So permit NewMajority to attempt to pierce through this fog.  The banks have put trillions of taxpayer dollars at risk as a consequence of their own mistakes.  Many of the institutions at that meeting would currently not exist but for the kind graces of Messrs. Bush and Obama.  Moreover — and more to the point — the entire equity value built up over the years by bank CEOs and thousands of rank-and-file senior employees would have evaporated.  Gone.  Zeroed out.  Lehmaned.  To the tune of billions of dollars of personal savings now being preserved by the kindness of taxpayer strangers.  If (as we have said before) these people had happened to work for airlines or telecommunications companies or railroads or real casinos (as opposed to the de facto casinos the banks became) their billions would have long since disappeared.

To enable this wealth of the perpetrators of the greatest financial incompetence of the previous 70 years, we have had to resort to multiple bailouts, for each bank has benefited not just from the injection of public funds onto its own balance sheet, not just favorable terms for that money, not just unprecedented short selling bans and government bad-asset backstops and short-term debt guarantees and long-term debt guarantees and the rest.  Each bank in that meeting has also benefited tangibly from bailouts that aided counterparties and avoided panic (Bear Stearns, AIG and the forced Bank of America closing of the questionable Merrill transaction) in order to stabilize whatever was left of the “system” these overly leveraged institutions and overpaid executives helped put in place.  Since banks are in the business of being creditors their employees and shareholders understand this even if they don’t want to admit it.

Let’s not be populist about this.  Let’s be capitalist.  The proper attitude in that meeting with Obama might have gone something like this:

Mr. President, we are grateful your forbearance and we get it.  We apologize for our mistakes and appreciate your willingness to look forward.  Hence we have decided that all performance-related bonus compensation for our senior executives who currently own more than $2 million of our bank’s stock will consist of restricted common shares that will (a) be junior to the government’s preferred and (b) be deferred in such a way that no cash will be realizable for those employees until the taxpayers have been paid back.  We may lose some talent as a consequence and are happy to see those who do not wish to work on these terms retire and forfeit any other unvested stock they currently own.  That will be a benefit to those who remain as well as to the government.  And that will give us the moral authority to defend our fiduciary interests elsewhere — to act as creditors rather than the instruments of government policy. Rest assured we will work day and night to get you back the taxpayer money we have received.

There.  Was that so difficult?

Well, most people can’t refuse such an offer.  Mudball tactics like this bully most into submission.  Witness AIG CEO Ed Liddy’s craven response to throw his people in front of the mob.  But DeSantis told the blackmailers:  publish and be damned.  He “outed” himself, he took control, he stood up and claimed his right to keep what he earned even in the face of intimidation.  And he announced his intention to dispose of his property — the fruits of his labor — as he saw fit.  Unfortunately, he also announced he was leaving the employ of AIG, yet another talented person forced out of service because of government ineptitude and class envy used by politicians as fuel for their vaulting ambition.  The taxpayer-owners of AIG are the poorer for it.

A) Taxes are going to confiscatory rates. Examine the bill written by tax cheat Charlie Rangel, the Democrat Chairman of Ways and Means. Under his bill, the tax on any bonus paid to a New York City resident by a TARP recipient bank would be 102 percent for any family with an income above $250K.

The Wall Street Journal explained it clearly.  First, the bonuses are taxed at 90%. Bonuses are also subject to the Medicare FICA tax of 1.45% (not counting the employer’s portion), bringing the total federal take to 91.45%. Employees are also liable for state and local income taxes, which would not be deductible from the bonus tax. For an employee living in New York City, the state and local rates are 6.85% and 3.648%, respectively. Add it all up and the tax liability comes to 101.948%.

$250,000 may seem like a lot of money to most Americans. But in a city where public schools are a wreck, financial executives may understandably feel they have no choice but to send their children to private schools. Tuitions in New York City range between $35,000 and $45,000.

