The Era of Not Getting It: The Marie Antoinettes of the Meltdown

There is plenty of debate about what President Obama's stimulus bill should look like -- as well there should be, given all that is at stake. But there is a growing consensus that the guiding principle in that debate should be Obama's call for a "new era of responsibility."

Helping fuel that consensus is the saga of the rise and fall of former Merrill Lynch CEO John Thain, the poster child for the era of irresponsibility. The condemnation of his behavior is completely bipartisan (although we haven't heard yet what John McCain thinks of one of his biggest fundrasing bundlers).

On this week's Left, Right, and Center, my conservative pal Tony Blankley made the perfect comparison: "Thain and these CEOs have been studying at the Marie Antoinette School of Public Presentation," he said. "The crassness and the stupidity are stunning... They ought to be boiled in oil."

Marie Antoinette and her "let them eat cake" became the symbol of Not Getting It -- of not realizing, until it was too late, that a new era had begun. And just like Marie Antoinette, Thain didn't get it, even as Bank of America CEO Kenneth Lewis was leading him to the corporate guillotine.

In fact, Thain had such a run of not getting it that TPM was able to compile a top ten list of his greatest moments.

The pinnacle of Thain's tone deafness, of course, was his over-the-top makeover of his office in early 2008, just as Merrill Lynch was already hemorrhaging money and preparing to lay off thousands of workers. So to soften the blow (on himself), he spent $1.2 million redecorating. Lowlights include $87,000 for an area rug, and $1,400 for a trashcan.

But Thain was far from done with not getting it. Cut to October 2008. Merrill Lynch, after teetering on the brink of failure during September, has just been acquired by Bank of America, in a deal brokered by the government and partially financed by taxpayers. Sleeping through this wakeup call, Thain decides that he deserves a $30 million to $40 million bonus. That figure wasn't received very well, so Thain, chastened, lowered the number to $10 million. In the end he received an appropriate bonus: $0. And then, as the New York Times put it, "he later denied having asked for one" at all.

He was not, unfortunately, stopped from ramming through big bonuses for Merrill Lynch executives -- just days before the taxpayer-financed merger with Bank of America became official. Though bonuses are usually given out in January, in December Thain handed out nearly $4 billion to Merrill employees. New York Attorney General Andrew Cuomo is investigating.

Which brings us to the miserable job he did at Merrill, for which he wanted to so lavishly reward himself. Under his misguided guidance, Merrill Lynch lost $27 billion in 2008. What's more, in late September 2008, as the Merrill Lynch-Bank of America merger was announced, and the world's financial system stood on the verge of collapse, Merrill's traders, as the Times put it, "began buying risky mortgage assets, thinking that the market had bottomed out... Merrill also began to run up losses on equity derivatives and other instruments."

Let me repeat that: in late September, Merrill "began buying risky mortgage assets."

The result? Merrill Lynch lost $15.3 billion in the fourth quarter of 2008 -- a loss so great Bank of America had to get an extra $20 billion from taxpayers to complete the takeover.

In retrospect, it's too bad Thain didn't spend all his time redecorating his office, because any time he spent making business decisions turned out to be very costly to the country. Even scarier, as a big McCain backer, Thain was rumored to be headed to an administration job had McCain won. At least we dodged one Thain bullet, even if we're on the hook for 20 billion others.

As one insider told the Wall Street Journal, Thain "didn't really have a good grasp of what was going on." But this didn't stop him from winning the prize as America's highest paid CEO in 2007, raking in a package worth around $83 million.

Clearly, something is wrong with the process by which executives rise to the top on Wall Street. There's been a lot of focus on how the failures of unregulated markets led to our current structural problems, but too little on how the market system has failed in the way it rewards and penalizes executives. As Treasury Secretary-designate Tim Geithner said: "Excessive executive compensation that provides inappropriate incentives has played a role in exacerbating the financial crisis."

But this is about more than a few rotten apples. And the Era of Not Getting It is not yet behind us. Nor is it limited to one side of the aisle. The Wall Street Journal reports that last month Democratic Rep. Barney Frank, Chairman of the House Financial Services Committee, secured a $12 million TARP payment to the OneUnited Bank in Boston. OneUnited was an unlikely candidate for bailout money, having been accused of poor lending practices and Marie Antoinette moves such as providing a Porsche SUV for bank executives to use. Not Getting It: There is no substitute.

