Super Sunday Morning

Away we go.

Let me express my irkedness with this inevitable populist rhetoric from Obama:

Moreover, Mr. Obama said, “we learned this week that even as they petitioned for taxpayer assistance, Wall Street firms shamefully paid out nearly $20 billion in bonuses for 2008.” Americans will not tolerate “such arrogance and greed,” the president said.

That "nearly $20 billion" came from the NY State Comptroller, who was looking at bonuses paid in New York City and environs, motivated by the notion that those bonuses are part of the NY State and City income tax base. 

So, a few points - that figure does not include the non-New York operations of, for example, Bank of America, a bail-out recipient.

It does include the bonuses of the NY office of foreign firms, although I did not notice the US bailing them out.

It includes any firm with an NAICS 523 classification code, which is to say, any NY State or city based hedge fund, private equity group, NYSE specialist or mutual fund.  Again, I don't recall such firms petitioning for a bail-out.

Finally, even among the firms that did take bail-out money it is not unreasonable to make a distinction between the bonuses received by top management (OK, top mis-management) and the bonuses received by the shock troops down the line.  The original TARP legislation singled out the top five executives for special compensation rules, and I certainly agree that the question of why Bob Rubin and the top crew at CitiGroup are getting might deserve bonuses is a legitimate topic of discussion.  But I have little doubt that somewhere in Citigroup there lurks a foreign-exchange trader who was utterly divorced from the decision making behind the mortgage melt-down, was very profitable, earned a large bonus, and could find employment at a bonus-paying hedge fund in a matter of hours.  Does it really strengthen CitiGroup to deny this person the bonus they would have received in a normal year?  Federal meddling will have much more impact on where these people work than it will on how much they get paid.

Given the resources of the White House and Treasury I don't think I am asking too much when I implore them to use the bonus figure for firms that actually received bail-out money when engaging in their populist posturing, rather than a NY State report that mixes apples and oranges.

That said maybe the research effort would be utterly wasted, since apparently this is just populist posturing.  From the WaPo:

In finalizing the plan, officials have made a policy decision that could dismay lawmakers. The administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid but instead retain looser requirements initially included in the Treasury's $700 billion rescue program, a source familiar with the deliberations said. Officials are concerned that harsh limits could discourage some firms from asking for aid.

...

Obama's officials have said they will clearly lay out the conditions for any government investment. While relatively healthy firms are unlikely to face stiff restrictions on executive compensation, companies that need more dramatic government assistance would face more punitive terms, a source said.

Under the original rescue program approved by Congress in October, executives at financial firms for the first time faced federal limits on their multimillion-dollar pay packages. But those restrictions were unlikely to significantly reduce executive pay, analysts and banks said at the time.

The law largely focused on banning "golden parachute" payments to departing executives under certain circumstances. But most banks participating in the Treasury's capital purchase program were permitted to offer senior managers severance packages worth up to three times their average annual earnings. That amounts to a very large sum in most cases, the analysts said.

THIS IS MORE LIKE IT:

Sen. Claire McCaskill proposed a law on Friday that would prevent executives from making more money than the U.S. president until their companies no longer rely on the $700 billion Troubled Asset Relief Program (TARP).

McCaskill, an early endorser of President Barack Obama's candidacy, gave an angry speech on the Senate floor in which she said an average of $2.6 million dollars had been paid in bonuses to executives from the first 116 banks that got money from the TARP rescue plan.

Well.  In the longer run, restricting compensation may be a good way to force banks back to their traditional businesses of taking deposits and making loans; executives who want to run a hedge fund and be paid accordingly can quit and go do so, without implicit government support or FDIC insurance.

[THE END]

Comments

[mel]

Those bonuses, if stifled, might not make it to the "proper" campaign chests. It's not like there are any creative finance companies based in Connecticut or anything. Just another example of politicos deciding that "you make too much money, pay up."

[kim]

Now, we know he smokes cigarettes, but stoop to demagoguery? C'mon, this is not helping America.
=====================================

[Vinman]

What's most important is that we Americans understand that our elected leadership is working really, really hard--sometimes with their sleeves rolled up!-- to do the right thing.

