Posts Tagged ‘bonuses’

The big banks are still socializing the losses; or, Sympathy for the stockholder

20 October 2011

The original bank bailout may have been repaid in full, but the big banks are still socializing the losses. This time, it’s among their shareholders. Brad DeLong offers some specifics:

‘Investors in Goldman Sachs have lost more than half their money since 2007 . . .

‘Investors in Morgan Stanley have lost more than three-quarters of their money since 2007 . . .

‘Investors in Citigroup have lost 93% of their money since 2007 . . .

‘Investors in Bank of America have lost 85% of their money since 2007 . . .

‘Investors in Bear Stearns, Lehman Brothers, and Merrill Lynch lost more than 90% if their investments as well . . .’

DeLong’s charts (click above link to see them) show that even after bank stocks started to rebound in fall 2009, the losses have still been huge.

One might think this is just a case of the rich getting poorer, but it’s not that simple. In fact, the distributional consequences seem to run the other way. The stockholders, most of whom are middle-class and upper-middle-class folks, are getting hammered. About half of the population owns stock (granted, the wealthy own most of it), so about half of The Other 99% own stock and are seeing their retirement portfolios shrink along with the rest of their savings. (If you own stock at all, you probably own a lot of big bank stock, because they are weighted heavily in index funds, other mutual funds, and pension funds.)

How has the reduced market value of these firms affected the executives and highest-paid employees at the big banks? Not much, apparently. While I don’t have precise data handy, there have been reports all through this Lesser Depression of huge payouts to bankers, including yesterday’s news of Morgan Stanley. It’s happening in England, too.

DeLong’s post includes some excellent comments about how the banks’ poor performance has affected their shareholders and their high-level employees so differently. There’s a technical term for it: looting.

P.S. The Wall Street Journal reports that bank losses have been huge of late. Goldman Sachs lost money in the second quarter of this year, and has had six straight year-over-year quarterly losses. Goldman’s stock is down 39% for the year, and Bank of America’s is down 50%. No mention of how (or whether) bonuses will be affected.

Sin Citi

29 April 2009

A telling pair of headlines on MSNBC.com this a.m.:

‘Report: Citigroup wants to pay bonuses’

‘Bank of America, Citi may need more capital’

An excuse to watch some vintage Flying Burrito Brothers footage at least:

Aieeee, AIG! (Part 2)

18 March 2009

Excellent-sounding suggestion about how to stop those abonimable AIG bonuses, from Bill Black, Tom Ferguson, Rob Johnson, and Walker Todd (The Huffington Post, 16 March 2009).  Even if it doesn’t succeed in stopping the bonuses, their suggestion to break off AIG’s toxic Financial Products Division (like a hedge fund attached to an insurance company, as Ben Bernanke described it) from AIG’s main business, and then treat the Financial Products Division like the bankrupt entity it is, is very appealing.

Dean Baker makes much the same point:  bankrupt companies don’t get to pay bonuses.

The NYT has another sensible editorial about AIG and who it’s been paying off with the $170 billion in bailouts it’s received so far.   Under the bailout, the company has been paying off many credit default swap (CDS) holders in full, which is a great way to burn through hundreds of billions of dollars with lightning speed.   And now we know that a good chunk of those billions went to CDS creditors like Goldman Sachs who, like AIG, are wards of the state.  (To be fair, a substantial but smaller amount of CDS payouts went to state governments.)  The only relief I can think of is Herb Stein’s old line:  the good thing about something that can’t go on indefinitely is that it won’t.

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Aieeee, AIG! (Part 1)

15 March 2009

$61 billion in fourth-quarter losses, tens of million in new bonuses, mostly to people in the most toxic financial products division on Earth, namely their Financial Products division.

And the bailouts just keep on comin’.   Word is that the bonuses will be restrained in the future, but why not in the present, when AIG has already received $170 billion in government funds?  AIG’s line is that the bonuses were contractual obligations made before the company’s implosion, but aren’t bonsuses supposed to be paid out of company profits?  AIG has gone from hosing its shareholders to hosing the taxpayers.  And if the government has a plan for dismantling this atomic bomb of a company, it’s doing everything in its power to suggest otherwise.   Seems that “Welfare Cadillac” was written about forty years too early:

UPDATE, 16 March 2009:  Sunday’s NYT had a sensible editorial on the matter.   News of the backlash and the identities of AIG’s counterparties was all over the wires on Monday.  Warren Buffett’s warning that credit derivatives were financial weapons of mass destruction looks truer than ever — AIG’s bottomless obligations now seem to be married to the federal government’s bottomless pocket.   While the systemic risk from letting AIG fail was huge (and no doubt still is), is it really a worse risk than all-out banana-republic bankruptcy for the U.S. government?

UPDATE, 17 March 2009: Actually a week old, but James Hamilton’s AIG analysis and recommendations on Econobrowser are worth pondering, as is the long comments thread.