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Thursday, January 22, 2009
Billions in bonuses at Merrill … but for what?
The Atlanta Journal-Constitution
What really gets me aggravated — and still leaves me frankly astonished — is the sense of royal entitlement to other people’s money that developed on Wall Street. It’s just mind-boggling.
The story of Merrill Lynch and Bank of America illustrates that sense of entitlement all too well. Merrill Lynch lost tens of billions of dollars last year — $15 billion in the last quarter alone. Yet still Merrill executives felt they were entitled to bonuses.
Merrill’s losses were so bad that in effect the company had to be bailed out by taxpayers, who gave Bank of America $45 billion to help BoA buy Merrill and cover its losses.
Yet executives at Merrill STILL felt entitled to billions in bonuses paid by other people’s money, in this case the taxpayers. They even accelerated the payment schedule to make sure the money flowed their way.
“NEW YORK — John Thain resigned under pressure from Bank of America on Thursday after reports he rushed out billions of dollars in bonuses to Merrill Lynch employees in his final days as CEO there, while the brokerage was suffering huge losses and just before Bank of America took it over.
The bonuses were paid before Bank of America’s acquisition of Merrill became final on Jan. 1, and while Bank of America was privately telling the government that Merrill was losing so much money that the deal might fall through unless it could get more federal bailout money.
Bank of America later received an additional $20 billion from the government, in part to offset the unexpected Merrill losses. The brokerage lost $15 billion in the fourth quarter and more than $27 billion for the year.
The bonuses, typically paid in January, were instead given in December and totaled $3 billion to $4 billion, the Financial Times reported Thursday. Bank of America would not confirm the size of the bonuses.
Scott Silvestri, a Bank of America spokesman, noted that Merrill was still operating as an independent company at the time the bonuses were paid. Had Thain not acted early, it would have been up to Bank of America to pay or reduce the bonuses later.”
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Public patience wearing thin with TARP funds
The Atlanta Journal-Constitution
On the one hand, this is flatout wrong. According to the Wall Street Journal, Barney Frank helped steer $12 million in TARP money to a problem Boston bank that should not have been eligible. That’s wrong, and stupid.
But then there’s the question of scale. While Frank helped guide $12 million, you’ve got former Treasury Secretary Hank Paulson diverting many billions to Goldman Sachs, where he used to be chairman. And of course that’s just one of many examples of the incestuous relationship between Treasury and Wall Street firms.
The government promised transparency and accountability in how it allocated the $350 billion in TARP funds and so far it has delivered neither. Yes, there have to be limits on how much the public is told, out of fear of undermining confidence in specific banks. But there’s no reason that the process and standards for allocating TARP funds shouldn’t be transparent.
Unless of course a real process and standards don’t exist.
“Troubled OneUnited Bank in Boston didn’t look much like a candidate for aid from the Treasury Department’s bank bailout fund last fall.
The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives’ use.
Nonetheless, in December OneUnited got a $12 million injection from the Treasury’s Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.
Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection…
Several Ohio banks received funds after Ohio’s congressional delegation complained bitterly about the treatment of Cleveland-based National City Corp., which regulators forced into a merger rather than provide with cash. And in Alabama, the state’s top banking official says a windfall there — five banks are slated to receive funds — is testament to the influence of two powerful Alabama lawmakers who sit on key congressional committees.”
As the WSJ story goes on to explain, those two Alabama lawmakers were Rep. Spencer Bachus, top Republican on the House Financial Services Committee, and Sen. Richard Shelby, ranking Republican on the Senate Banking Committee.
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Roberts, Obama practice for 2013
The Atlanta Journal-Constitution
Just to make sure it’s official, Chief Justice John Roberts readministered the presidential oath to Barack Obama yesterday at the White House. And if both men stay healthy, I suspect he’ll get to administer the oath to Obama yet again in 2013, making them the answer to a presidential trivia question for later generations (“What Supreme Court justice administered the presidential oath three times to the same person?)
But in the meantime, cognitive scientist Steven Pinker has an interesting and even funny little piece in the New York Times explaining just how and why Roberts flubbed the oath in the first place.
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Gambling not downtown’s answer
The Atlanta Journal-Constitution
Hard times can be good times. Pawn shops do brisk business hocking jewelry, guns and electronics; the foreclosure and bankruptcy industries hire new employees to handle the workload. And of course, lottery-ticket sales often boom as people hope for a get-rich-quick solution to problems.
In hard times, officials looking to boost revenue and provide jobs start thinking similar thoughts, and they find themselves drawn to the idea of casino gambling as a solution. But like the lottery, it too is a sucker’s bet.
Here in Georgia, leaseholders of Underground Atlanta have suggested installing up to 5,000 “video lottery machines” —- in effect, slot machines —- as part of a $450 million redevelopment project, with revenue to be shared with the Georgia Lottery Board and thus the HOPE scholarship.
(Former Atlanta Mayor Sam Massell takes the opposite position, arguing here in favor of a casino proposal to revive Underground.)
The idea is that by using machines owned by the lottery board, and by promising the state half the proceeds, Underground operators would sidestep prohibitions against gambling in the state constitution.
Not surprisingly, downtown tourism and hospitality boosters laud the idea. They like the thousands of jobs promised by promoters, not to mention the additional convention draw of a major gambling facility. A handful of elected officials, including Fulton County Commissioner Robb Pitts and state Rep. Roger Bruce of Atlanta, are even resurrecting the far-fetched idea of changing the state constitution to allow full-fledged casino gambling.
That last approach would require approval of two-thirds of the state Legislature and then a statewide referendum. In other words, it’s not going to happen, not in a state where legislators still won’t let you buy beer on a Sunday.
But the lottery proposal is a little more sly in its approach. Legally, the state lottery board may already have the power to put the idea into action. If it worked —- if the project got funded and built and became the revenue and job generator promised by its backers —- the door to full-blown casino gambling that is now slammed shut would probably swing open.
But it would still be a terrible idea.
Casino gambling is to economic development what slot machines are to investment strategies. Both may promise quick and easy money, a way around the slow, hard work of building something sustainable. But they seldom pay off, and when they do, even winners pay a heavy price.
Slowly, painfully, downtown Atlanta has begun to revive itself. The growth of Georgia State University, bringing youthful energy and dollars downtown, has helped immensely, as did the investment in Centennial Park, which in turn helped draw the immensely popular Georgia Aquarium. Hotels and restaurants are appearing. Nightlife is still spotty, but it exists. You can see the pieces of a vibrant, organic downtown beginning to self-assemble.
But there is no shortcut to that process, and casino gambling would halt it altogether. Casino gambling sucks life and money off the streets and into the casinos. It alters the nature of its environment, rendering it oddly sterile. That’s because gamblers have little interest in anything but what happens at the slot machine or table, and little interest in spending their dollars anywhere else.
It’s been a while, but back in my wild and crazy youth I worked as a journalist in Las Vegas for a few years, and you could see the warping influence of gambling on a community. People would tell each other that living in Vegas was just like living in any other town, except it had casinos. But it wasn’t true. It wasn’t close to being true.
In a gambling town the ethos of the casino, the cheap sadness, spreads well outside the casino walls. Desperate places such as Detroit may have no choice but to go that route, but Atlanta has more going for it than that.
