In 2008, "the brokerage units of New York financial companies lost more than $35 billion." According to a report by the New York state comptroller, these companies simultaneously doled out an estimated $18.4 billion in bonuses, "the sixth-largest haul on record" and the same amount as distributed in 2004, "when the Dow Jones industrial average was flying above 10,000, on its way to a record high." Reacting to the news, White House Press Secretary Robert Gibbs characterized the story with one word during yesterday's press briefing: "Outrageous." "Whether it's government or the financial system, we're not going to be able to do what is needed to be done to stabilize our financial system if the American people read about this type of outrageous behavior," Gibbs said. When the Troubled Assets Relief Program (TARP) was passed last September, Congress made a show of limiting executive pay. President Obama will have to strengthen TARP and other financial regulations to make a real impact on outrageous corporate malfeasance.
PRESIDENTIAL OUTRAGE: Obama made it clear yesterday that he was frustrated by such corporate greed. While meeting with Treasury Secretary Timothy Geithner, Obama condemned the "shameful" Wall Street bonuses. "That is the height of irresponsibility. It is shameful, and part of what we're going to need is for folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility," Obama said emphatically. In a way, the banks are holding the American people hostage, as they "find themselves in the difficult position that if they don't provide help, the entire system could come crashing down on our heads," Obama said. He added that Americans, "are serious about their responsibilities. I am too in this White House. And I hope folks on Wall Street are going to be thinking in the same way."
OUTLANDISH PURCHASES: The shameful bonus report was just the most recent proof of Wall Street's irresponsibility. Last week, as former Merrill Lynch CEO John Thain was agreeing to resign from Bank of America, news broke that he had spent more than $1 million redecorating his office, including paying $800,000 for a celebrity designer and spending $87,000 on an area rug. All this while Merrill was collapsing -- the bank reported a loss of $15.31 billion in 2008 -- and the newly merged Merrill Lynch-Bank of America was requesting more aid from the government. Thain had also doled out $4 billion in executive bonuses to favored Merrill employees just before the merger. Just last week, the Treasury Department agreed to give Bank of America $20 billion in additional aid. Separately, it was revealed earlier this week that Citigroup was in the final stages of purchasing a $50 million private jet -- after receiving $45 billion in public TARP funds this fall. After the Thain scandals, the Citi jet seemed to be the final straw for Obama. "Secretary Geithner already had to pull back on one institution that had gone forward with a multimillion-dollar plane it purchased at the same time as they are receiving TARP money," Obama said exasperatedly. "We shouldn't have to do that, because they should know better." The jet deal for Citigroup has since been canceled.
FIXING THE PROBLEM: Obama believes that the initial TARP legislation "failed to live up to the expectation that all of the American people had for it," in terms of reining in executive compensation, Gibbs said yesterday. "That's why this administration and this economic team are taking the time to evaluate how we move forward." Also yesterday, the congressional panel that oversees TARP recommended that financial regulators "consider revoking bonus pay for executives of failing institutions needing government help." The panel said the threat of losing bonuses might help executives "avoid excessively risky behavior." Susan Reed, a CBS business correspondent, had another idea: "A more productive way to distribute rewards is by only awarding company stock. This would keep employees mindful of the risks they are taking to their organization and would tie their company's performance to their own. ... And it would require employees and managers to shoulder their own risk." One indication of how seriously the Obama White House will address the problem of "outrageous" executive pay is former Fed chairman Paul Volcker's role as an economic adviser. Last November, he "blamed excessive pay packages for leaving the world with a 'broken financial system,'" condemning a system full of "tremendous rewards and payment of magnitude for presumed success and not much penalty for failure."
CONGRESS -- FLASHBACK: McCONNELL SAID STIMULUS WON'T HAVE ANY PROBLEM 'GETTING OVER 60 VOTES': On Wednesday, the House passed the American Recovery and Reinvestment Act on a 244-188 vote, with every Republican voting against the legislation. Now the bill moves to the Senate for debate and a potential vote next week. The Senate version of the legislation is not entirely in sync with the House's version. McClatchy reported last week that the Senate Finance Committee has already "added some provisions desperately sought by corporate America," such as allowing "some companies to reduce taxes if they buy down their debt between late 2008 and 2011." The U.S. Chamber of Commerce and other business groups lobbied heavily for the measure. Even with these extra business provisions — which conservatives have complained are absent from the House bill -- nine out of 10 Republicans on the Finance Committee voted against the draft. Just few weeks ago, Senate Minority Leader Mitch McConnell (R-KY) said that he doesn't think the economic recovery bill will have "any problem getting over 60 votes." He also reportedly promised that Senate Republicans "would not filibuster against the stimulus package." On NPR yesterday, however, Sen. Chuck Grassley (R-IA) issued a filibuster threat, saying that the recovery package would need 60 votes to pass. Will McConnell keep his word? Or will conservatives continue to block the economic recovery while advocating a return to Bushonomics?
LABOR -- OBAMA TO REVERSE ANTI-UNION BUSH ORDERS: Today, President Obama will host labor leaders at the White House, where he is expected to undo four anti-union Bush-era directives. The orders that Obama will reverse include one that "allowed unionized companies to post signs informing workers that they are allowed to decertify their union." Another Obama order will prohibit federal contractors from being reimbursed for expenses "intended to influence workers' decisions to form unions or engage in collective bargaining." Labor leaders were also on hand yesterday when Obama signed his first major piece of legislation, the Lilly Ledbetter Fair Pay Act, which bolsters workers' ability to bring pay discrimination lawsuits. In an interview with CNBC yesterday, Vice President Biden vowed to help labor get "a fair share of the pie." Obama's orders will come at the end of a week that has seen another massive wave of job losses.
ECONOMY -- HOUSE GOP LAUNCHES MEDIA BLITZ PROMOTING DISCREDITED ALTERNATIVE RECOVERY PLAN: House Republicans have launched a district-by-district media blitz to justify their unanimous rejection of the economic recovery package and have offered an alternative plan. The plan, a throwback to Bush-like tax cuts, claims to create 6.2 million new jobs, reduce "most" income tax rates by 5 percent, and cut taxes on small businesses by 20 percent. They claim their plan as being based on "methodology developed by the president's nominee to chair the White House Council of Economic Advisors, Dr. Christina Romer." But as, James Kvaal at the Center for American Progress notes, their numbers are based on distortions of Romer's 2007 calculations on the benefits of tax cuts. Republicans left out Romer's conclusion that tax cuts are an effective way to create jobs only when the economy is healthy. Her explicit statement that tax cuts are unsuccessful when used to offset anticipated changes in private economic activity -- such as an economic recovery package -- also did not appear in the Republican plan either. Since 2007 Romer has calculated that government investment has a stronger multiplier effect for creating jobs and is a more effective method for stimulus.
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