[NYtimes] AP Study Finds $1.6B Went to Bailed-Out Bank Execs

Didn't they reduce their salaries to a dollar a year? If, so I see no problem with this.

 

Sorry, I am a free market guy, but these numbers are sickening.

 

Obviously they put in the toil and hours to warrant such a bonus paid in part by the taxpayer. It's not really wasted tax money, but an admission fee for being envious and in awe of their ivy league degrees that they remind you they have.

 

Goldman's top 7 senior executives gave up their bonuses, so the tax dollars actually go towards the company's balance sheet and not their own.

Goldman does the taxpayer right and wants to survive the recession. The other guys, they just want to take their money and run. If the company goes belly up, they will just retire on their bonuses and pension.

 

These are 2007 salaries/bonuses, not 2008.

 

It's still disgusting to use TARP money for 2007 performance knowing that a lot of them went deeper despite the signs were already apparent. Yeah, there are obligations. Too bad none gave back toxic or illiquid securities as bonuses like Credit Suisse just did.

 

These bankers are free market guys, too-- unless it is to their financial interest to be bailed out by the government. Then they are flexible in their ideology.

Jackie, your system in Germany is better deal for most people. I suppose the US system is a better deal for investment bankers and the very wealthy, assuming they are not bothered personally by the travails of many.

 

Maybe I'm mistaken, but I read it as, "banks who got TARP money had previously paid $1.6 billion to their executives," not "banks who got TARP money used $1.6 billion of that money to give to their executives." The point being that the banks that asked for and received money did so after they spent so much on their executives, not before.

 

Egh, I can't agree with this. 2007 wasn't as shaky as 2008 is. Most of the banks had really strong years until the subprime mess hit towards the latter part of it. Oil was still in the 100's. Etc....

These super high bonuses have always been received by executives. If you want to argue that they shouldn't be paid so much, then I agree with you. But that's a different argument than the one this article is trying to support (bailout money used even though the bigshots got paid). It's quite "after the fact", but I would expect nothing less from the media....

 

Exactly. The article and thread title could easily be read a different way, to say that bailout money was used to pay executives a lot right now. That of course would be even worse, but it's not what the article was saying. I just wanted to clarify.

 

That's not true. The earnings were very real. If circumstances were the same today as they were then, the banks would still be making money. The earnings fell apart when the default rates started rising, which caused the whole thing to unravel.

You could argue that these companies and executives should have known that would happen - I'd agree with that. But that doesn't change that they actually made money in 2007. They just made that money on a very unstable foundation.

 

How real are earnings though if they are essentially (like I banks were) predicated on a massive amount of leverage? (up to 40-1 in certain cases) It's essentially borrowed money htat they were giving away with few/no clawback provisions. Hell to think of it, it's not unlike buying an ARM home that appreciates in price during the first few years w/low interest, then depreciates after that. You can say that you're making real value in the first few years but are you really?

Another issue is that I can take the converse of this statement:

which would be, had we truly known what those assets were worth back in 2005...they wouldn't have been making as much money in 2006, 2007...

 

But if you borrow money and earn a greater rate of return than you're paying on it, ther's nothing fake about the returns. The issue was only when the borrowed money stopped generating the high returns (and actually started generating negative returns).

Sure you are. If you sold it before it started depreciating, you locked in your profits. The person that bought it from you then lost the money when it was depreciating - but the money you made while it appreciated was very real. You were just smart enough to know when to get out because an asset was going to go down in value.

Except in 2005, they were worth more. They are only worth less because we're in a recession and default rates rose. Had the economy kept booming, the assets would still be worth a lot. My point is that there's nothing inherent in the assets that says they weren't worth what they were worth. At the time, they were generating good returns. They were just very risky and couldn't sustain value in a recessionary environment.

 

But they handed out the bonus cash well before the runoff of the leverage, and the leverage was secured with dubious assets. It essentially operated as a one way transfer. You lend me money, I use it to buy risky assets and hand out huge bonuses, then when it comes time to pay you back, I can't pay because the money is either in this worthless crap or out the door and in E.Stanley O'neal's pockets.. I mean Bernard Madoff's clients made money too until the whole scheme unraveled.

They were worth more because the market was trading them off of terribly unrealistic assumptions about the future value of their income stream which drastically inflated the banks balance sheets (which in turn allowed for even more leverage). If we value them accurately in 2005, Investment bank does not take out tons of loans to buy them and to pay its employees for buying them. The incentives for compensating employees in the short term and the long-term nature of these products which nobody understood and everybody incorrectly did not match up - and we've seen the results.

 

But it's only worthless crap because the economy slowed. Had the economy kept booming, you'd have made your money off the risky assets, and I'd have made money off of loaning you money with interest.

You can argue that the lenders should have known better or the borrowers should have been more responsible, but as long as the assets were performing, the income streams they were generating were very real profits.

Certainly - but you could have said the same in 2002 about those assumptions too. But the unreasonable assumptions held for about 5 or 6 years there before falling apart. There's nothing that inherently said they would lose all their value in 2008 as opposed to 2006 or 2015.

The above is the problem with "valuing them accurately". To value them accurately, you have to know how long it was sustainable before things collapsed. You also have to know how fast the collapse would be and whether it would escalate or not. For example, without mark-to-market accounting, it may not have ever escalated to unreasonable levels and the default rate may be substantially lower right now.

Because of M2M, the banks had to drop the loan values, which caused them to stop lending, which caused the economy to slow, causing job losses, which caused more defaults and accelerated the whole process. Without it, maybe the banks don't slow lending and the whole thing doesn't topple over - at least, maybe not this year and instead in 2012. In which case the assets generated more income and were worth more.

Absolutely - I'm not arguing the compensation was or is set up well. Just that the profits those companies were making was very real at the time. Unlike Madoff, if any of those firms decided to liquidate their holdings at any given time in 2006 or 2007 or whatever, they could have locked in all those profits and walked away. Madoff's earnings were fake because that wasn't the case - there was no possible way to say "I'm done, let's cash out" and everyone get their money.

 

How were the earnings BS? Those that cashed out in 2007 got paid with real cash, right (see Mark Cuban before the dot com crash).

If that's the case, all earnings are bs if they don't revolve around anything that's not a real, physical, tangible asset that you can touch or piss on....

 

They handed out bonuses in 2007 based on earnings in 2007. If someone cashed out in 2007, would they have realized profits (cash money) or not? Simple question....

Executive pay has been this way for the longest. This just happens to be a year where the bottom fell out. If your argument is that the pay structure for executives is jacked...I'm not going to disagree with you. But it's always been that way. The transfer that you are talking about...yeah someone is left holding the short end of the stick when the assets lose their value. Again, hasn't it always been that way?

This article is implying things that really aren't there. Those executives weren't paid huge bonuses with bailout money.