Time to Claw Back Wall Street's bonuses for Fictitious Profits

Back when the execrible Wall Street Bailout bill was before Congress, The New York Times and also Barry Ritholtz of The Big Picture blog called for a "claw back" provision to the TARP program, pointing out that at the same time as Wall Street firms needed nearly $1Trillion from taxpayers to stay solvent, their CEO's and other senior executives were keeping monstrous bonuses for what turned out to be fictitious profits. Writedowns in the $ hundreds of billions had completely wiped awary the alleged profits of years' past.

Needless to say, that paeon fell on deaf ears.

Today CNBC has an article on exactly how egregious those bonuses were.

A few excerpts (but go read the whole article):

For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.
Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. 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....Unlike the earnings, however, the bonuses have not been reversed.

While several Wall Street firms, including Morgan Stanley are attaching "claw back" provisions to compensation packages now, those are prospective only:

Under the plan, Morgan Stanley will withhold a portion of its employees’ bonuses for three years. If a worker’s bets on the markets go wrong during that time, some of the bonus will not be paid. The so-called claw-back provision is intended to discourage employees from making short-sighted decisions by tying their compensation to the bank’s long-term performance.

This is not good enough by a long shot. It may be too late to go back and amend or rescind the terms by which Wall Street got its first installment of TARP funds. But any subsequent injection of capital MUST include a retrospective claw back provision, and also the right of the Federal government to subrogate, in other words to step into the employers' shoes, and enforce any employment provisions that might allow for the clawing back of past bonuses for fictitious profits.



If the Treasury has the power to just throw $$ at them

Shouldn't the new Treasury Secretary have the power to enact a claw back?

For all those reading this claw back provision means they have to pay back the money retroactively in so many words. Or could they change somehow corporate law to require claw backs to all additional compensation based on performance?

when night falls

the true problem is that america can no longer sustain its affluent standard of living. we have gone from one temporary fix to another since the end of the second world war. the housing/finance fix was/is the end of the line.

we are facing the same fate as the ussr, a break up of the usa. the excess of this decade was merely a last opportunity for everyone to grab all they can before the bust. i believe many realize this but refuse to speak up for very obvious reasons.

I believe you're right

And because of it, 15% of Oregon Residents are now on Food Stamps.

We've forgotten that the standard of living is the purpose of an economy, rather than individual wealth- and we're now paying for that greed.


Maximum jobs, not maximum profits.

If I were a Merrill shareholder

which would now be a BAC shareholder, I would be very pissed.  This should be brought up at some shareholders' meeting.


For the patient: Ever heard of Estate Tax?

Teddy Roosevelt came up with the Estate Tax as one way to deal with the country's slide towards plutocracy. I'm thinking that raising the Estate Tax (let's rename it the Economic Dynasty Tax) to, say, 75% on estates over $5 million would be a good start.

Of course, this won't sate our immediate lust for Wall Street blood today. I'm hoping shareholder lawsuits and SEC investigations under the new administration will uncover some buried treasure.