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

So those two guys constitute the majority? When I say that, I mean the main reason these banks are in trouble isn't because of fraud. Do you believe the majority were committing fraud? Now granted, I will admit that one severe case of a few doing something can take a whole firm down (i.e. Arthur Andersen). But that wasn't the case for these banks. It's because they got stuck with assets that tanked. The main victims were their shareholders and the company itself.

I think we can find isolated fraud cases in any industry....

 

A majority - way to backtrack.

You're the first person to bring up that word. Let's bring up your previous posts from above:

Meanwhile back here in reality, the list of civil and criminal fraud cases is only going to grow from this (among other reasons, because willful blindness is not a defense) and rightfully so.

Your continued allusions to the banks or people were surprised by it as a defense doesn't really have much basis from a legal standpoint. Suicide bombers might really believe they are doing something good from a subjective standpoint but obviously they are not. Joseph Cassano might have believed that there was no possibility that AIG could have failed due to AIGFP's super senior secured CDS when he claimed this last spring/summer but he was obviously wrong and will face civil liability, at a minimum, for saying this.

 

I will admit that a lot of this discussion is over my head but I see a lot of posters defending the banks for using the TARP to pay execs for 2007 benefits. My understanding of the TARP is that it was meant to inject liquidity if so why isn't that happening and does banks using TARP money for other purposes contribute to the lack of liquidity?

 

No - people are saying the banks didn't use TARP money to pay for 2007 compensation because they didn't have TARP money in 2007. The article tried to make it sound like this was 2008 compensation, whereas it wasn't.

It has injected liquidity. While still tight, lending has loosened considerably since the September hell.

 

The article is saying a couple of things. One is that some banks who have taken TARP money gave executives lavish compensation for 2007 where aware of problems.

[rquoter]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.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.
[/rquoter]

It also says that some banks who are taking TARP money are also continuing to pay for many other things that seem excessive and aren't related to injecting liquidity.

[rquoter]Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.

At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.

Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.

JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.

Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation's security-conscious commercial air terminals.

Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions -- something particularly hard to take when banks then ask for rescue money.[/rquoter]

Now we don't know whether TARP money is going to these and the banks are either unwilling or unable to say how TARP money is being spent but I think it does raise a valid question of why banks that are in financial trouble continue to spend lavishly.

Is that due to the TARP or other changes and if bank behavior, in terms of spending, changed could their be more liquidity? Should the second part of TARP money be allocated based upon bank's spending practices?

I honestly don't know but I am very skeptical about the bailouts and am trying to understand since at the moment I'm not seeing signifigant improvement in the credit market.

 

I am looking down through the floor which happens to be the glass ceiling for I-9-T chumps like you. Maybe next life.

 

Certainly - I wouldn't disagree with that. My point was that those banks had the money to pay the executives. And the owners of those companies didn't complain about it at the time.

Plus, compensation isn't determined at the end of the year - bonuses certainly are. But a lot of the compensation like financial advisors and relocation expenses would have been early-to-mid 2007 when the banks may not have been aware of impending disaster. (They may have - it's just impossible to know)

I would point out here, though, that no one really predicted that it would spiral out of control like this. Even in July and August, people didn't think what happened in September was remotely a possibility. Even Meredith Whitney, super-analyst that was on the bank's case, didn't project the need for a $700B rescue.

Most of the stuff mentioned in that section was 2007 stuff - like relocation, etc. Those were all examples of the 2007 compensation that was made misleading as 2008 compensation.

We also don't know how much of the compensation went to who. Out of the $1.6B, 15% went to Goldman Sachs executives, who actually made money throughout most of this year by betting against subprime loans. It was only the 4th Q of 2008 that they showed their first loss ever.

Agreed on this, though I don't think it matters if its TARP money or not. If the bank has $5B, and you give it $5B in TARP money, it has $10B. If it spends $100M on its CEO, it doesn't really matter if that came from the $5B it already had or the $5B it got in TARP. That's why I think trying to track what banks did with TARP money is a waste of time - that's just an accounting game.

The latter question would be interesting if it could be pulled off properly and without internal politics playing a role - but part of the goal is to prevent failures that cascade into other failures. So for that part, you have to support (and maybe kick out the management of) some of the crappier banks or risk an avalanche of problems.

As for the first question - I think the TARP clearly had an effect. Remember, willingness to lend is based in large part on confidence that all hell isn't going to break loose causing you to need all your cash. The government coming in and being willing to spend to stabilize the financial sector certainly would help promote confidence. What other factors would have led to the increased willingness to lend?

It's there - credit is definitely more available than before. And you see it in things like LIBOR-spreads and even mortgage rates which are approaching record lows.

