Editore"s Note
Tilting at Windmills

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December 21, 2008
By: Hilzoy


From the AP:

"Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

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.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines."

There are all sorts of delightful tidbits in the article. Banks that took bailout funds paid for their executives' private financial advisors, club dues, home security systems, and chauffeurs and leased cars. Here's what passes for an explanation of all this:

"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."

I'm sure they're right. But the question is not: do chauffeurs contribute to peace of mind? It's: why should companies who are receiving taxpayer funds because they (meaning their executives) got themselves into deep trouble be paying for these things? Couldn't the executives, who are, after all, very well paid, pay for their own home security systems and financial planners and chauffeurs?

The super-rich seem to me, during the past few decades, to have wafted off into their own alternate universe, in which of course they are entitled to have their employers pay them not just large salaries, not just multi-million dollar bonuses every year, but the bills for everything that ordinary people pay for; in which flying on public airlines seems to them the way taking the public buses seems to much of the middle class; in which any possible contact with what the rest of us take to be reality has been airbrushed away by vast quantities of money.

Under normal circumstances, I'd think: nice work if you can get it, and worry about the effects of massive inequality on public life. But these are not normal times. The very people who are getting these bonuses and chauffeurs and private jets and financial planners have just sent the entire global economy into a nosedive. They have caused massive amounts of money to disappear. They are getting bailed out for their mistakes by the rest of us -- the people who, if we're lucky, get to fly coach, and if we're not, drive across the country or take a bus.

If they had any shame at all, they would stop. More than that: if they had any sense at all of how angry a lot of us are getting, sheer prudence would do the trick. This is our money. We are giving it to them to get all of us out of a problem that they caused. They should bear that in mind, not treat us as if we were one great big cookie jar.

Hilzoy 10:55 PM Permalink | Trackbacks | Comments (26)

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But sticking it to these titans of Wall Street would restrict financial inovation. Better we stick it to Unions and union bosses, they are evil.

Seriously, nothing a 50% income tax rate on salary and benefits over $2 million a year wouldn't cure.

And an attack of common sense.

Too much to ask for, I know.

Posted by: Tigershark on December 21, 2008 at 11:25 PM | PERMALINK

the arrogance of wealth. They truly have completely perverted reality such that they have convinced themselves that they deserve and have actually earned the obscene wealth they have when of course they have accomplished nothing of the sort. They are sick psychotic dogs.

Posted by: pluege on December 21, 2008 at 11:30 PM | PERMALINK

A return to Feudalism:


Posted by: MsJoanne on December 21, 2008 at 11:33 PM | PERMALINK

Maybe a cot, or a futon, or an executive dorm would remove the need for the driver. Maybe a lower salary would remove the need for a financial advisor.

But I have nothing against a private jet for business travel. These guys make too much to take them off-line for a few hours (at least).

Posted by: tomj on December 21, 2008 at 11:34 PM | PERMALINK

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management [...] -- AP

They got "professional money management"??? From whom??? I hope it was from Madoff but, generally speaking... Aren't they supposed to be the professional money managers themselves? And yet they farm that work out? The mind boggles (or, as I used to say -- before I learnt the correct but less accurate idiom -- the mind buggers)

Posted by: exlibra on December 21, 2008 at 11:51 PM | PERMALINK

the problem isn't the money they make or the additional goodies they get. it would be one thing if they were rewards for a job done well. the problem is that they are essentially highly paid bureaucrats who risk little or nothing. they get their money whether their companies perform well or poorly. even if they get canned (maybe) for running the business into the ground they're still rewarded with a sweet pay day.

ather sweet pay day.

Posted by: mudwall jackson on December 22, 2008 at 12:03 AM | PERMALINK

My favorite is the money paid for executive "retention bonuses". Like anyone else would hire an executive of AIG nowadays.

Posted by: Glenn Hauman on December 22, 2008 at 12:12 AM | PERMALINK

Why should Wall Street Executives change their ways. As you pointed out they caused the world economic meltdown, yet we are dumb enough to ask them to dig us out. If we sent a few to prison maybe the rest would think twice about whether they really need their perks.

Posted by: Ron Byers on December 22, 2008 at 12:15 AM | PERMALINK

Wow. Five comments and only one person mentions the obvious policy response.

It's like we all agree that it's morally wrong for these guys to making this kind of money, but don't realize there is something we can do about it -- or maybe we just don't really want to do anything about it.

Raise their taxes. Problem solved.

Posted by: inkadu on December 22, 2008 at 12:35 AM | PERMALINK

Whether you're for or against The Bailout, The Wall Street or The Auto Industry Bailouts, this just illustrates the vastly different way people are being treated. For the Auto Industry (again, whether you favor it or not), all kinds of paycuts and concessions were demanded. Auto-execs cut their salaries; workers are supposed to take wage cuts. Yet, on Wall Street, the execs just walk away with their large bonuses and perks as if nothing has happened at all. It's a sad commentary on what kind of society we've become.