Others Not Getting It include:

Gateway Financial Holdings executives Ben Berry and David Twiddy, who received nearly $1 million in bonuses on the same day their bank received $80 million in bailout money.

Wells Fargo and State Street. Both financial institutions received bailout money ($25 billion for Wells Fargo, $2 billion for State Street), then turned around and increased the amount of money they spent lobbying the government in the last quarter of '08. Not a bad deal: we give them our money, which they use to pay lobbyists in an effort to get more of our money.

Citigroup, which received $45 billion in government bailout funds, and is about to take delivery on a new $50 million corporate jet that features a "plush interior with leather seats, sofas and a customizable entertainment center," as well as advanced temperature monitoring that contributes to a more comfortable passenger experience. Let them eat cake... while sitting on plush leather sofas!

In his Inaugural address, Obama defined what the New Era of Responsibility would entail: "A recognition, on the part of every American, that we have duties to ourselves, our nation, and the world."

Last week, there were steps taken that will encourage adherence to those duties, and make it harder for those that still don't get it. Senators Johnny Isakson and Kent Conrad introduced a bill that would create a seven-person Financial Markets Commission that would establish how the crisis started and how to avoid another one in the future. The GAO called for increased oversight of the bailout. And the Obama administration announced it would make a series of rule changes that will increase oversight for hedge funds, mortgage brokers and ratings agencies.

It's a start -- and will hopefully put us on the path to throwing the Marie Antoinettes of the Meltdown out of their Wall Street Palaces and tossing the Era of Not Getting It into the trashcan. One that costs considerably less than $1,400.

P.S. Here is Thain so not getting it that he is still defending to Maria Bartiromo the mega-bonuses he doled out:

To see the whole Bartiromo/Thain interview click here.

Comments

[Guitarsandmore]

When you get right down to it, you could live really well on a salary of $ 250,00 a year, perhaps even less. A nice house, a couple cars, wife and kids, a vacation once a year at the beach. What more do you really need. Most people get by on less. I do.

So what on earth could you possibly need more money for?

An arguement could be made for sending your kids to a good university but after that? What?

No one NEEDS an exoctic sports car, or furniture from Europe. It just isn't necessary.

Giving bailout dollars to people that make millions of dollars should be a crime.

[skymuffin]

After reading some of these comments, we really DO live in two different countries. Rachel Maddow said she hadn't realized, until she went to Stanford, that there really is an upper class in our country (I don't think she felt truly comfortable there). When I grew up, we knew there were rich people, but I had no idea about trust funds and fully paid Ivy League educations, with gifts of money, cars, and lord knows what else. Korean students who fly to the U.S. with one year's tuition for Wellesley in cash in their carry on luggage so their parents don't have to declare the money to the government. Kids who didn't have to work while going to school. What a different world they live in. The rest of us try to play by the rules. Don't we feel foolish and naive sometimes?

[wayoutleft]

excuse me. the whole premis is on its head. marie antoinette was arrested and beheaded. nobody now is marie antoinette. the french revolution is not in progress at the alfalfa dinner. please.
and the CEO's walked away with all the companies' money- then walked away with all the public's money. what is it- exactly- that they don't get? one thing they "got" is that anyone with a tie can stiff-arm congressional dems and walk out with hundreds of billions of dollars. what they "got" is you have to ask for ALL OF IT NOW. otherwise you fall into the fathomless congressional pit of rules, committees, hearings, millard fillmore dinners, golf dates, hair transplants, school pageants, tree plantings, ribbon-cuttings and what have you- and, like the rest of the american people, never get anything.

[bob8jv]

We would like to see these CEOs and Executives be stripped from all their investments, cash, and everything they own, and spend many years in jail. Then and only then, will the American people be satisfied that justice has been served.

[jwod211]

In THE REAL WORLD bonuses are paid for performance. Who does Mr. Thain think will provide employment for potentially dissatisfied Merrill employees? Everybody is downsizing. Merrills' employees should be happy to have jobs let alone bonuses. Does he live in a parallel universe?

