Dec. 22, 2008

AP study finds $1.6B went to

bailed-out bank execs

Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

The 116 banks that so far have received taxpayer dollars to boost them through the economic crisis gave their top tier of executives nearly $1.6 billion in salaries, bonuses and other benefits in 2007, an Associated Press analysis found.

That amount, spread among the 600 highest paid bank executives, would cover the bailout money given to 53 of the banks that have shared the $188 billion that Washington has doled out in rescue packages so far.

Some banks trimmed their executive compensation in the face of faltering performance that foreshadowed the current economic crisis, but they still granted multimillion-dollar 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.

Such bonuses amount to a bribe for executives “to get them to do the jobs for which they are well paid in the first place,” said Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services committee.

“Most of us sign on to do jobs, and we do them best we can,” said Frank. “We’re told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!”

The AP review of annual reports that the banks file with the Securities and Exchange Commission found that the average paid to each of the banks’ top executives was $2.6 million in salary, bonuses and benefits.

Among other findings:

• Lloyd Blankfein, president and chief executive of Goldman Sachs, took home nearly $54 million in compensation last year. The company’s top five executives received a total of $242 million.

This year, Goldman’s seven top-paid executives will work for their base salaries of $600,000, with no stock or cash bonuses, the company said. Last spring, before Wall Street’s staggering losses and layoffs mushroomed, Goldman described its pay plan as essential to retain and motivate executives “whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels.” Goldman spokesman Ed Canaday declined to comment beyond that written report.

The New York-based company, after gains last year, on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.

• Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.

• John A. Thain, chief executive of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, came to Merrill Lynch in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.

Like Goldman, Merrill tapped taxpayers for $10 billion on Oct. 28.

The AP review comes amid sharp questions about the banks’ commitment to the goals of the Troubled Asset Relief Program, a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program’s goals, instructing the Treasury Department to pump tax dollars directly into banks to prevent wide economic collapse.

The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes. Some banks are forgoing bonuses and restricting other compensation.

The records detailing last year’s pay packages show that personal financial advice was among the executive perks. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay financial planners.

At Bank of New York Mellon Corp., chief executive Robert P. Kelly’s stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.

Goldman Sachs, paying as much as $233,000 for an executive’s car and driver, told its shareholders that financial counseling and chauffeurs were needed so executives would have more time to focus on their jobs.

JPMorgan Chase chairman James Dimon ran up a $211,182 tab for private jet travel last year when his family lived in Chicago and he was commuting to New York. The company received $25 billion in bailout funds.

Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation’s security-conscious commercial air terminals.

Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions — something particularly hard to take when banks then ask for rescue money.

He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds.

“The tougher we are on the executives that come to Washington, the fewer will come for a bailout,” he said.

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January 3, 2009

Government sends Chrysler

$4 billion bridge loan

AUBURN HILLS, Mich. – Chrysler LLC and the U.S. Treasury Department said Friday that the government had supplied the automaker with a $4 billion loan that was necessary to keep it operating.

Chrysler Chief Executive Bob Nardelli said in a statement the loan would “allow the company to continue an orderly restructuring, while pursuing our vision to build the fuel-efficient, high-quality cars and trucks people want to buy.”

Nardelli described the funding as an “initial loan.” The automaker had asked Congress to borrow $7 billion.

Chrysler, which is 81 percent owned by Cerberus Capital Management LP, was nearing the minimum level of cash — $2.5 billion — it needed to operate and has been fending off parts suppliers and other vendors demanding cash payments on delivery.

It generally pays suppliers $7 billion every 45 days.

Treasury spokesman Brookly McLaughlin said in a statement that the department finalized the transaction and “funded the full amount of $4 billion.”

The loan’s completion followed a similar transfer of $4 billion from Treasury to General Motors Corp. on Wednesday, the first tranche of a $9.4 billion loan.

The administration had earlier approved a total of $17.4 billion in aid to automakers, of which GM and Chrysler each were to get $4 billion by the end of December. GM is supposed to get another $5.4 billion in January, and could also get $4 billion in February — if more money from the $700 billion bank rescue plan approved by Congress in September is released.

