Prepare for a new firestorm of completely justified populist outrage. Some of the country's largest Wall Street firms have set aside billions of dollars for bonuses to executives and traders -- many of whom are the same people whose reckless risk-taking led to the current recession.
Amazingly, giant insurance conglomerate AIG is currently scheduled to pay another $198 million in bonuses next March.
Remember that AIG's sale of unregulated "credit default swaps" helped trigger the financial collapse that led to the recession. "Credit default swaps" were essentially insurance policies that, if the underlying financial instrument fell below a certain price, AIG would insure the loss. Only problem was, that since the "credit default" business was completely unregulated, AIG had no capital requirements to guarantee that they could pay off.
To prevent what they thought might be a world-wide systemic meltdown, the Government was ultimately forced to invest $180 billion of taxpayer money, and now owns 80% of the company.
But earlier this year AIG actually paid $168 million in bonuses to executives and traders in the company's Financial Products Division that had run the "credit default swap" program, causing universal outrage.
Does it make any sense at all to give even more financial rewards to the very people who have helped put millions of Americans out of work and caused the worst economic downturn since the Great Depression? Of course not, but that is exactly what AIG management is poised to do.
One of the problems the company's management says it confronts is that they are "contractually bound" to make these payments. Apparently contractual obligations mean more when it comes to stock speculators than it does when it comes to labor agreements where companies constantly demand changes if "economic circumstances" warrant. At the very least, they should make the people who helped bring us the recession sue the company in open court and tell a jury why they deserve millions of dollars in bonus money for the brilliant job they did.
Kenneth Feinberg, the U.S. Treasury's point man on compensation for bailed out firms, has advised the company to scale back its payments to avoid another public firestorm. He is dead on.
But AIG is only the tip of the iceberg. According to the Washington Post, J.P. Morgan Chase has set aside $2.78 billion in compensation for its investment bankers for the third quarter - a 28% increase over the same period last year.
J.P. Morgan Chase is able to pay those kinds of bonuses because the financial bailout by the taxpayers has put it - and the other big Wall Street Banks -- in a position where they will generate very strong profits in the third quarter. J.P. Morgan Chase itself will generate profits of $3.59 billion - the strongest results in two years.
Community and Regional banks, on the other hand, are in deep trouble. The difference is that the Wall Street banks are making money on investment banking activities - on underwriting equity plays and speculative trades - exactly the activities that sent the financial sector into a tailspin. The Community and Regional banks, on the other hand, are restricted to traditional banking activities - receiving deposits and making loans. But the recession has caused demand for loans to drop and delinquencies on loans to increase.
So the Community and Regional banks that didn't have anything to do with causing the recession are paying the price -- along with the rest of America. But the big Wall Street banks that actually caused this catastrophe are rolling in money and handing it out in huge chunks to the brilliant young speculators that drove the process.
That ain't right. It's not right morally and it certainly isn't right economically. If the economic incentives continue to encourage reckless speculation and penalize sound banking, we're going to get reckless speculation.
The Obama Administration has made regulatory reform proposals that are the first step down the road to changing these economic incentives - and reining in the massive power of the financial sector as a whole. This package includes regulation of so called "derivatives" -- essentially bets on the direction of underlying investment instruments -- including the "credit default swaps" that sunk AIG. Their passage is not just a matter of "good policy" - it is a matter of national economic security.
If our economic system continues to be dominated by an outsized financial sector -- if world-class reckless risk-taking continues to receive massive economic rewards -- then we are headed to another financial collapse in two years, or five years or fifteen years.
Just as surely as America had to change the policies that had made it vulnerable to terrorist attacks on September 11, 2001, we have to change the policies that made us vulnerable to the attack of the Wall Street speculators that culminated in the collapse of Lehman Brothers on September 15, 2008.
Robert Creamer is a long-time political organizer and strategist, and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
DO SOMETHING or shut the hell up...I'VE STATED TIME AND TIME again how WE can FIX THIS OURSELVES !!!
once more
ALL americans are to NOT PAY one dime to their credit cards or mortgages , and move your money OUT OF BANKS and into a credit union, or even a steel box...tht'd bring em down...from THE PEOPLE. we are 95% of this economy and get ZERO respect...close our wallets to these schiesters and watch em squirm and fall !!! Then WE THE PEOPLE will have taken control WITHOUT marches or revolution in the historical sense...anyone game ?? VERY SIMPLE !!