[mel]

bad-

retroactive estate tax case in summation:

"…about a retroactive estate tax rate…we mentioned Nationsbank above. It was an
interesting case, and had to do with the short-lived 50% top estate tax rate in 1993. Here’s the
upshot: the top estate tax rate used to be 70%. In 1981, the law changed, and the rate started
dropping: it was supposed to hit 50% within four years. When the rate reached 55% in 1984,
however, Congress froze it. It kept postponing the 50% rate with “extenders bills.” In December
1992, Congress was late in sending the extender bill to then-President Bush, who killed it with a
pocket veto. 1993 thus dawned with the long-awaited 50% rate. But when President Clinton
signed OBRA (the Omnibus Budget Reconciliation Act) on August 10, 1993, the 55% rate was
permanently reinstated, retroactive to the beginning of 1993. The 50% top rate was history.
Which brings us to Ellen Garwood. She died in March 1993 with a $28 million estate. Her
estate, which filed its return nine months later, paid taxes at the 55% rate and filed for a $1.3
million refund – or the difference between the 55% and 50% rate. Ellen’s estate made various
constitutional arguments against the higher rate, in essence saying that it wasn’t fair to tax her
estate at the 55% rate, since she had died when the 50% rate was in place. Her estate lost on
all counts, both in the Federal Claims Court and its Court of Appeals. One of the most
interesting points the courts made was that the retroactive application of the 55% rate promoted
tax equity. Why? Because but for the retroactivity, a handful of taxpayers like Ellen – who died
during that 8-month period of the 50% rate – would have been better off than the taxpayers who
were subject to the 55% rate during the 9 years prior to OBRA, and the years following it."

I grabbed that clip from here(LUN, .pdf) The gist of the case that ran it all the way to the SCOTUS was that a person could not "arrange their affairs" properly, if Congress was constantly moving the goalposts. Considerable precedent apparently, but not enough for that court, who found for the Federales. I don't think the one I cited was the one that ran all the way, but I'll "LUN" it later, when I've got more time to search.

[jimmyk]

As I've said in other recent threads, in most cases these so-called bonuses really represent the bulk of compensation, and were down 44%. Huge pay cuts, more than we can say for the UAW, Congress, and other incompetents.

[centralcal]

Sometimes a commenter just nails it in a hysterically funny way.

Over at Althouse discussing Daschle, commenter DaveG said this: 1040dem

[Ranger]

Yes, the 1040DEM:

Line 1: Are you a Democrat?

Line 2: How much income to you want to declare for this year?

Line 3: How much tax do you feel like paying on that income?

[Old Lurker]

To pay for the downer (yes I know I do that) I posted for Narcisco at 9:52 on the Saturday thread, I offer up the LUN. Enjoy!

[Foo Bar]

I certainly agree that the question of why Bob Rubin and the top crew at CitiGroup are getting bonuses is a legitimate topic of discussion

???

Rubin and other top Citi execs are not taking bonuses for 2008.

Rubin actually has declined a bonus in each of the last two years.

[Extraneus]

Officials are concerned that harsh limits could discourage some firms from asking for aid.

And we certainly can't have that. How could we take them over otherwise?

[Fatnugly]

Sunshine Obama is hiring his Harvard pals for jobs that never existed. Agencies do these jobs. He's hiring 100,000 of feds for jobs that they didn't do on 9/11. Congress is limiting executive salaries when they have no term limits, trade their seats for family members and Harvard pals, gave away 100s of billions in foreign aid outside the normal US government on a five year entitlement and have sworn no pay raises after they gave themselves one. Dems are breaching their trust for government and applying rules that never applied to them to corporations.

The government needs to apply corporate laws to the US government. No hiring family or friends. No giving away billions outside the us government budget.

[kim]

Poor, poor, unemolumented Rubin.
================================

[narciso]

Pobrecito, as I they would say in my neck of the woods. He sold junk to all corners of the world, it's a wonder he's not in jail, then again Madoff's not in jail either. Yeah I needed that OL, although I don't know what that is exactly.

