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 Banks are quickly finding out that all that nice taxpayer money the U.S. Treasury Department has been handing out via TARP comes with some strings attached. Lawmakers and even a typically "hands-off" White House are letting bankers know that they have definite ideas about how these equity infusions should and should not be used. Hint: Cushy compensation is not one of them.
Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid
sent a letter Tuesday to Treasury Secretary Henry Paulson urging him
to rein in the compensation of top executives benefiting from taxpayer
assistance under the Emergency Economic Stabilization Act.
The two leaders specifically pointed to "implementing stronger restrictions on the use of 'golden parachutes' by financial institutions that receive taxpayer-funded capital infusions," the letter said. The letter went on to say that: we continue to hear from constituents who are outraged at the level of compensation being provided to executives at institutions participating in the new Capital Purchase Program. News reports have suggested that six major financial institutions participating in the program have plans to pay their executives billions of dollars. ... Given the level of public outrage over these compensation schemes and your demonstrated willingness to go beyond the letter of the law with respect to 'systemically significant failing institutions,' we hope you will seriously consider strengthening the restrictions on executive compensation.Paulson has made broad use of powers the bailout bill gave him to spend the $700 billion in ways that he originally rejected during the debate before the bill became law. Now Reid and Pelosi are calling him on it, urging him to use that same "willingness to go beyond the letter of the law" to bring the compensation packages for bankers into a more politically palatable range. Additionally law makers like Representatives Henry Waxman and Barney Frank have been critical of Wall Street's 2008 bonus pool in recent days. However, it doesn't end at the Capitol or even the Beltway. Local politicians are starting to jump on the bandwagon as evidenced by New York Attorney General Andrew Cuomo's letters to nine banks Wednesday demanding bonus information for top executives. The banks, which all received taxpayer bailout funds from the U.S. Treasury Department, are J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Bank of New York Mellon Corp., Merrill Lynch and Co., Morgan Stanley, State Street Corp. and Bank of America Corp. The banker compensation issue also is gaining traction in the home stretch of a heated presidential race, and its likely to be an even bigger political football once that race is over. The more unsettling thing for bankers may be that while there has been plenty of criticism of their pay, there haven't been too many lawmakers willing to step up and defend them. - George White See text of the letter See Dealscape post on Waxman See Dealscape post on Cuomo CategoriesComments Deal Video
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I'm in the industry and an executive and I believe bankers and the banker execs are paid obscene amounts of money and the taxpayers should not have to fork up the tab on poor managers and dare I say greed.