 

I'm looking at the gaping hole that is your ass, after tantric Dalai is done with you.

And it's not a surprise that you didn't come back with much of an argument.

HA HA HA. Are you serious? Man, when you mentioned the Cioffi case, I thought it was just the latest of your moronic rants/pointless drivel and didn't respond to it. I didn't actually think you were serious.

Boy, you must be a real sh1tty lawyer. You can't even read an one page document right, it's not surprising you can't interpret an MBS deal, something you know nothing about.

The allegation in the Cioffi case was that as a hedge fund, when he lost money, he didn't apply FAS 157 under GAAP and instead tried to unload the MBS' with depressed value to somebody else who didn't know jack **** what was going on... somebody like you.

That is completely different than Bear Stearns underwriting a deal with artificially high value and making "not decipherable" public filing, which was your claim. It isn't even an apples and oranges comparison. It is an apples and Harley Davidson comparison.

In retrospect, Cioffi's AAA rated bonds are still not in default (like 95%+ of the AAA's out there). He just didn't want to wait 30 years for it to pay off.

Not that your peanut brain gets any of that...

 

When you preface your post like this that means nobody is going to read anything that you say...no matter what you learned while installing McAfee in some back office somewhere.


Too bad

Anyway why you be looking at my ass? you have no ass-looking privileges

BTW your analysis from what I glanced at is wrong - it's a standard crim 10b5 complaint/indictment (and it's not just one page long, lol )

 

Hmm, so let me clarify. When I say there is no deception, I'm talking from banks as a whole. The premise of those crying fraud is that banks decided let's screw some people over, i.e. that big-time investor that took everyone's $$$. Hence my response of who were they trying to screw...themselves and their stockholders? That wasn't the case here. The banks are in trouble because the market tanked and their assets were valued too high. There is nothing fradulent about that (from the industry as a whole). Again, I'm sure you can find isolated cases of fraud in any industry.

I hope that clears that up for you....

And from a legal standpoint, if there is no intent for these banks to deceive for their own benefit (when they were the ones hurting), there is no fraud. It's the same scenario of someone owning some stock, it tanked...and they lost their money. Financial fraud would be something like folks cooking the books (not applying rules correctly, creating false things), or knowing about something that would screw their shareholders and doing nothing about it. That wasn't the case here. As another poster keeps noting, if the economy doesn't tank these deals are still making money.

Mismanagement and fraud are two completely different things.

 

I don't mean to butt into your conversation with Sam, but it seems to me that you are mistakenly making the assumption that the interest of the bankers and the interest of the banks are necessarily the same thing.

This, fundamentally, is the issue that I have and that I think many others have with the bonus structure. The most effective strategy for the individual investment banker or trader is not the most effective strategy for the bank or investment house. Aggressive, risk-taking behavior is rewarded, while there is no equally severe punishment when those risks turn out to be bad in the long run.

 

Both. You don't think it's happened before? Did Ken Lay not lose a lot of money on paper when Enron stock collapsed? According to your theory as he was a victim, he's in the clear here.....

....Stanley O'Neal lost lots of money in the Merrill Collapse. He also basically took part in a management/board (and the ML board was like many, dominated by management) looting on the way out the door. Sure, it hurt the shareholders, of whom he was one, but then a big giant multi-hundred million dollar bonus check assuages that a bit.

In my experience, i've been involved in enough fraud cases to know that your bright line rule collapses in practice and that your understanding of intent isn't entirely accurate, and that your definition of what is fraud is way too limited under both the letter of 10b5 and federal m/w fraud statutes and in practice.

 

You are right (that the pay structure, based on incentives, is jacked). But how does that relate to fradulent behavior? Do you think the system tanked because a lot of traders/bankers were being fradulent to receive more pay? I don't. Most people didn't expect these assets to drop in value like this. Putting your nuts on the table and taking a loss is completely different from fraud. They are not the same thing.

 

Actually, in my example Ken Lay committed fraud. Enron got in trouble for allegedly cooking the books, in cohoots with their Accounting firm (who should have caught it, or who arguably let them get away with stuff). That's completely different from taking a loss on overvalued assets when the market tanks. One is a deliberate intent to deceive for benefit. The other is no different from me buying stock in Amazon and holding it too long (less complex, but yet still the same logic).

Stan Oneal too the firm in the wrong direction, by having them focus too heavily on these assets. That's a management error. That isn't fraud. Where is the intent to deceive there?

Can you say he still got paid even though the company and shareholders suffered? Of course you can. But again, show me the fraud....