Posted by: noonski on December 22, 2008 at 12:44 AM | PERMALINK

Actually the tax rate should be in the 80 t0 90% range for those kinds of incomes.

Also, stock options need to be taxed and the capitol gains rate needs to go way way.

And, I say this reluctantly, this is why we have guns.

Posted by: Mark on December 22, 2008 at 1:00 AM | PERMALINK


It's all well and good to rant & blow off a little steam about it, but HOW ARE WE GOING TO MAKE IT LAW?!?!?!

'Cuz that is the $700 billion dollar question.

I welcome your column on that subject.

Posted by: Sidewinder on December 22, 2008 at 1:32 AM | PERMALINK

"Nice work if you can get it."

You mean a Goldman Sachs chauffeur? How the hell is a car and driver costing a quarter mil a year?

Seriously. Here is an ad from Maybach of Greenwich. Those cars "only" cost $5-6K a month to lease, throw in MAnhattan parking, etc and gas, the vehicle itself cannot cost more than $100K. Are the drivers making six figures?


Posted by: Mr Furious on December 22, 2008 at 2:06 AM | PERMALINK

"They should bear that in mind, not treat us as if we were one great big cookie jar."


Didn't you just say that they have no way of imagining anything different?

They don't.

I'd be more than happy to be that thing in the cookie jar with teeth that does not appreciate being messed with.


Posted by: nunya on December 22, 2008 at 4:29 AM | PERMALINK


I did not read the WSJ article. If they didn't mention this, then they've only scratched the surface;

CEO's of these major corporations also serve as board members of other major corporations.
e.g. the CEO of Bank of America may be serving as a board member for Citibank and Wells Fargo. *this is just an example.
So, not only does the CEO receive the million dollar payouts from his CEO salary, but he also get let's say a minimum of $200k just to meet 3-6x's a year, plus stock options/rights, use of company jets, retirement plans, health plans, medical/dental ins- which they also get reimbursement for medical/dental, & million dollar life ins policies.....

Most CEO's will sit on boards of at least 3 other companies. So not bad salary wise, but, when they cause a loss to shareholders, bondholders, workers they should be looked at with scrutiny.

Posted by: annjell on December 22, 2008 at 4:59 AM | PERMALINK


here's an example that will probably come to mind,

1) remember when Bill Clinton was running for prez, Hillary came under heavy scrutiny because she was an attorney but sat on the board of Tyson Foods & WalMart, in addition to a $1000 investment in the futures market that netted $150k in a short time.

2)John McCain tried to link Obama to Pal-ling around with terrorist, but come to find out he sat on a board with the alleged terrorist or bad guy. **I can't remember if it was Ayers or Rezko.

Since you have the resources (news availability), maybe you can find out if the GOP that's trying to save the foreign mfg's over U.S. car mfg's have friends/family or even themselves on the board of Toyota, Nissan, Kia...

Posted by: annjell on December 22, 2008 at 5:19 AM | PERMALINK


forgot this one - Cheney & Haliburton

***Haliburton got most of the contracts for Iraq**

Cheney was on the board of Haliburton!!!

Posted by: annjell on December 22, 2008 at 5:40 AM | PERMALINK

Back when I was a kid, we needed moats.

Posted by: Louis XIV on December 22, 2008 at 6:07 AM | PERMALINK

When will stockholders do something about excessive CEO pay?

I am betting on never.

Posted by: Lab Partner on December 22, 2008 at 7:03 AM | PERMALINK

As a former council member for a town of 20,000 when we had 100 people show up at a meeting we took notice.

What if an all out effort to get the citizens of this county to send a postcard (38cents) to Washington that only states "NO MORE EXECUTIVE BAILOUTS" or whatever gets the point accross. People can write what they want.

Conservatives and liberals feel the same way about this and wouldn't it be wonderful if thousands upon thousands of postcards were sent?

Something needs to be done to make the powers that be stop and take notice. With the power of the internet its possible!

Just an idea.

Posted by: Dorothy on December 22, 2008 at 8:51 AM | PERMALINK

Have to ask: after all the looting and mis-management done while pocketing billions in "salary" all the way along, why would anyone exspect anything different than for them to take more money when given the chance?
Like giving the looters an extra truck to haul away the loot when you find all of theirs are already all full.
You think the thinking may be a bit off on all this?
Now, someone explain the last eight years and and use the last month as the end of that period and make it sound sane.
Not going to happen.
Ok, try it again: the looters have stolen all there is to steal but, with the right media blitz of scare tactics they can get the people to pay them to continue to loot directly from the people's pockets.
Now does it seem like the thinking on this may be somewhat off?

Posted by: Johnsnottoodistracted on December 22, 2008 at 9:34 AM | PERMALINK


Posted by: GREYDOG on December 22, 2008 at 9:51 AM | PERMALINK

A few ideas to inhibit the bad behavior and avariciousness we've come to know and loathe.

