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Raymond J. Learsy

Raymond J. Learsy

Posted: January 27, 2009 11:31 AM

"Bankers Behaving Badly": A Needed Remedy for a Financial Industry Gone Off The Rails


The headline on Huffington Post yesterday was "Bankers Behaving Badly," referring to Citigroup's ill-timed purchase of a $50 million Dassault 12 seater private jet. (Yes, I know the jet was ordered some two years ago, but I can't imagine a purchase contract of this nature without a cancellation/penalty clause). Citi is but a sad example of an entire industry that has gone off the rails and taken the nation and the world economy with it. Citigroup, by a far cry, is not alone.

Consider this: Lehman Brothers was once viewed as a pillar of the finance and banking industry, to be emulated and celebrated by its peers in the finance world. Now in bankruptcy, the law firm Alvarez and Marsal, LLC, engaged to facilitate Lehman's restructuring, is arranging for the sale of Lehman's erstwhile air fleet. Seated please? It comprises the following:

1 Boeing 767
4 Boeings 737's
1 2008 G550
3 Bombadier CRJ 200's
A couple of smaller jets, and participation in NetJet shares
1 Helicopter

For Lehman's in-house use, or the hard assets of an aircraft leasing business? Hard to say, but cursory examination of the law firm's "State of the Estate" public documents has not found confirmation that these assets were integral to an aircraft leasing venture.

A company's public conduct and public image should be a determinant of which companies get taxpayer monies, or at the very least, on what limitations taxpayer's money can be put to use. Perhaps the perception of Lehman was ultimately its undoing, exhibiting a degree of hubris that made it unsalvageable by a public bailout.

But much too often that yardstick has gone by the wayside, especially so when you have Wall Street Club Member like Hank Paulson doling out billions to other Club Members with virtually no restrictions on how this bounty is to be used and virtually no oversight in place.

Aberration piles on aberration. Money meant to ease the housing and liquidity crunch goes into oil speculation by financing the purchase of hundreds of millions of dollars of crude, storing it in tankers and having it stay at anchor at sea day after day, months at a time (please see "Your TARP Money Is Being Used To Prop Up The Price Of Oil" 1-23-09).

Or the likes of PIMCO with their direct access to Hank Paulson, cashing in $1.8 billion on the bailout of Fannie Mae and Freddie Mac, and then selected as one of the entities monitoring and distributing TARP funds (please see "Bailout Ballet: New York Times on Hank Paulson/Pimco's Bill Gross Pas De Deux" 9.26.08) Talk about putting the fox in the hen house.

It seems to go on endlessly, and with no public shame and little accountability. There is John Thain's million-dollar-plus office decor concurrent to Merrill Lynch posting a $15 billion quarterly loss. But worse, much worse handing out $4 billion in bonuses a week before Merrill Lynch's official takeover by Bank of America. And when asked how he could justify a bonus pool of anywhere near the $4 billion meted out, responding, almost unbelievably that the $15 billion dollar loss was caused by "legacy" investments. This almost as though he was talking about a different company, in a different universe with a different currency. It would seem only a Wall Street mindset could come up with such a dippy rationale. Especially so in this world of retrenchment, job losses and general economic hurt.

But wait, perhaps there is a brighter side to Mr. Thain's misshapen judgment. If losses don't count today, then they should count when they were initiated. And if so, the concept of "clawback", that is the reimbursement of past executive compensation and trading bonuses should be reexamined, and with great seriousness. This especially so on those trades or policies that were presented as profitable but were inherently flawed and proved disastrous.

Billions upon billions were distributed to those who were making bets and managing once solid businesses into the ground as though they were nothing more than casinos. Bets that eventually brought down the economy and in many cases crippling/destroying the companies themselves, losing unfathomable billions for the institutions in whose name the those "bets" were made. These payouts need be recalculated in the light of their ultimate and actual impact.

It is time there was some accountability for this disaster, especially so to a public that is footing the bill. And it is past time that a clear signal is sent that the days of Wall Street rules, Wall Street mindset and Wall Street oversight are at an end.