No offense, but I can't put too much reliance on your opinion here in relation to financial fraud cases. The fact that you are bringing in Stan Oneal, who has nothing to tie him to fraudulent behavior, as support for your argument doesn't give me much faith in your opinion/experience related to this matter.

Show me the intent to deceive. You have that in your Ken Lay example....but that's completely different from what happened with these banks. There were no assets being held off the books. There was no creative accounting. There were no cases of upper management taking moves with the intent to deceive anyone. Etc. Unless you can show any of that then you don't have a fraud case against the company. The closest shot you have is to prove that internal controls were weak, and that a bunch of traders/bankers were taking advantage of the weak environment and bumping their pay. But that doesn't apply either.

So would you like to make a bet that no major firm get's hit with a fraud allegation? The firm as a whole, not independent dudes doing their own thing behind management's back (again, you can find cases of that in any industry). We can bet whatever you like....

Edit: How about we make a sig bet. If I win, you change your sig to "I'm a lawyer, but I don't know much about financial fraud cases". And if you win, then I'll change my sig to "I'm an Accountant, but I don't know much about financial fraud cases".

 

Major;

Thanks for your responses. I will admit upfront that I have an ideological opposition to the bailouts but I will also admit that since finance isn't my strong suit that I am trying to be very open minded about them especially since I can see the direct affect of the credit collapse on my industry.

I am concerned regarding how the TARP money is being spent and I'm while I don't like it that banks who got TAPR money are still spending on lavish benefits to executives I'm willing to lay that aside if TARP really does end up easing the credit collapse. I'm going to defer to you that more credit is more available than before but from my own POV I'm not seeing it. I know for a fact that other architecture firms that I have worked with along with other businesses are facing some serious problems with getting credit to cover things like payroll and also paying off consultants. My own business is owed a fair amount of money from clients who can't pay because then can't get credit to finance their projects. Our costs are extremely low so we aren't facing a credit crunch yet. At the same time though I am looking to refinance my mortgage as when I bought my house I bought it with an ARM and that rate will adjust up in 2010. I have refinanced yet and am waiting for at least another month to see how things play out but right now it seems like that while mortgage interest rates are low the banks are very tight regarding who they will end to so credit is still very tight.

 

You don't seem to understand either 10b-5 or what I'm talking about. When you tell your investors that you have invested in something that is fine and dandy, and you don't really believe it - that's a classic violation of the federal securities laws (10b-5, sarbanes oxley, others)....not to mention the Martin Act (google it)

We'll know when we see the e-mails, won't we? I have no doubt that we'll see some.

No offense, but considering that you've never been in a courtroom I laugh at you for trying to lecture me about scienter and mens rea, as well as your first hand knowledge of all this. And for the record, the reason why I bring up O'Neal is not any specific example of fraud but as an example of how these guys basically took the money and ran. Basically what these guys did was underwrite insurance policies, dividie out the premiums among themselves, then go running to the government when they have to meet their obligations. Pretty ****ing outrageous...if they were insurers they'd be in jail.

Uh I'll take that bet - many civil securities fraud and shareholders derivative cases - hundreds and possibly thousands, I haven't been keeping track lately - have already been filed since 2007. So if you want to take a bet that you've already lost, I'll take it. However I don't think it's true, I'm sure you know a bit about accounting, you just don't know how the issues of liability ultimately shake out and why.

If you're talking about criminal prosecutions of business organizations, that rarely happens. The DOJ almost never brings those because they are basically useless (especially now when a lot of the entities are defunct or are even owned in part by the government). EDIT: I should add that the SEC is a different matter - since they only bring civil suits. I would not be surprised if they do a bunch this year (a lot of banks have been hit already this year over Auction Rate Securities - you don't think there's more coming down the pipe? Look for the ratings agencies to pay a HUGE fine by the time the thing is said and done) even though this is a do-nothing SEC

But suffice it to say, there were many people on wall street who thought many mortgage backed investments were crap even before the bubble burst. This included many of the people who privately believed this or knew this (or were willfully blind to this) who were selling them and were saying different things to their shareholders and purchasers. That is fraud.

Or are you saying that Cioffi and Tannin were an isolated case? The only two people on wall street who were involved in this game while knowing it was rigged? Again, that's an incredibly, incredibly naive claim on your part.

 

On the contrary, the real reason is you never actually have anything of substance to say, hence whenever you are put on the spot, you invariably crawl back to your typical ostrich head in the sand tactic.

Now that's funny. Nowhere in my post did I imply the length of the court document.

What I did say is that you are a sh1tty lawyer, because you can't even read an one page summary document correctly.

 

That's cause my adobe acrobat ain't working correctly, can you update a new version for me while I'm at lunch?

