by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, and Ryan Powers
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Last week, in a revelation that produced a surge of populism in Washington and on Main Street, bailed-out insurance firm AIG revealed that it is still planning to pay at least $165 million in bonuses to top executives, many of whom helped bring "the company to the brink of collapse last year." In response, President Obama said he was "stunned" by the bonuses, adding, "These financial industries are holding us hostage." The House voted 328-93 to impose a 90 percent tax on bonuses paid by firms that received more than $5 billion in federal assistance. Despite the dire conditions of the economy, Wall Street excess is still rampant. ABC reports today that bailed-out bank JPMorgan Chase, which received $25 billion in TARP funds, "is going ahead with a $138 million plan to buy two new luxury corporate jets" and build "the premiere corporate aircraft hangar on the eastern seaboard" to house them. The revelation comes just as Treasury Secretary Tim Geithner is expected to announce a new financial rescue plan for the nation's ailing banks, as well as new controls on executive pay. Wall Street, however, has hinted that it may oppose the administration's attempts to rein in its culture of excess.
THE NEW PLAN: Today, the Obama administration is announcing a plan to increase liquidity and the flow of credit in the financial system. As expected, the proposal will create a "Public-Private Investment Program," which "will set up funds to provide a market for the legacy loans and securities that currently burden the financial system," as Geithner explained. The Treasury Department will provide financing for private investors to purchase mortgage-backed and other securities, "help[ing] us get toxic assets off banks' balance sheets," White House economic adviser Christina Romer explained yesterday. But as the Wonk Room's Pat Garofalo noted, "these details officially show that Geithner is hinging the rescue plan on the assumption that toxic assets have an inherent economic value and are not, as many analysts believe, relatively worthless." Indeed, the recovery rates on some of the junk have been as low as 5 percent to 35-40 cents to the dollar. Arguing that the Geithner proposal is reminiscent of Bush administration ideas, economist Paul Krugman said yesterday, "If we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved."
CLINGING TO OLD WAYS: As part of its reform of the financial system, the Obama administration is also expected to call for increased oversight of executive pay, imposing "greater requirements on company boards to tie executive compensation more closely to corporate performance." Wall Street is pushing back against the administration's bank rescue plan -- which is contingent upon private investors buying the assets -- because of pay limits. The New York Times reports that several Wall Street executives "have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations." Some want to avoid the public eye. The "chief executive of a major investment firm" told the Times that the "deal is good, but it's not worth it if I'm buying myself into a retroactive tax or a Congressional hearing." Main Street, however, has come to a clear conclusion about executive excess. CBS News reports today that 65 percent of people polled "said companies receiving federal bailout money should award absolutely no bonuses," and "only 6 percent said companies on federal life support should be able to hand out bonuses to whomever they chose."
HIGH-FLYING CEOs: JPMorgan's plan for new private jets includes "nearly $120 million for two Gulfstream 650 planes and $18 million for a lavish renovation of a hangar at the Westchester Airport" outside Manhattan. This hangar will be built with reclaimed wood and quarry tile and will feature a "vegetated roof garden." The type of plan is "described as the 'fastest,' 'widest' and 'most comfortable' private jet ever with superior cabin amenities, an optional stateroom, and 12 interior designs to choose from." As The Progress Report reported last month, seven out of eight bailed-out bank CEOs said in a House hearing that their companies still "own or lease" private planes. One of those confirming that he still had a private jet was JPMorgan CEO Jamie Dimon, who also said he was still taking home a $1 million salary.