Bank Looting Bonuses Reported--Will the SEC Awake from Its Slumber?

A short time ago, New York Attorney General Andrew Cuomo
released a report focusing on the bank bonuses paid out by the biggest
banks in 2008, the same year they were bailed out by federal taxpayers.
The report notes that in many instances the bank bonuses exceeded bank profits,
the implication being that taxpayer dollars were being used to
subsidize the salaries of the ace banking executives who created the
financial crisis in the first place.

Highlights from the report No Rhyme or Reason: The Heads I Win, Tails You Lose Bank Bonus Culture include:

Two firms, Citigroup and Merrill Lynch,
suffered massive losses of more than $27 billion at each firm.
Nevertheless, Citigroup paid out $5.33 billion in bonuses, and Merrill
paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out
nearly $9 billion in bonuses and then received TARP bailouts totaling
$55 billion.

For three other firms--Goldman Sachs, Morgan Stanley, and JPMorgan Chase--2008
bonus payments were substantially greater than the banks' net income.
Goldman earned $2.3 billion, paid out $4.8 billion in bonuses, and
received $10 billion in TARP
funding. Morgan Stanley earned $1.7 billion, paid $4.475 billion in
bonuses, and received $10 billion in TARP funding. JPMorgan Chase
earned $5.6 billion, paid $8.69 billion in bonuses, and received $25
billion in TARP funding. Combined, these three firms earned $9.6
billion, paid bonuses of nearly $18 billion, and received TARP taxpayer
funds worth $45 billion.

In sum, Mr. Cuomo wrote:

Thus, when the banks did well, their employees were paid
well. When the banks did poorly, their employees were paid well. And
when the banks did very poorly, they were bailed out by taxpayers and
their employees were still paid well.

Why hasn't anyone been prosecuted for looting the American taxpayer?
Indeed, the number of prosecutions involving banking boondoggle is--dare
I say it? Criminally small.

One "bonus bailout" did end up in court. You remember the brouhaha
when it became known that Merrill Lynch (headed by John Thain of the million dollar bathroom remodel)
paid out a $3.6 billion dollar bonus package to executives shortly
after it had lost $27 billion and shortly before it was acquired by Bank of America (BoA)? Well, the Securities and Exchange Commission (SEC) woke up from its decade-long snooze and decided to investigate the bonus bonanza. Eventually, it fined the company
for not telling its shareholders about the package. All well and good,
except it fined the company $33 million, which is less than 1% of the
$3.6 billion looted from taxpayers.

Fortunately, a federal judge, Jed Rakoff, who was required to review the settlement, flatly refused to approve it.
Judge Rakoff said that BoA and Merrill had "lied to their
shareholders." He said that the $3.6 billion in bonuses paid by
Merrill, as the ailing brokerage giant was taken over by the bank, was
from "effectively from Uncle Sam." At least this judge is demanding
more accountability. The next hearing on the issue will be on August
24th.

So, will SEC chair Mary Shapiro be handed a spine and a double
expresso? Will Merrill's John Thain and BoA's Kenneth Lewis be cuffed?
Stay tuned.

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