[Faglyfugly]

The ONE HOBO is right. He had to sue over loan criteria to make everything free, I mean equal, for everyone and the banks were predatory treating everyone free, I mean equal, because it's legally law. So, the bailout was needed because we do this for CHA housing because they're poor and not treated fairly and the CHA mortgages and the other ones that were treated like junk, I mean like equal, had to be bailed out to because mortages are free, I mean equal, for everyone. So, The ONE HOBO was right to say the US government guarantees the mortgages just before China bought the junk, I mean equal mortgages, from Merrill because that's what we have to do for the poor, I mean equal mortgages.

The executives are getting rich off our poor mortgages selling them overseas for a US government bailout and they should be stopped by socializing banking and mortgages like China. Since they're already sold to socialized banking overseas, we should just follow the model there and bailout the holders of the mortgages since it's trillions and enough to buy them all their houses and pay off the foreign owners, making it all American.

The HOBO's socialization should make sense, we even paid off the socialized countries overseas. He didn't plan that, it's just 'cause he took care of that poor CHA mortgage holder like the commie, I mean community, activist he is; corporate America took advantage of him too, selling to China.

We all need to go back to school and get real smart like Obama and he'll even pay for a semester because the wage he pays you won't. It's not like it's a Harvard re education.

[Ranger]

Well, first, lets understand why the bonuses are so large. First, thanks to Bill Clinton and the Dems in congress, no company can deduct salary above $1M as a business exspence. Therefore, Rubin was paid exactly $1M. For Citi to pay him more than that, is must structure the payment outside of salary.

Now, if Rubin had taken his $8M bonus for 2008 after helping to run the company into the ground, he probably would have been hunted down and killed by angry shareholders.

Rubin still kept his $1M check for the service of helping destory CITI (just like Rahm Emmanuel kept his $250K check for sitting by and letting the management destroy Freddie Mac).

And, as I recall, just a few weeks ago the NY state comproller was whining that the state would need a huge bail out from the Feds because Bonuses would be way down and wall street, and that was going to cost the state over $200M.

[clarice]

Ranger I love your riff on 1040Dem and blogged it though I've no idea when or if it'll run.

[Danube of Thought]

Let no one ever forget that Bob Rubin (the "greatest Treasury Secretary since Hamilton") was the number one cheerleader in the fight against regulating derivatives.

[Rick Ballard]

"But I have little doubt that somewhere in Citigroup there lurks a foreign-exchange trader who was utterly divorced from the decision making behind the mortgage melt-down, was very profitable, earned a large bonus, and could find employment at a bonus-paying hedge fund in a matter of hours."

So what? Zombiegroup has earned a death sentence due to the total abandonment of fiduciary responsibility by its board (who should be sued into personal bankruptcy - director's insurance notwithstanding). The Feds are filling the beggar's cup, they can have the beggar dance as they wish.

No one held a gun to Lehman or any of the other members of the Credentialed Moron Society (Northeastern Branch) and forced them to destroy the trust of investors, depositors and the general public. It was a voluntary action, taken with extraordinary overconfidence in a mass of relatively "new" financial instruments whose primary purpose was to generate income for the ever so select group of Credentialed Morons who devised them. The instruments were pitched and sold on their secondary purpose - belt and suspenders against the fact that collecting the data necessary to make good loans is just so darned boring and slow that it's difficult to keep a Credentialed Moron on task from 9AM to tee time.

Which of those marvelous hedge funds is hiring forex folks at a stunning clip today? My understanding is that a great many of the hedge funds are somewhat smaller today (and will be even smaller tomorrow) than they were 2-3 years ago. They seem to be spending most of their time working to bar 'qualified' investors from access to the money which the investors inadvertently left in their care.

There is nothing left to save on Wall Street. There is nothing that is done on Wall Street that cannot be done in Dallas or Omaha by people with a better understanding of fiduciary responsibility than that exhibited by those wonderful Wall Street folks, so lacking in brains that they took a tea spoon to a sit down dinner with the devil.

[Ranger]

Ranger I love your riff on 1040Dem and blogged it though I've no idea when or if it'll run.

