You don't have to be good at your job to earn seven million dollars in a year. All you need is a few friends in the right places -- places like the Federal Reserve, the Justice Department and the Treasury Department.
As the song says: "If I had a friend like Ben..." (Bernanke, that is.)
As we've learned here in Charlotte, with friends like these covering your back, the protests of people into the street -- and of your own shareholders -- soon fade into blissful silence.
Love and Heat
Today was a very good day for Brian Moynihan, the Bank of America CEO whose 2011 compensation package was just approved. As they were preparing to formally approve his lavish remuneration, I stood outside in a line of shareholders with a letter naming me the official representative for an investor who owns 82,000 BofA shares. Around me were about forty investors, each of whom was about to contribute in some small way to Mr. Moynihan's payday. But our little band of investors were haughtily dismissed by bank executives after waiting, some for hours, in the wilting Carolina heat.
The protesters chanted in the street as a PR executive told us we would not be admitted into the meeting -- and then asked us to get off the bank's property.
All around us, in what officials acknowledged was a dry run for the Democratic Convention, city authorities had given everyone's constitutional rights the day off by declaring the protest an "extraordinary event."
As we wrote in The Nation, bank execs continued to enjoy their full constitutional protections despite working for an institution with the worst rap sheet in town. The rest of us were guilty until proven innocent. But I'll say this: It had to be the most courteous suspension of civil liberties ever, the nicest police state you'd ever want to see. But then, that's Charlotte for you: a great town filled with friendly people. They overrule the Constitution more politely than folks up North write a parking ticket.
Given the state of North Carolina's economy, you'd have thought a lot more people might take to the streets. But they'd spent the previous night thinking about love.
Love, that is, and how to ban the wrong kind of it. On the eve of the protests state residents overwhelmingly voted against same-sex marriage. There's nothing quite as good as social divisions to distract people from the hand in their pockets. In what might have been considered a bitter irony, they rejected gay marriage as protesters gathered in the town they call the "Queen City."
For the time being, only straight marrieds will have the privilege of being foreclosed uon in North Carolina by the Bank of America.
What was was truly "extraordinary" was the spectacle of watching shareholders stand by helplessly as the CEO was given what, under any objective measure, was an excessively generous chunk of change. Try to imagine this happening in any corporation except a too-big-to-fail bank:
A senior executive joins a corporation as General Counsel, and soon afterwards becomes the head of its retail division. While he's serving as the company's top lawyer and then as its top product manager the company acquires a subsidiary. According to massive lawsuits filed later by investors and the Federal government, the company illegally conceals more than one hundred million dollars in expected losses related to the acquisition.
While this individual is serving as his company's chief lawyer, which is to say the person responsible for vetting business deals for soundness and legality, the company also acquires another subsidiary for more than $4 billion. It turns out to be worthless -
No, scratch that. "Worthless" would have been better than what it turned out to be - billions of dollars better, in fact. This acquisition triggers a series of massive settlements: An $8.4 billion deal with states to settle illegal behavior. $600 million to settle a class action suit. $335 million to settle a discrimination suit. $50 to $55 million for its part of lawsuits against the acquired company's former CEO.
Oh, and billions of dollars more in complex buyback transactions.
When the corporation's CEO - the person who hired our unnamed individual - is forced to step down amid accusations of impropriety and incompetence, he takes the top spot. And as his first year in that office draws to a close the company "ends the year in a flurry of lawsuits."
After our individual has served two years as CEO, Federal investigators take action against it while saying that its business practices have actually been worse under his leadership than they were in that notorious $4 billion acquisition.
Our friend tells investors the bank doesn't need additional capital -- and then, in a move that severely damages his credibility, accepts $5 billion in outside funding under less than ideal terms less than two weeks later.
The Seven Million Dollar Man
Sounds bad, you say. But how's the share price? Asked like a true investor. In this, a modern executive's most crucial performance meansurement, our friend also fails badly. The corporation's stock - which had been trading at $52 per share when our protagonist joined the senior management team - has fallen from $15 to somewhere between $7 and $8 today.
Can you imagine any corporation but a big bank that would reward this individual with continued employment as CEO, much less with a seven million dollar compensation package?
But then, Brian Moynihan doesn't run any corporation. He runs a too-big-to-fail bank. And running a too-big-to-fail bank means never having to say you're sorry. One of the acquisitions described above is Merrill Lynch. The other's Countrywide. And Federal investigators said that Moynihan's Bank of America is outdoing Angelo Mozilo's Countrywide in malfeasance and rascality.
That's right: Worse than Mozilo. How'd you like to have that engraved on your business card?
What It's About
Not that this is about Brian Moynihan. It isn't - really it isn't. It's about Ben Bernanke, and Tim Geithner, and Eric Holder. Ben Bernanke's Federal Reserve is moving aggressively to squash investor uprisings against incompetent or greedy bank executives. As Stephen Davidoff explains, that's not just shocking and baffling. It's also destructive and directly contravenes the goals the Federal Reserve should be pursuing.
(We would also add that it's morally reprehensible.)
For all of Tim Geithner's claims that TARP "made a profit," the American people actually spent plenty of money on big banks - and on Bank of America in particular. An analysis by Bloomberg estimates that the bank netted $1.5 billion from taxpayer aid. (We'd come up with a higher figure, but we'll accept the lower estimate - for now.)
Bank of America has profited greatly from taxpayer largesse. Yet, despite the billions of dollars it's paid out for illegal behavior, no one employed by the bank has been charged with any crime. Attorney General Eric Holder has yet to explain how it's possible for billions of dollars worth of crimes to commit themselves.
No wonder things went so well for Mr. Moynihan today. Activists told their stories inside the shareholders' meeting, and Moynihan and his team pretended to listen. But despite the stories they heard, despite the grumbling from their investors and the chanting in the streets, there was an eerie hush over Charlotte today.
They're Bank of America. They don't have to hear anything they don't want to hear. Their friends in Washington have built an impermeable bubble around their executive suite, and that of every big bank in the country.
Activists broke the silence on the streets, and they did it well. But only the long arm of the law can break the silence inside the bubble-world of today's too-big-to-fail bankers.