The Obama administration has ordered pay cuts at seven companies with bailout aid, according to the New York Times:
The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.
I guess the Times deserves some credit here. Usually, a reader has to get to the second to last paragraph of a Gray Lady special to accidentally discover the buried lead, the central point the journalist has danced around with two-to-three pages of government propaganda and anonymous sources. However, unlike a typical lead story, there is a useful piece of information in the sixth paragraph of the first page:
[The plan] would have no direct impact on firms that did not receive government bailouts or that have already repaid loans they received from Washington. Therefore, it is unclear how much effect, if any, the plan will have on the broader issues relating to executive compensation, income inequality and the populist animosity toward Wall Street and corporate America.
If you think that looks like a huge loophole, congratulations! You're paying attention. One of those firms that has repaid their loans is Goldman Sachs, the group of suit-wearing pirates who received $12.9 billion of taxpayer money courtesy of former Goldman Sachs CEO and former Treasury Secretary, Hank Paulson, during the AIG bailout.
During the bailouts, the firm had access to enormous amounts of cheap money from the government because they converted to a bank holding company, which made them eligible for $28 billion in federally backed loans, so their cost of capital was/is very low. Additionally, Goldman made private equity investments in nonfinancial firms like its deal with Geely Automotive Holdings in China. Goldman took their cheap money and lent it back to the economy at higher rates, making a profit on the spread. The sweetest part of the deal was that the firm's main competitors, Bear Stearns and Lehman Brothers, no longer exist so Goldman completely dominates the market.
Cheap Money Courtesy Of Taxpayers + Foreign Investments + No Competition = Cha-Ching! It's no wonder Goldman was able to pay back its loans so quickly, while making a very handsome profit in the process. This was all done under the pageant of "What Is Good For Goldman Is Good For America," but that of course isn't true. All Goldman did was take the money and turn it into bonuses.
No one is really sure how the Obama administration plans on making any of these changes, including demands that AIG significantly cut the $198 million in bonuses promised to its employees, stick. The Times quotes a former employee of AIG, who asked not to be named because he no longer wanted to be associated with the company (who could blame him?) as saying he did not see how the Treasury could make the new recommendations stick. After all, AIG obtained an outside legal opinion explaining why it had to fulfill its two-year contract to pay bonuses. If the company reversed itself now, says the former employee, the employees "could sue AIG, using AIG's own argument. They've painted themselves into a box."
If only US taxpayers could sue the government for being dumb and/or corrupt enough to hand out their money for AIG bonuses. Are poor people still allowed to use the justice system?
The plan would still permit executives at companies like Bank of America and Citigroup to reap multimillion-dollar pay packages. For example, Kenneth D. Lewis, the head of Bank of America, who said he would resign by the end of the year, and who has agreed to forgo his salary and bonus for 2009, would will still receive a pension of $53.2 million, although Kenneth Feinberg, Obama's pay czar, "can issue an advisory opinion challenging it." You know, if he feels like it. If the mood strikes him.
The Times, our supposed "unbiased, serious" newspaper clearly shows its agenda when it refers to the not-yet-existing AIG bonuses slashes as "the humbling downfall of the once-proud giants," while all those pesky citizens won't stop with the "populist animosity" toward Wall Street and corporate America. Honestly, why won't they just leave these poor executives alone? According to this article, once again, the mighty businessmen AKA Those Who Turn The World have been thwarted by the unruly, unproductive mob. It's like Ayn Rand has started writing for the Times.
The real story here is all the reasons this new plan probably won't stick, not the matchstick structure of the plan itself. Governments can, and usually do, lie, so there is absolutely zero guarantee any of these restrictions will hold. Goldman Sachs has so entirely infiltrated the US government that their buddies serving in economic regulatory positions probably won't force the firm to submit to any cumbersome restrictions. That fact is buried in the Times article, while it should be the lead instead of an accessory to the "humbling downfall of the once-proud giant," who has been vanquished by the "populist animosity" of the bewildered herd.
Cross-posted from Allison Kilkenny's blog. Also available on Facebook and Twitter.