Posted by: clarice | February 01, 2009 at 11:37 AM

Glad you like it. I think the RNC should make a very nice mock up of the IRS booklet (just a fold over) that explains the new tax law realities (if you are a rich and powerful democrat, you only pay the taxes you want to) and include a very nicely done up 1040DEM with a pre-addressed envelope for the White House. Then mail them all out right around April 1st to every registered voter, just when the average American is tearing their hair out trying to file their taxes.

[clarice]

Brilliant idea..why not send it in to the RNC,Ranger..
From the responses in the WaPo comment section my instinct that this is a very sore spot with voters, seems to be on target--except of course for the highly nuanced voters who swear by the HuffPo (and can't apparently tell shit from shinola).

[MarkO]

Hey. The One won.

We're living happily ever after.

[JM Hanes]

Ranger: Sounds like a good place for Daddy's comparison too.

Republicans:
The Stevens Rebate on $245,000 unreported income = 7 felonies

Democrats:
The Geithner on $48,000 unpaid liability = Secretary of the Treasury
The Daschle on $330,000 unreported income = Secretary of HHS and Healthcare Czar

[Porchlight]

Line 1: Are you a Democrat?

Line 2: How much income to you want to declare for this year?

Line 3: How much tax do you feel like paying on that income?

Don't forget:

Line 4: When do you think you might get around to making that payment?

[MayBee]

It should be a sore spot with voters.
In CA, I'm not getting a refund on my overpaid taxes for a while.
Tom Daschle may consider $100,000 not a big deal when he doesn't pay it, but my refund isn't even 10% of that and I still consider it real money. That I'm not getting.

[Pagar]

Line 1, I wouldn't admit to it even if it would save me money on taxes. I don't understand how anyone can be proud of being one.

[glasater]

From Rick B's article on the previous thread:

IRS spokeswoman Robin Sabin of Houston suggests Schedule C for the small-business owner and the 1040 line “other income” for the free-lancer. She said this stuff just doesn’t show up on a W2 form.
“You should report your ill-gotten gains just like you report any legal income,” said Sabin.
She said a business name would be fine and that taxpayers needn’t spell out their illegal activity.
“It’s not that we don’t care,” she said. “We want to be able to identify the source.”

Is this not just incredible?

[Thomas Esmond Knox]

Clawback for losing quarterbacks.

Even better, for losing teams.

What a dumb idea.

[patch]

If the Feds stop Wall Street bonuses; New York State can kiss their budget bye-bye. Why hasn't Senator Schmuck Schumer spoken in defense of these bonuses?

Oh? Screw Governor David Paterson...

[SlimGuy]

GIULIANI: I remember when I was mayor, one of the ways in which you determined New York City’s budget, tax revenues, was Wall Street bonuses. Wall Street had a billion, two billion in bonuses, city had a deficit. Wall Street had 15 to 20 billion, New York City had a 2, 3 billion surplus. And it’s because that money gets spent. … It does have a reverse effect on the economy, if you somehow take that bonus out of the economy. It really will create unemployment. It means less spending in restaurants, less spending in department stores. So everything has an impact.

[SlimGuy]

WASHINGTON (CNN)—One day after President Barack Obama ripped Wall Street executives for their “shameful” decision to hand out $18 billion in bonuses in 2008, Congress may finally have had enough. An angry U.S. senator introduced legislation Friday to cap compensation for employees of any company that accepts federal bailout money. Under the terms of a bill introduced by Sen. Claire McCaskill, D-Missouri, no employee would be allowed to make more than the president of the United States. Obama’s current annual salary is $400,000.

[Old Lurker]

"...no employee would be allowed..."

And there you have it. Remember this moment when you tell your grandkids about these times, and what went before.

[Amused bystander]

Old Lurker: Did they plan this from the beginning. contrive a crisis, let them take the money, and now hit them with caps?

It is beyond belief that the government will tell us this. Boy this is really going to help end the recession. Are they going to limit dividends too? Money and talent will just head out the door. Firms too.

And we have to be below or equal too the president in income too. When will people have enough of this? I can scarcely believe it is happening

Or do they expect now that firms will turn it down and then they can use the money for something else?

These people just detest freedom of an sort. They detest life itself. What a mess we are in.