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.
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