Ford Motor Co. said it does not intend to use government money to fund operations, as it is in a better financial position than its competitors.

Earlier Friday, GMAC LLC, General Motors‘ auto financing firm, said the government will also get 5 million preferred shares of GMAC paying 8 percent interest in exchange for its $5 billion capital injection to help GMAC avoid bankruptcy.

GMAC is 49 percent owned by General Motors and 51 percent owned by private equity firm Cerberus.

The Detroit automakers are trying to weather the biggest auto sales slump in more than 26 years.

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January 3, 2009

Obama: Country needs

economic stimulus plan

By PHILIP ELLIOTT and ANDREW TAYLOR, Associated Press Writers

CHICAGO – President-elect Barack Obama urged congressional leaders Saturday to move quickly on an economic recovery plan, even as some Republicans are saying they want more time to review the details.

Obama said Congress should pass an American Recovery and Reinvestment Plan designed to create 3 million jobs. The Democratic president-elect hasn’t announced a final price tag on it, but aides said the cost could be as high as $775 billion.

“For too many families, this new year brings new unease and uncertainty as bills pile up, debts continue to mount and parents worry that their children won’t have the same opportunities they had,” Obama said in an address taped Friday and distributed on radio and posted on YouTube Saturday morning.

The nation’s economy remains the top challenge facing Obama when he takes office on Jan. 20. The Federal Reserve estimated that lenders were on track to initiate 2.25 million foreclosures this year, more than doubling the annual pace before the crisis set in. One in 10 U.S. homeowners is delinquent on mortgage payments or in foreclosure.

House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., are to receive details on Monday. Obama plans meetings next week with other congressional leaders — including Republican members whose support he will need — and made an effort not to blame his predecessor, the unpopular President George W. Bush.

“However we got here, the problems we face today are not Democratic problems or Republican problems,” Obama said. “The dreams of putting a child through college, or staying in your home, or retiring with dignity and security know no boundaries of party or ideology. … I am optimistic that if we come together to seek solutions that advance not the interests of any party, or the agenda of any one group, but the aspirations of all Americans, then we will meet the challenges of our time just as previous generations have met the challenges of theirs.”

Obama aides had hoped to have an economic plan approved by the House and Senate before Obama takes office. That timeline, though, appears unlikely as time is running out and Republicans have urged a delay to review the plans. Sen. Mitch McConnell, the Republicans’ top official, said the plan needs time so that “every dollar needs to be spent wisely and not wasted in the rush to get it spent.”

Congressional aides briefed on the measure say it’s likely to blend tax cuts of $500 to $1,000 for middle-class individuals and couples with about $200 billion to help revenue-starved states with their Medicaid programs and other operating costs.

A large portion of the measure will go toward infrastructure projects, blending old-fashioned brick and mortar programs such as road and bridge repairs and water projects with new programs such as research and development on energy efficiency and an expensive rebuilding of the information technology system for health care.

“Economists from across the political spectrum agree that if we don’t act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment and the American dream slipping further and further out of reach,” Obama said.

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Andrew Taylor reported from Washington.

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January 4, 2009

Stimulus Bill Probably

Won’t Reach Obama

Until February, Hoyer Says

By David Clarke, CQ Staff David Clarke, Cq Staff – Sun Jan 4, 12:11 pm ET

Congressional Democrats are pulling back on their plan to enact an economic recovery or stimulus plan by Inauguration Day and are extending the timeline to early February.

House Majority Leader Steny H. Hoyer said the original plan, which would have required a House vote early in the week of Jan. 12, now appears too ambitious.

“It’s going to be very difficult to get the package put together that early so that it can have sufficient time to be reviewed, and then sufficient time to be debated and passed,” Hoyer, D-Md., said on “Fox News Sunday.” “But we certainly want to see this package passed through the House of Representatives no later than the end of this month, get it over to the Senate, and have it to the president before we break for the presidential break.” Congress goes on a week hiatus the week of Feb. 16.