[CyndiF]

rea Rug: $87,784
Mahogany Pedestal Table: $25,713
19th Century Credenza: $68,179
Pendant Light Furniture: $19,751
4 Pairs of Curtains: $28,091
Pair of Guest Chairs: $87,784
George IV Chair: $18,468
6 Wall Sconces: $2,741
Parchment Waste Can: $1,405
Roman Shade Fabric: $10,967
Roman Shades: $7,315
Coffee Table: $5,852
Commode on Legs: $35,115

[IR55]

Halleluia! Someone is FINALLY talking about this! We, the American people, should have been marching on Wall Street as the financial institutions started to collapse. Imagine the reaction from these CEO's, CFO's, Etc., had there been two million people chanting, "Off with their heads." They would have been fleeing the country for safer grounds like rats off of a sinking ship. These executives assets should have been seized with the proceeds going to pay down the bailout. Bring back the guillotine; they'll get in touch with the average person in a hurry.

[skymuffin]

Yes, if they're so valuable that they are worth paying tens of millions of dollars, let them give everything back, start at zero and make back those fortunes. Meantime, they can work and worry that one of these days, their car's transmission will go out, or their kid will break his arm, or something else will happen, and get their stomach in knots because they're not sure if next month's paycheck will cover their expenses.

[phrancine]

Interesting fact: As a rural farmer, my cost for fertizer and seed have increased 4x since last year. I am not big enough to receive those "we'll pay you for not growing anything" hand-outs and the banks that used to give loans, don't anymore (but they sure got a huge chuck of my tax money when they said they needed to prop up the economy). I have, personally, seen many of my neighbors giving their horses away because they can't feed them. Your prices at the supermarket will soon reflect these increases. Since we are just hard working grunts, I guess this won't matter a bit to the uber rich, but I thought I should mention it. Keep singing about those "amber waves of grain", folks.

[riona]

phrancine, you should be taking to the streets. The true title of this post should be "The Marie Antoinettes Who Are Getting Away With It". Why are they getting away with it? Because we all react by venting on blogs but otherwise do nothing. This is totally dysfunctional. There is a serious crack in the foundation of our system. But, we grunts, don't stand up for our rights. Why? Are we all cowards?

[phrancine]

Riona,
I hear what you are saying, but we are not cowards. I would love to hear HOW the small farmer can be heard in Washington. I can't just take a few days off to travel to the capital and protest in front of the White House, (altho it would be a cool to have parade of cows, goats and sheep on Penn Avenue, with little signs attached, saying, "Don't Blame Us.) I REALLY have a 24/7 work week- not complaining (I truely love doing it), just saying,. All I can do, is to write letters or email my elected officals with information that, unless you listen to farm reports and farmers, you may not know.That is also why I put this info on a blog read by people in the "big city". I have no constitional RIGHT to seed and fertilizer at a specific price, but I am curious how the "eating public" will be able to handle higher prices, when it's such a struggle to "put food on your family"(sic Bush) in these hard times. I don't feel cowardly, because I am TRYING to get someone to hear me and maybe we should have a livestock day of protest on the Capital. Anyone care to join me? BYOC (bring you own cow)

[SuZy0925]

The Good News--John Thain got taken!!!! Whoever he bought that crap from really saw him coming.
The Bad News--He spent our money to get all that crap.

People--we have to do something. This is so over-the-top ridiculous.

[bellabeach]

You are sooo right SuZy, the world needs to keep watching these overpaid clowns and make sure it doesn't keep happening with our money!

[InternationalObserver]

I watched a re-run of Sweet Sixteen last night (first time I'd seen the show). This girl was turning 16, thru a big party at a nightclub. and seemed solely motivated by having the.best.p­arty.EVER! Fair enough, she's sixteen, what do you expect?

But wait, there's more:

She's in tears because her Event Organiser (wtf?) can't book any of the A list rappers she wants at her party. The night before Dad has to give her a diamond bracelet to console, cos no one is available.

But it all turns out okay because on the night Fat Joe turns up and raps for her. And Dad gives her a $100,000 car. Yipee!

What did i learn from this? Maybe it *is* time to eat the rich and feed the poor. (And I consider myself an entrepeneu­r/catapili­st).

[mitsu63]

And to think, the summer I turned 16 I finished out the school year realizing that I had worn the same old holey hand-me-down green sweatshirt to school every single day that year. But then again my mother didn't raise me to be overly concerned with things like wealth or appearances. I do worry a bit about this generation, it seems like they are such avid consumers of the whole bling-culture thing. The whole concept of tackiness seems to have been dropped by the wayside somewhere along the line. Personally, I don't think I'd quite know what to do with a Thain-esque amount of income anyway. I'd probably end up giving a lot of it away.

