Bailout: Boardroom Bedfellows - Dec 2008

$1.6 Billion of Bail-out Money Went Straight to Bank Execs

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Banks that got bailout funds also paid out millions to executives for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Read More >>

Wall Street Still Flying Corporate Jets

Crisscrossing the country in corporate jets may no longer fly in Detroit after car executives got a dressing down from Congress. But on Wall Street, the coveted executive perk has hardly been grounded.

Six financial firms that received billions in bailout dollars still own and operate fleets of jets to carry executives to company events and sometimes personal trips, according to an Associated Press review.

A cross-country trip in a mid-sized jet costs about $20,000 for fuel. Maintenance, storage and pilot fees put the cost far higher.

SEC rules require publicly-held companies to disclose executives' personal use of corporate aircraft. But there's "a lot of gray area" in how they do it, said David Yermack, a finance professor at the Stern School of Business at New York University who has studied the matter. "If you use the plane for a personal trip but make one business call, should you report it?" he said. "Or if you're playing golf with potential business partners, does a company report that as business or personal?" Read More >>

On Wall Street: Bonuses, Not Profits, Were Real

In all, Merrill Lynch handed out $5 billion to $6 billion in bonuses [in 2006]. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

But Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not been reversed.

Critics contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well. Read More >>

Why Wall Street Always Blows It

Millions have lost their houses. Millions more have lost their retirement savings. Tens of millions have had their portfolios smashed. And the carnage in the “real economy” has only just begun.

What the hell happened? After decades of increasing financial sophistication, weren’t we supposed to be done with these things? Weren’t we supposed to know better?

Who's to blame for the current crisis? Many contenders have emerged:

• Wall Street swindled us;
• Predatory lenders sold us loans we couldn’t afford;
• The Securities and Exchange Commission fell asleep at the switch;
• Alan Greenspan kept interest rates low for too long;
• Short-sellers spread negative rumors; “experts” gave us bad advice.

More-introspective folks will add other explanations: we got greedy; we went nuts; we heard what we wanted to hear. Read More>>