1) Executive pay in excess of 20 times the pay of the lowest paid worker may not be deducted as a business expense. This must include all subcontracted or agency staffed workers because otherwise companies will form a Slaves-R-Us agency for regular workers so that only their own inflated salaries are counted toward the limit. Salary, bonuses, options, and all other perks are included in this calculation.

2) Executive pay beyond the 20 times level becomes increasingly taxed as personal income on a sliding scale. For example, at 20x level the tax rate is 38%, at 25x it's 50%, at 30x it's 60%, and so on.

3) No retirement, signing, golden-parachute or similar executive benefit shall be significantly different in proportion to the lowest paid employee. If the janitor doesn't get 10 years of his salary and options as his severance pay, neither does the CEO. Let's miake a violation of this one a felony with both jail-time and monetary penalties.

4) CEO's shouldn't be able to inflate bottom line profits at the expense of employees and longterm viability of the company by slashing workforces and closing operations. How much fat is there really in a typical company? Let's say 5% on average. Therefore, employee cuts beyond that point trigger a sliding scale tax penalty. An extra 1% cut means all executives' pay as a deductible expense is reduced by 10%, an extra 2% cut reduces the deduction by 12%, etc. Similar penalties apply toward the peronsal income tax rates of executives. If management truly believes employee cuts are vital for the longterm benefit of the company, they'll bite the bullet personally.

5) No options or bonuses can be granted for any period in which a company is stagnant or loses money.

6) No board member shall be allowed to vote on pay-and-benefits packages for cross-linked executives (i.e., board member A can't vote in regard to executive B if B or any other executive of the company is a board member of A's company).


Posted by: GringoNoraca on December 22, 2008 at 10:20 AM | PERMALINK

Moral outrage and talk of changing the culture of wealth are a good starting point, but must result in action. Over the last 50 years, the culture of wealth has followed changes in tax law and corporate governance, that culture didn't just happen by magic. And policy changes can effect changes in culture in the other direction. Since via the billions in bailouts we've officially broken the porous wall between the markets and government, now is the perfect time for us (government) to make major changes in the way public corporations are structured, governed and taxed.

Public ownership and revenues over a certain volume should subject a company to a new set of strictures, exactly what I don't know, but revised rules on board memberships, executive compensation, shareholder rights, have got to come. And pubic oversight of markets and corporations, particularly financial corporations, has be be increased.

Of course indvidual income tax rates have to be revamped. As many have pointed out, during the explosive economic growth of the '50s, top tax rates were astronomically high. It didn't deter people from working hard and trying to get rich. People don't get up in the morning and scale their work output according to the marginal tax rates. That's a self-serving canard dished up by the wealthy seeking lower taxes.

The point is, policies can change behavior. Oversight, tax rates, legal accountability can make a difference. We can't just be outraged and in despair about the crap we've allowed to be created. We the people can demand change.

Posted by: jrw on December 22, 2008 at 12:46 PM | PERMALINK

it ain't the money that's the problem and higher taxes won't solve a thing. corporate reform is what's needed. better governance. boards of directors that are truly independent and have the teeth and balls to fire an executive who isn't doing his job.

as i said earlier, it's a matter of performance. it would be one thing if the big money and the perks were rewards for a job well done — above and beyond the industry's norm. instead they get the gravy train pay day whether their companies prosper or go belly up. they risk virtually nothing but perhaps some negative press if they tank.

as someone noted above, CEOs tend to serve on the boards of a number of companies. directors of these companies tend to serve on a number of different boards. it becomes a club full of members who go along to get along because if they rock the someone else's boat, their boat might get rocked as well.

break up the clubs; limit the number of boards anyone can serve on. ban execs from serving on the boards of other companies. make it easier for shareholders to hold board members accountable. reform board member compensation so they are paid more in stock and less in cash (that way if the company stock goes south, so does their pay check). no retirement benies for board members. perhaps even term limits. more transparency of corporate ties and compensation for both directors and executives. give workers a bigger say in how a company is run and give them a bigger stake in its success or failure.

Posted by: mudwall jackson on December 22, 2008 at 1:28 PM | PERMALINK

Tigershark and others have it right. Marginal taxes on income over some generous amount ($2M a year) should be taxed at some high rate like 75%. The reason though is that this would restore sanity to our business management. Low tax rates do not encourage investment. Low tax rates encourage pillaging.

If I can get a huge chunk of money now by breaking up a company and selling it off, or by taking out exorbitant compensation packages as opposed to getting that money for life at $2M a year I'll do it now. On the other hand, if tax rates only allow me to get $2M a year then I'm going to make damn sure that my company is strong and can survive for thirty years so that I can continue to get that paycheck.

A company I know of just laid off 80 sales people. Sales people don't make much in base pay as they are expected to get high commissions. Let's say it cost the company $100k per job including expenses. The CEO gets something like a $35M compensation package. He could have reduced his compensation by $8M a year and kept those sales people who would have been bringing in more revenue to the company.

We should not only roll back the Bush tax cuts but the Reagan tax cuts as well.


Posted by: JohnK on December 22, 2008 at 7:52 PM | PERMALINK



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