Friday, October 16, 2009
Slouching Toward Socialism
Bank of America chief executive Kenneth Lewis has decided to forgo his total pay for 2009 -- giving into pressure from the Obama administration's "pay czar" Kenneth Feinberg.
Lewis announced recently that he was stepping down -- a victim of the continuing fall-out from BofA's purchase of Merrill Lynch last year. Both federal regulators and New York's attorney general are probing the transaction. While Bank of America received billions in federal TARP money, the takeover occurred even as Merrill was going broke, but its executives were receiving millions in bonuses. BofA shareholders ended up losing millions in stock value.
There needs to be a full accounting this deal, no question. Already, a federal judge last month rejected Securities and Exchange Commission settlement with Bank of America -- declaring that the shareholders were left holding the bag. He ordered a full trial on the SEC's allegations against BofA.
There is clearly something going on in the BofA/Merrill/bonuses story. It may turn out to be the last great financial scandal of the first decade of the 21st century.
All that said, it is a major mistake for the Obama administration swooping in and basically intimidate Lewis into giving up all compensation for this year. Admittedly, the core issue here involves the American people trying to prop up many banks -- even as many of those same banks managed to disburse rather hefty bonuses.
Feinberg may see pressuring Lewis into giving up his compensation as protecting the taxpayer. However, perhaps Feinberg has forgotten -- or perhaps never saw -- the "SOCIALISM?" signs that have popped up at Tea Party protests and town halls this year. Americans might not like seeing bank executives getting big bonuses right after they've gotten a federal bailout. But they don't exactly like the idea of one individual setting pay for various executives either.
Besides, there is absolutely no evidence as yet that Ken Lewis has done anything criminal -- or even unethical, for that matter -- in the acquiring of Merrill Lynch. Even if it turns out that he has, there is something called due process. Let that play out and, if necessary, go after Lewis' bonuses in the courts.
In almost any other circumstance, forcing Lewis to give up his salary and bonus could be seen as an unconstitutional "taking." It could also be deemed an equally unconstitutional "bill of attainder" -- punishing one specific individual in a manner that no one else is being so sanctioned..
Even in the current tough economic times, class envy hasn't gotten so intense that Americans can't find something wrong in the idea that a man can work hard at his job for nearly a year, but a federal official -- one of the controversial "czars," to boot -- can swoop down and declare, "You have no right to that money; return it now."
That's the ultimate big-government move.
Socialism? Not exactly, but the sort of overreach that invites real distrust of federal power.The president might be inclined to rein in his pay czar.
Labels: Bank of America, Merrill Lynch
Wednesday, January 28, 2009
Out One Era...
Monday, Obama's Treasury secretary pick, Tim Geithner, was confirmed, but 34 senators voted against him -- including four Democrats (counting Democratic-caucusing Independent Bernie Sanders). That level of opposition has to be considered a major slap to Geithner and the president who appointed him.
What happened? Well, welcome to the "new era of responsibility."
That phrase must have sounded nice when Obama and his speechwriters came up with it for the Inaugural address, but, as Geithner discovered, it has a real-world application.
Geithner's credentials surely didn't change between when Obama announced him in the fall and Monday -- but the perception of his character certainly did, specifically, the revelation that he had failed to pay $43,000 in payroll taxes while working for the International Monetary Fund from 2001-04. He finally paid up -- after being tapped for Treasury.
The fact that the guy in charge of the nation's revenue collection -- a current Federal Reserve bank president, no less -- wasn't up to date on his own tax liabilities was too much for most Senate Republicans. Even those that have made careers crossing their party -- like defeated GOP presidential candidate John McCain and Maine's Susan Collins -- voted against Geithner. In fact, were this not a case of 1) Granting a new, very popular president the people he wants and, 2) the nation in an economic crisis, bet that more Republicans and a few more Democrats would have abandoned Geithner as well.
Meanwhile, former Merrill Lynch CEO and (briefly) Bank of America exec John Thain also ran into the "new era." New York Attorney General Andrew Cuomo smacked both Thain and BofA's chief administrative officer with subpoenas. Cuomo wants to know why Thain accelerated payments of $4 billion in bonuses to Merrill executives -- even as the company was posting $15 billion in fourth-quarter losses. Traditionally, the bonuses had been paid out in January. This time, Thain distributed them in December -- right before the Bank of America went through. BofA, of course, has received $45 billion from the TARP fund (including $20 billion approved earlier this month to offset the larger-than-expected losses from Merrill Lynch.
Finally, Citigroup -- which has been in no end of trouble over the last couple of months -- was forced to scrap the purchase of a $50 million French private jet, after The New York Post revealed the sale in Monday's editions.
Call it "enforced responsibility," "proportionality," or "rough justice." Call it whatever you wish. It amounts to the same thing: When the rest of the country is reeling from layoffs spreading into every sector of the economy, tolerance of the antics of one-time Masters of the Universe and the companies they run is gone.
Brilliant, but manage to "forget" to pay your taxes? Expect to pay a price. Living beyond your means and helping your colleagues get fatter bonuses -- while the company's going downhill? Expect to be investigated. Take billions from the feds and still try to purchase a new private jet -- when the automakers were raked over the coals just for merely flying private planes to Washington, DC? Their antics will be slapped down by whatever measures are at hand -- a closer-than-expected Senate vote, called to account via subpoena, public shaming. Any means necessary.
The time for corporate BS is over. When close to a trillion dollars is being transferred from the U.S. Treasury to private firms, there's not one CEO whom Americans will have pity on.
Labels: Bank of America, John Thain, Merrill Lynch, Tim Geithner
