RSS Feed MenuThere is an urgent warning for Republicans in the weekend’s two big financial stories.
On Sunday, the New York Times reported that the Obama administration is considering much tighter regulation of hedge funds and rating agencies.
Such a story jangles Republican nerves – and calls us out to fight.
But then there’s this:
This morning, the Financial Times reported that Merrill Lynch’s new owner, Bank of America, signed off on $4 billion worth of executive compensation in a quarter in which Merrill suffered a $15 billion loss. Worse: BA seems to have tilted the bonus formula so that more was paid in cash, less in stock.
BA has been of course a huge recipient of federal bailout funds.
And so these decisions open the door for President Obama and the Democrats to accuse the banks of wasting taxpayer dollars. It does not help that former Merrill CEO John Thain happened to redecorate his office at this time for $1.2 million, a sum that reportedly included $87,000 for a single rug.
Rush Limbaugh defended Thain in a weekend interview with National Review’s Byron York.
Obama was angry that Merrill Lynch used $1.2 million of TARP money to remodel an executive suite. Excuse me, but didn’t Merrill have to hire a decorator and contractor? Didn’t they have to buy the new furnishings? What’s the difference in that and Merrill loaning that money to a decorator, contractor and goods supplier to remodel Warren Buffet’s office? Either way, stimulus in the private sector occurs. Are we really at the point where the bad PR of Merrill getting a redecorated office in the process is reason to smear them? How much money will the Obamas spend redecorating the White House residence?
Rush’s ear for hypocrisy is acute enough here. But the conclusion he is drawing is just suicidal. The end-of-year bonusing behavior on Wall Street is dumbfounding. Ronald Reagan used to tell a story about a welfare queen who collected food stamps while driving a Cadillac. What are we to call people who collect tens of billions from the taxpayer – and then redirect $4 billion to themselves?
The taxpayer bailout of banks has been remarkably generous. The money has been provided at below-market rates (Rush was right that Warren Buffett charges a lot more for his help than the Treasury does). More important : even though the banks are bankrupt, the Treasury has not reduced the value of their shares to zero, as it did with Fannie Mae and Freddie Mac. Those Wall Street players who hold hundreds of millions of dollars in Merrill stock or BA or Citigroup may be less rich than they were last year. But thanks to the generosity of the taxpayer, they have not been wiped out either – which they otherwise would have been.
Is it really too much to ask that they refrain from bonusing themselves until the taxpayer has been paid back?
The utter lack of restraint on Wall Street last month – the sheer jaw-dropping stupidity of this last reach for the last dollar – almost forces Washington to react. If Wall Streeters are too stupid or too greedy to quit gorging themselves while Washington is on the rampage, why should Republicans put their necks on the line to defend them from the consequences?
Our Republican priority should be to resist regulation that threatens to stifle innovation and dynamism on the markets. But let’s show a little of the self-protective common sense so depressingly lacking on Wall Street. Those who cannot control themselves will be controlled by others. It’s a rule of life. Our priority should be to defend open markets and to end the government role in banking as rapidly as possible. That’s going to be a tough enough challenge without also being called upon to protect bankers too greedy to be smart.
suey // Jan 27, 2009 at 1:44 pm
Kaz I understand where you are coming from. Look to Bush for the reason for the problem. When he took over there was a trillion dollar Surplus, When he left, well enough said. So we find ourselves with a record deficit. In a normal times my opinion would be to drastically cut spending, do something about the tax code to return it to pre Bush levels and let the economy take care of the rest through growth. However this is not a normal time. There is no money in the economy to grow it. Where are all the potential investors picking up GM for in instance and turning it round at rock bottom prices? Nowhere. Most economists and many on the right say that when there is no money in the private sector to grow the economy the only entity able to do it is Government. Am I happy at printing money to do this?l no. Am I happy it may cause inflation later, no again. Is there an alternative to prevent mass unemployment and all that means for people. I really cant see any other short (less than 5 year) solution to this. If you have a magic solution to solve the problem without government spending let me know.
Kaz // Jan 27, 2009 at 3:51 pm
MSheridan, your said “Yes, fiscal conservatives have always been proponents of low taxes, but they believed in low taxes for everyone. That is no longer the case.” That is a patently false statement. The Republicans have efffectively taking the lower 50% of the income earners off the tax rolls. Fine, but don’t make the claim the rich aren’t paying their fair share. Even the Republicans believe in tax rate progressivity, but at a point it gets ridiculous, not to mention counter productive to a growing economy. How much government to we need/want? Jesus, they’re going to consumer >25% of GDP soon.
Kaz // Jan 27, 2009 at 3:59 pm
suey, Bush was indeed part of the problem, but saying he was “the problem” is intellectually dishonest. I also hope you understand the difference between deficit and debt. Under Clinton we still had enomous debt levels, but much of the credit for reducing the debt in the ’90s was due to massive cuts in military spending (thanks for the peace dividend Mr. Reagan) and the Republican revolution of ‘94 (did you forget who controlled congress in Clinton’s 2nd term?). The current mortage/banking crisis has to unwind over time, throwing trillions of borrowed money at it is doing nothing more than kicking the can down the road. You can have your pain now, or you can have a lot more pain later. The Democrats have decided it’s politically expedient to postpone the pain til later.
suey // Jan 27, 2009 at 4:48 pm
Kaz, the only way to sort it without borrowing or printing money is to have a severe contraction. Unemployment at maybe 15-20% and stagflation. Maybe we as a society deserve the pain of that for believing that growth in a economy that produces less goods and exports even less, imports more and borrows even more is going to go on for ever. Bubbles burst eventually and we had a giant bubble. I have a question, where did all the money go? If we had all these houses way over valued, and the mortgages that represented those houses bundled and inflated in price, surely someone somewhere made a pile of money, Where is it?
suey // Jan 27, 2009 at 5:45 pm
ABC News/Washington Post – Would you support or oppose new federal spending of about 800 billion dollars on tax cuts, construction projects, energy, education, and health care to try to stimulate the economy? 70% support 27% oppose 3% unsure
MSheridan // Jan 27, 2009 at 6:47 pm
Kaz, examine pre-WWII tax rates and you’ll see what I was saying. Tax rates at the top varied to an incredible degree, but the bottom rate was always low, ranging from
MSheridan // Jan 27, 2009 at 6:48 pm
Tax rates and brackets over time: http://www.taxfoundation.org/publications/show/151.html
gospelance // Jan 27, 2009 at 7:27 pm
suey, since you mentioned it, what do you mean when you say that you woke up? I’ll try to be less sarcastic in the future. But you have to understand–you know how you felt about Bush; well, it’s the same now for us (your team won, etc).
I guess I’m a sore loser. sorry.
suey // Jan 27, 2009 at 7:51 pm
gospel, thanks. I don’t want to go into details on a public forum however just to say I was a Deacon/Teacher in an Evangelical church and got badly “burnt” spiritually and personally in the process. God is good but people can suck!
gospelance // Jan 27, 2009 at 8:25 pm
suey, if you want to share: gospelthomas@hotmail.com
LeftLeaner // Jan 29, 2009 at 4:57 pm
I found your article very insightful and concise. I especially like the Regan anecdote paralelled with the bail-out bankers. The sheer irresponsibility from Wall Street is shocking and disgusting and single-handedly destroying the image of the American Dream. If we are truly living in a capitalist society (and socialist elitism does not count) then the ones that fail SHOULD NOT be bailed out. Adam Smith must be rolling over in his grave and if Alexis de Tocqueville was in American now, he would most definitely have rethought writing Democracy in America.