B) This year’s federal deficit will be 13 percent of GDP, compared to 2-ish percent under Bush’s last budget. The Congressional Budget Office says (today) that our deficit will be over 1 trillion per year for 10 years under Obama’s plan. The CBO is non-partisan, but under the control of the Democrats. This is the highest deficit creation since WW2. Our public debt as a percent of GDP will rise from 40 percent (today) to 70 percent by 2012.  What are we, Greece? A superpower cannot run these debt levels.

C) The finance industry, which was a US dominated industry, is being killed by President Obama. Reason: foreign banks do not have the compensation caps that Obama wants to impose… Talented people are spending their time seeking jobs with non-US banks.

John Maynard Keynes would have been appalled by the de-emphasis of infrastructure in our budget bill. And he would have howled at proposed tax increases during a recession. Supply-sider or not, low taxes are good. Controlled government spending is good. A sound currency is good. President Obama will be challenged less by incompetent Republicans than by his own hubris and wrongheaded philosophy.

So if this plan is necessary, why might you call it evil (as opposed to the first fundamental good step taken)? After all, by putting up matching equity isn’t the taxpayer going to get the same opportunity to gain as the private sector?  Aren’t we limiting taxpayer exposure by “leveraging” the TARP funds already allocated?  Isn’t the auction mechanism a little closer to a market construct?  Yes.  But the sad thing is the government has to give subsidized financing on a scale never before imagined and funnel half the profits to a small selection of private players in order to bail out those who obviously did create the credit mania in the first place.

Only when the taxpayers get involved are the creditors of all these bailed-out institutions able to recover amounts at face value. To see where the creditors would wind up if any of these failed, check out the very public estimates of Lehman recovery values. It is true that avoiding bankruptcy of financial institutions (as opposed to airlines, etc) has some benefits–the avoidance of cascading liquidations that could ripple through the economy.  But just because it would be bad to allow financial institution debt-holders and counterparties to suffer a full scale evaporation of their positions (Lehman again) — especially when your overriding public policy objective is to salvage the financial system — does not mean they should get paid back at 100 cents on the dollar with the taxpayer at risk.  Does one really suppose anyone would’ve said no to (say) a 15% discount on their AIG CDS contracts when the alternative of bankruptcy might mean a discount of 50% or more? There, I just saved the government $25 billion, enough to bail out the entire car industry. For the life of me, I will never understand why the sophisticated deal people on Paulson’s team did not as a condition for throwing all this money at AIG consider some mechanism like this — if not when they were immersed in the first panicky flush of $80 billion, then during the subsequent bailout tranches.

Now, the New York State Attorney General, Andrew Cuomo, wants to subpoena Thain for paying out $4 billion bonuses to his employees prior to the sale. This is a business, however, where more than 40% of compensation is paid in bonuses. Admittedly, some individual businesses had inflicted serious losses, but other businesses performed well. These bonuses were transparent to BoA and to the Board. In fact, it is reported that BoA actually recommended reworking the mixture of compensation to make it 70% cash and 30% stock to conform with BoA’s bonus protocols. Moreover, these bonuses cannot be viewed in a vacuum, they need to be compared to previous year’s bonuses (2006 bonuses were much more than double 2008 bonuses) and total employee compensation to fairly judge them. The criticism about the $1.4 million refurbishment of Thain’s office is probably more fair, but irrelevant in the overall scheme of things.  He has apologized for this and admitted that this took place in a different economic climate.

Now, Andrew Cuomo wants to subpoena Thain to testify about the bonuses. This is a waste of the taxpayer’s money pursuing something that observers are declaring was clearly legal solely so that Cuomo, in what is now a consistent pattern, can grab headlines without actually effecting any real change to benefit the citizens of New York.  It is hard to argue that Cuomo is doing this for the citizens of New York.  Cuomo cannot even argue that he has an axe to grind on executive compensation.  It was his decision to drop the charges against Dick Grasso for receiving nearly $180 million in compensation.  Yet, now he wants to pursue those same cases because he can milk them for publicity.