It's in the air and it won't easily go away. Especially now that billions and billions more of federal (taxpayers) monies will be needed to stabilize sinking banking institutions. One needs only one quote from President Obama's address to Congress, "So I know how unpopular it is to be seen helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you-I get it."
As the New York Times' Joe Nocera reported, "How can it be, people fume, that companies that brought themselves down with poor decision making and short term greed and very nearly brought down the country's financial system to its knees-how can the employees of these companies still feel entitled to multimillion dollar bonuses? How can they be so callous, so tone deaf, so arrogant?"
As Senator Chris Dodd was quoted as saying, "Whenever I'm trying to explain to my constituents why we are doing this stuff to help the financial system, they just want to talk about the bonuses...I would like to see one of these Wall Street guys go to a Caterpillar factory where 20,000 people have lost their jobs and explain why they need their bonuses."
As the staggering job losses continue to grow, as the damage to the economy deepens, as past ''earnings" on which compensation was calculated have proven to be nothing more than smoke and mirrors, as taxpayers are marched to the cleaners again and again, the cry for "clawback" is growing from a hesitant murmur to a crescendo throughout the land.
And yet, it is generally acknowledged and as reported by Gretchen Morgenson in the New York Times as well, that there is no current mechanism in law "for forcing the regurgitation of past pay so such efforts would need be bolstered by new legislation."
Yet, perhaps there is an avenue that has not been fully explored. Specifically, the concept of "fraudulent transfer." As in the Madoff disaster, were these banks permitted to go bankrupt a "receiver in bankruptcy" would be appointed. His job would be to reinstate to the banks' creditors all monies or transfers of funds or assets from the bank over the past six years that were unjustified, and in essence diminished the estate without a viable business rationale (aka "fraudulent transfers"). These egregious bonuses and paydays might well be considered such a "fraudulent transfer." It would be the receiver in bankruptcy's job to take the needed legal steps to assure that such funds be returned to the banks. "estate" and its creditors, now in large measure the taxpayers.
According to Fed Chairman Bernanke we will be pouring added billions into the Zombie Banks the likes of Citigroup, to keep them from failing. These funds are meant to protect depositors, the banks financial paper and its commercial obligations, all of which would fall into serious jeopardy in a bankruptcy.
Well and good. But what we are also doing by keeping the institution(s) out of bankruptcy is shielding the monster pay packages from the legal demands of a receiver. Is that what we had in mind? I think not!
Perhaps an effort needs to urgently be made to provide any new transfer of federal funds to the banks in a manner that clearly categorizes the financial support extended to the banks as being for the protection of the banks' depositors, its business counterparts and where there is still value in its franchise, for its stockholders. Yet a clear distinction would now be made. The previous six years of its bonus pool would be separated out of the banks balance sheet as though it was part of a failed institution, to be turned over to a "special receiver/trustee in bankruptcy".
By doing anything less, our bailout monies are protecting the billions upon billions of alleged fraudulent transfers that bankers pulled out of the vault while leading the nation to the poorhouse.
And in so doing, the president can then stand by his pledge made on Tuesday before Congress, "I will not spend a single penny for the purpose of rewarding a single Wall Street executive."