[PocketWatch]

I "lived among them" for 10 years (Westchester County, New York) and this anecdote is normal for that part of the world. Across the street from the lady I was seeing, the parents threw a sweet 16 party for their daughter, inviting 300 of her closest friends. The menu was tenderloin and lobster. They held the party in the "pool house," which was one of 19 buildings on a 100-acre estate. All party guests showed up in limos. THESE WERE HIGH SCHOOL KIDS! BTW, nearly every 16 year old girl gave a similar party. It was non-stop.

Needless to say, it was one of the reasons I left that part of the country. Not only couldn't I relate, but in discussing this kind of thing with those folks, they really had no clue what I was talking about. This is absolutely normal to them.

While I can appreciate different kinds of "normal," this was just nuts, at least to me.

Anyway, it gives you some inkling as to the depth and breadth of their total disconnect with anything us plebians go through on a daily basis. FYI, I met a couple of really old money people, and they were very down-to-earth. It was the newly rich that were totally obnoxious in these ways.

[wayoutleft]

i guess i will never understand what's so deficient about the comprehension of someone who made a billion dollars personally managing investment portfolios, kicked his company over to a national bank with the government greasing the deal, and bails himself with half a billion plus in personal services comp. $83 million total comp for the year is not getting it? whatever he's not getting is not money.
as we all know- thain gets it. the rest of us do not. that's why he's a billionaire and everyone else is laid off or broke.

[Ipanemagirl]

what I dont understand is : Why didnt we ask to have all CEOs fired and replaced by government officials before agreeing to give them the bail out. Now they are able to reward themselves for failing with OUR tax payers money? How could congress have allowed this to happen? why did we hand over the money with so little restrictions and oversight that even us simple people would have thought of doing????I am in shock!

[DanC45]

Of course the rich will greatly disagree, but "What happens when the US throws all its CEO's in the deepest part of the ocean?"...­..........­..........­.A good start!!!

Almost all of them are paid too much for a very flawed job. We are paying them more because of their egos than what they earn.

[Ipanemagirl]

Yes, in other countries CEOs are not payed 100 times or 1000 times more than its employees, but only 3 or 4 times as much. And only if they can do a good job, otherwise they are quickly replaced.
Why is so much money needed anyway??? Its obvious it does not make them do a better job ,it just promotes their greed. and that's when troubles begin! We need to reform this now as this is the right moment, lets remind our representatives that we want reform in this department.

[Janice Barandes]

A simple thought....

If I worked for Thaine, and did the equivalent of his lousy job, what would he do to me?
Yes they knew what they were doing. They did get it. They didnt care. That's worse.. They all tried to carry on business as usual until they couldn't.

The only problem for Thaine is this years bonus. Will anyone make them give back their wealth?
what about the laws we use for organized crime? They seize all their assets.. The salaries they all received were all bogus.. based on imaginary profits. That money should all be returned.. they have it stashed away..Find it and return in to the market.

But really, who is having the last laugh.. no us.

[DanC45]

Yes, and they (Republicans) are still sticking to the discredited line that continual tax cuts for the rich continually improves the economy. Look how well their economic models worked! Their bankrupt (no pun intended) ideas have ruined our economy and will continue to do so until we become 3rd world. They will destroy the country to preserve power for the rich.

It's time the poor and middle class speak up and insist on their rights. The economy will thrive when the "trickle down" is replaced by the "bubble up". Look at the standard of living in the Scandinavian countries.

[NevaforLeadership]

The main causes for the current bank crisis was the banks' accumulation of risky mortgage backed securities and credit default swaps and executive overcompensation through stock options.

Neither the Republicans nor the Democrats were responsible for any of those causes, unless you want to attribute the push for lesser securities regulation to Reagan, Clinton and Bush.

Things can't change until we understand and take responsibility for what went wrong, instead of blaming it on the wrong people.

[killmenow]

Thain also calls the redecorating of his office "refurbishing," and claims that the office "had to be refurbished anyway," so his only regret is that he didn't pay for it himself to avoid the image problem. Well, it wasn't "refurbished," according to that list. It was redecorated.