KTHXBAI

 

I believe that there was a ‘Bernie Madoff mindset’ going on in a lot of instances. I’m not specifically referring to the blatantly illegal nature of what Madoff was doing. What I’m talking about is the fact that for 20 years, Madoff, a well respected and wealthy member of the financial community who had no motivation to want to start a Ponzi scheme had to know that there was going to be a day of reckoning coming down the line. He knew his house of cards was going to fall apart. But all this time Madoff was ‘riding the whirlwind’, worrying about the short term and putting the long term out of mind.

As far as people expecting the assets to tank, I completely disagree with you. In 2002, Warren Buffett was calling DCS's 'financial weapons of mass destruction'. When I was looking for a house in 2003, everything I read portended a total and absolute collapse of the housing market on the horizon. In fact, I probably have a few magazines around here somewhere to provide you proof if you doubt me. This was in the bottom end, 'finance for dummies' type magazines. I simply can't believe that these professional people didn't see well ahead of time was sitting in bright, bold headlines for morons like me to see by 2002. But even if they didn't know well before 2002, they certainly knew for a fact at that point because I knew it, just from walking by the news stand. But even in that best case they still spent another 5 years pumping for the eventual dumping and making tidy bonuses.

So, imagine you are working in an investment bank somewhere. As an example, look at people putting together the DSC's. You can sell these DSC’s and make a tidy bonus at year’s end. You know these things are unregulated and you can sell as many as you want. You know that you are in fact selling so many that you can’t possibly cover them all. You know that if you were selling similar traditional regulated insurance, you would have requirements about required reserves.

But every other bank is doing it, so you see that you aren’t doing anything special. Even though you know that the numbers show a looming disaster, what possible motivation do you have to be the man to sound the alarm? The answer is ‘none’. If you sound alarm, you get smaller bonuses, and your banks balance sheet shows crappy profits while everybody else is getting rich which causes your company’s stock drops and you get blamed for that. Your best strategy is to ride the whirlwind like Bernie Madoff did, and when it all falls apart hide in the crowd of lemmings to spread the blame around.

I certainly agree that proving beyond a doubt that there was fraud is difficult to impossible in most cases. But every single shred of circumstantial evidence points to the fact that it was occurring. At the very least, there was gross criminal fiduciary negligence, though proving that would probably be a pain in the rear as well.

 

Again, I don't need to be in a courtroom. I know the definition of the words fraud, intent, [/b]deceive[/b], etc. Can you show me anyone in Sr Mgmt at these banks with the bolded words tied to them, in relation to this bailout?

You mentioned Stan Oneal right after you mentioned Ken Lay (busted for fraud), in response to me saying fraud was not happening (by companies...to clarify again). So if you weren't saying Oneal was fraudulent then my apoligies...but it sure did read that way.

Now if you want to say Oneal and others still got paid while their firms suffered (i.e. taking their bonus $$ and running), then go right ahead. Now show me some support that they committed fraud. Show me where anyone is even accusing them of committing fraud. In case the cases of Enron and Worldcom didn't teach you anything, if the Govt thinks a company committed fraud then they move on them pretty fast. I don't see them sitting idly by when a $700B bailout package is involved, if they think fraud is involved. The same goes for the SEC, or any other regulatory agency that wants to cover their behinds.

Ok, we have a bet then. And to clarify....just so you know what I mean....the govt thought AA was fraudulent. They thought Enron was fraudulent. They thought Worldcom was fraudulent. In all of those cases it was because Sr. Management did things with the intent to deceive (cooking books, hiding assets, etc). That is completely different from one trader at a bank committing fraud...unless the control environment is found to be so weak that the company is deemed to have encouraged it. One McDonalds cashier overcharging you for a happy meal is not fraud by the company. Sr Execs at McDonald's saying lets do this to overcharge people is fraud by the company. I'm referring to the latter.

People file lawsuits all the time, especially when they lose $$. So when one of these banks is deemed to have committed fraud, you let me know and I'll change my sig. How long of a timeframe do you need before you will admit that you've lost?

Cases were brought up against AA, Enron and Worldcom. If there is fraud there it will be prosecuted.

And there were many people who didn't. That doesn't constitute fraud. That constitutes two opposing sides of the fence. Some doctors think homesexuality is genetic. Some think it's a choice. One is right...but neither side is fraudulent.

Do these "many people" have the authority to take the organization as a whole down a path of fraudulent behavior? Why haven't any banks gotten in trouble because of this?

I'm saying the bailout didn't happen because those guys were fraudulent. It happened because the market tanked. Remove them....and a hundred more fraudulent dudes. Does the market still tank??