Democrats had been hoping to have a bill ready for President-elect Barack Obama’s signature shortly after he is sworn into office on Jan. 20. The legislation would cost hundreds of billions of dollars and is aimed at turning around the struggling economy.

House and Senate Republicans have warned Democrats not to rush a bill through Congress without holding public hearings or providing GOP members opportunities to put their imprint on the bill. Republican leaders say enacting a bill by Jan. 20 would not allow enough time to review the legislation.

Despite losing seats in the November election Republicans still have the ability to slow legislation in the Senate because Democrats do not have a 60-vote supermajority that would allow them to potentially end filibusters.

Congressional Democrats have been in discussions with Obama’s transition team over a bill that could cost between $700 billion and $1 trillion and would focus on spending for infrastructure projects, aid to states for such things as Medicaid programs and a tax cut aimed at the middle class.

Republicans have said they are concerned about the overall price tag of the bill being discussed but have been careful to say they are not outright opposed to the broad elements of the legislation.

“All we’re suggesting, here, is that we be a part of the process,” Senate Minority Leader Mitch McConnell, R-Ky., said on ABC’s “This Week.”

“The president has said he wants to create 3 million new jobs, presumably as a result of this economic stimulus package. We want to make sure it’s not just a trillion-dollar spending bill, but something that actually can reach the goal that he has suggested,” McConnell said. He also added Republicans are concerned that too many government jobs — as opposed to private-sector employment — would be created.

On NBC’s “Meet the Press,” Senate Majority Leader Harry Reid, D-Nev., made an effort to strike a conciliatory tone, saying he wants Republicans to be part of the process.

Reid pushed back against the idea Democrats have a strict timeline, saying only that it should done “as quickly as we can.”

McConnell suggested that before moving to a stimulus package, Congress should enact the nine remaining spending bills for fiscal 2009, which began Oct. 1.

“Much of that spending is related to the kinds of items that may well end up in the trillion-dollar spending package,” he said.

Outside of the Defense, Homeland Security and Veterans Affairs departments and the intelligence community, the rest of the government is being temporarily funded at last year’s levels through March 6 (PL 110-329).

Democratic aides say that a nine-bill omnibus spending measure is essentially done and ready to be considered whenever party leaders want to put it on the floor. That action, however, depends on how the omnibus would affect negotiations for consideration of the stimulus bill, the aides said.

McConnell said a tax cut for the middle class could be done quickly and said that Congress should consider providing aid to states in the form of a loan rather than a grant, an idea that will likely have little traction with Democrats and governors.

Bailout Money Hoyer also said on Sunday that the House may consider as early as this week a bill to release the second half of the $700 billion Congress authorized to help turn around the financial sector and credit markets.

Under the $700 billion law (PL 110-343) enacted in early October, if the administration requests the final $350 billion, Congress will have 15 days to vote on a resolution of disapproval.

Democrats have been unhappy with how that program has been administered, arguing that recipients have not done enough to get the credit markets flowing again and that the Bush administration has not used the funding to deal with foreclosures and other problems facing the housing sector.

Hoyer said the legislation brought to the floor would likely contain language requiring more oversight of how the money is used as well as provisions concerning mortgages.

“We need to make sure that we’re focused on helping out in the mortgage area, which was the basis of this particular crisis and the onset of this financial crisis,” He said.

Hoyer said that on the House agenda for early this years are:

- An expansion of the State Children’s Health Insurance Program (SCHIP) that was vetoed by President Bush.

- Finishing the fiscal 2009 appropriations bills;

- The “card check” bill, which would eliminate the right of employers to demand a secret-ballot election before a union could be certified, that is being pushed hard by labor groups but is strongly opposed by Republicans.

- Legislation that would make it easier for women who are paid less than their male counterparts to bring suits against their employers and be compensated, known as the Lilly Ledbetter bill.

Cedar Creek Voice

STATE OF OUR U.S. ECONOMY