up too much of the global economy, which would have frozen and collapsed had AIG failed. As for the partisan point you make, I refer to my comment on this above. Republicans deregulatory philosophy is more culpable and now largely discredited, but Clinton officials argued against regulation, and there was no great push to regulate unregulated products by Democrats over the last decade, save a few efforts on the margin, many of which Schumer had a role in killing or watering down.

This morning on CNBC’s Squack Box Liddy, the AIG CEO, spent time justifying the millions in exec bonuses by saying that if they didn’t reward them their staff would leave and then the subsidiary companies they were trying to sell wouldn’t be worth as much. I have a hard time believing that all the excellent staff would be able to find comparable jobs in other companies in this economic climate. Elijah Cummings was on the show on Friday and called Liddy to account. Liddy said they were trying to gather the info Cummings wanted and would meet with him shortly after the New Year. A comment was made about not having future retreats at a Ritz Carleton and Liddy said that was independent contractors that they were entertaining in order to get them to use AIG for their business instead of a competitor. One of the CNBC guys was so sympathetic with Liddy because the govt is now looking into every little thing and won’t let him run the company as he sees fit. Liddy claims that they are the only ones with a plan to pay back the money. We’ll see. These guys all live in their own little world.

Make that Squawk… If I had preview…
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The money guys running large corporations have done the kind of PR job about regulation as the right wing has done about the “liberal media.” They just want to keep things cozy in their little club.

MS:
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Actually, I’m sorry, but your reply is disengenuous. I’m not being partisan. I don’t see any people gathered around this crime scene other than Republicans.
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I don’t think Gaither can take any blame (yet) for Paulsons’ and Benanke’s reticense (spelling) in the face of FOIL. Obama is not prez yet, and doesn’t have a hand on the levers, so please avoid trying to pox his house until he actually has the authority to decide something.
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Schumer may have a position on this, MS, but that is different than being the ones who have opened the back door to the treasury to let the mewling hordes just walk in and take what they want.
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One thing is clear:
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The downside of refusing to divulge under FOIL is less then the downside of actually divulging the information .
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And that, MS, is not partisan politics…

James:
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You take the thread!

Money into a sinkhole.
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It’s hard to make the argument that this action was necessary to unfreeze the credit markets when there is absolutely no evidence that the credit markets are being unfrozen.

MS:
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I’ll elaborate too, that Obama has run on transparency and accountability, so that when he does take the helm, I will expect him not to hide any of this information.
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I see that there are only two areas where such information should not be made available:
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The funding of our intelligence operations and certain defence funding.
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Bernanke’s and Paulson’s actions run counter to the very core of the concept of accountability and oversight.

The money guys running large corporations have done the kind of PR job about regulation as the right wing has done about the “liberal media.”

There’s a lot of professionalized market fundamentalist Kool Aide drinkers out there. And a lot of corporate money to pay them too.

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It is so, so typical of DC journos to call a Democrat out by name and leave out the Republicans and the Bush Administration who are directly, directly responsible for this catastrophe.
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My sister, who is a delusional right-wing looney in spite of the fact she is a lovely-lovely person in other ways, directly blames Schumer for the whole financial collapse. How, you ask? Because he wrote a letter to the SEC, apparently. Everything would be fine and dandy with Wall Street, except for that.
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She gets these looney ideas from people like Scherer who always find a way to name the Democrats who (might in some way be) responsible for this mess, but never mention how it is under the Republicans’ watch, and how it was Phil Gramm’s crazy idiotic economic theories that got us here.
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James:
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Hell, I have a neighbor, who still worries about Obama’s middle name!

[...] The Bank Executive Bailout Shame (Time Magazine) [...]

Thanks so much for responding to commentary, Michael Scherer.

I’ll have to second that. MS is up there with KT in interacting with us swamp critters…

One more thing. Atrios is, IMO, correct in this post. They ARE acting as if this is a liquidity crisis and not a solvency crisis, which is much more difficult to deal with, and really does require taking over institutions, stripping the shareholders. You can’t restore confidence in an asset that is no longer worth what you paid for it.

i’m on vacation. have time on my side, for once.

if you guys liked this blog you will love mine here’s the link if you want to check it out http://speakyomind.wordpress.com

MS, you seem to blog as much or more when you are on vacation than not. You deserve a bonus.

[...] Escreve Michael Scherer no Swampland: [...]

O problema, sorry yo no habla espanol. But your blog gots the lost of trust right. We got no trust. That is the Bush legacy. The obliteration of trust.

[...] one reporter asked just how many bailed out financial firm employees would see pay cuts. (As the AP reported last year, a number of top executives got huge paydays last year: The CEO of Goldman Sachs, Lloyd Blankfein: [...]