No CAHUNAS in AMERICANS anymore...just endless COMPLAINING without ACTION !!
I see nothing wrong with a 99% tax rate on all bonus money paid out from by corporations who have accepted but not paid back TARP funds. Their bloated salary should be enough.
Even if the companies are "contracted" to pay out this money. Congress is under no such obligation to allow them to pocket it.
"But earlier this year AIG actually paid $168 million in bonuses to executives and traders"
Reading those two statements makes me wonder what on earth the 'owner' of the company are doing. If the Government owns it - it should manage it. That would mean penalising NOT rewarding the people who have caused so much havoc to the country and the people. Re 'contractual' - when the boot is on the other foot companies have no problem breaking contracts. I was employed by the Government in the UK and they unilaterally changed the contracts of all the lecturers in the Polytechnics. So why maintain these obviously outrageous contracts after the chaos they've already caused ?
ijgibson,
Your thinking is too bold for most people. The thing is, how can we get folks--especially the elected ones-- to be more rude and unconventional?
You were right at 2 years. Watch, nothing has fundamentally changed!. Remember when Pelosi was telling Wall St that "the party is over!, the party is over!". Well, she looks like a mug now and will look even worse in 2 years, infact we ALL will
You can take to the streets, but in our constitutionally mandated capitalist system, the criminals you'll be protesting against will be protected by law enforcement. And, if too many folks show up for the protest, the National Guard will responsibly step in to offer its loving protection for the same criminals. Note that law enforcement, collectively speaking, and the various National Guards are made up of ordinary citizens. How do we explain their devotion to a rotten system?
To understand where we are today, and how we got here, we must become familiar with the one theory that explains our position better than all others: Marxism. Read the Marxist literature.
And let's not forget that with 3 laws--The Patriot, Military Commissions, and Home Grown Terrorist Acts (this last, written by Calif. Dem, Harman) the President has the power to take control of every military and police force in the nation by declaring a state of emergency, at which point he can, completely by fiat, name any one of us an enemy combatant and suspend all our civil rights.
If people take to the streets to protest the Bankers, they can expect to be treated just like the G-20 protesters in Pittsburgh were, with st.-un g.-uns, bat.ons, teer ghas and sound cannnons--just for starters.
Those "ordinary citizens," once they put on Any Uniform, become nothing more than paid en--forcers for Wall Street, and they know where their salaries come from. Putting flowers in the barrels of ryfles in 1969 didn't work then, and will not work this time either. People need to understand the risks. They need to be totally committed to non-vio-lence and be trained in how to use it in resistance, just as Ghandi did. But we also need the political force--again, just as Ghandi had--to bring about change.
I've followed Mr. Creamer's articles with increasing disgust and hopelessness. These bailouts were approved by those whose jobs are assurred. Our opinions were not sought. Washington has demonstrated our opinions don't matter. Where are the signs and noise in the city streets on a level seen in the Sixties? The American public has lost its voice. We have become a mass parody of the battered child syndrome, who no longer can cry.
Bonuses are contractual, yes, but based upon performance -- the individual's and the company's. This is the way the system was designed. Bonuses are not awarded during bad years. If there is money, it should be for payback of "loans". I'm with Creamer. I would love to see a company sued in open court before a jury. There is no defense for what they continue to do unabated. They are the new terrorists.
Lovely dream, Entitlement, but Kennedy's War on Poverty gave way to Reagan's War on Drugs which Bush topped off with the War on Terrorism cherry. We cannot afford all three. Imagine free college educations for all citizens....other countries manage it, with far less resources. Imagine a healthier country. Others have it.
For all the billions spent, is there less poverty today? Are there fewer drugs? Tell me, do you feel safer?
Do you think the Chamber of Commerce is fighting healthcare reform so vigorously in part in order to keep legislators from acting on banking and financial reform?
None of this came about by accident.
Can it be reversed? I don't know. If WW2 Germany was any indication of what can befall a proud and strong people, I have real doubts.
But, your prediction of what is in store for the economy is, imho, spot on, and they are just waiting to milk this suckers rally dry before the whole thing comes crashing down. And then there will be chaos. And as Henry Kissinger said about his new world order, many Americans will welcome the troops (he said specifically UN troops, but no matter) to their streets to trade their rights away for what they think will be security. It will actually be enslavement.
The Street has insiders who control the game and don't want you that they do. Again, it just proves that when it comes justice in America, money talks. How many rich people are in jails?