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bailout

The House Committee on Ways and Means has announced that Rep. Charles B. Rangel (D-NY) has introduced legislation to tax executive bonuses. The legislation, if passed, would affect bonuses received after January 1, 2009. You can read the text of the bill here as a pdf.

The legislation, which has been introduced as H.R. 1586 imposes a tax of 90% on bonuses of “highly paid individuals” (meaning those with AGI of $250,000 or more) for employees of companies which have received $5 billion or more under TARP. Hmm… Who could that be? Thinking… Thinking…

Could it be AIG? And Bank of America?

Interestingly, as Congress ramps up the restrictions on TARP money, more and more banks are miraculously finding that they really don’t need the money after all. In recent weeks, banks such as Sun Bancorp, Inc., the parent company of Sun National Bank, have indicated that the program is more trouble than it’s worth; Sun says it will return the $89 million of TARP funds that it has received. Makes you wonder why they took it in the first place.

Other banks, like Wells Fargo, are already whining about the “cost” to the banks. Wells Fargo cut its dividend pay out in order to repay TARP money. Wells’ CEO, Jeff Stumpf, has said, “These actions will help us repay the government’s investment at the earliest practical date. The U.S. Treasury’s Capital Purchase Program investment is generating a return for the U.S. taxpayer — at significant cost to the company.” Um, but that’s what lenders do, right, Mr. Stumpf? They make money on loans. I guess it doesn’t feel so good in the other direction.

Meanwhile, smaller community banks are making very public the notion that they have not accepted TARP funds. Some of those banks include Auburn National Bancorporation, Inc., United Bancorp and Pennsylvania’s own Harleysville Savings Financial Corp.

The field keeps changing on this one day by day. Stay tuned!

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You won’t get it today.

Newly confirmed Secretary of the Treasury Timothy Geithner was slated to announce details of the revised bank bailout plan on today but that’s not going to happen. The Treasury is moving the planned speech ahead to tomorrow in order to focus on the economic stimulus bill. The bill is being debated today in Congress and most pundits expect a long day.

A spokesperson from the Treasury, Isaac Baker, said, “With record high job losses, and weakening economic forecasts, we’re focused on working with Congress to pass an economic recovery bill so we can create the jobs and make the investments necessary to get our economy moving again.” His announcement comes amid news of more layoffs. Nissan has indicated that it will axe more than 20,000 jobs today.

Realistically, more taxpayers likely care about the stimulus plan than the revisions to the Troubled Asset Relief Fund, or TARP, which was created to save the nation’s banks. Considering the news of office renovations, planned purchases of private jets and sports teams and disturbingly high bonuses for underachievement which have been earmarked by the banks so far, taxpayers are growing increasingly cynical (if that’s possible) that any additional money will be put to good use. Banks are not making new loans in the amounts anticipated and they have not made any advances on stilling a growing tide of foreclosures. It has made many taxpayers question what the point of throwing money at the banks was in the first place.

Despite the mood on Main Street, Geithner will announce how Wall Street will get to use the remaining $350 billion. Most experts anticipate that Geithner will announce a mixed bag of TARP measures, from buying up “bad assets” to insuring other assets, including mortgages and adding new capital.

But what will be done about the foreclosures? This is politically tricky. It’s important to stop the bleeding, all sides agree, but many taxpayers are wary of their own money being used to “rescue” homeowners who may have overborrowed. President Obama has indicated that nearly $50 billion to $100 billion will be spent to save homes. How that money will be spent is still uncertain.

It’s a scary proposition, isn’t it? Government throwing money – in amounts that we can’t even really grasp – at a problem with no guarantees that anything will change. In fact, since the TARP money has been paid out, initially under the Bush administration, with sums totaling more than $350 billion, little to no real change has happened. Arguably, the economy has gotten worse with more foreclosures and more layoffs. The so-called experts say that if we fix the banks, we can fix the economy. So, what’s the answer to the banking industries’ woes? We’ll have to wait one more day to find out.

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Taxpayers have been crying foul for weeks now after it was revealed that executives of failing financial institutions were still being rewarded with extraordinary pay outs. How big were the pay outs? If you include stock options, bonuses and perks, the chief executives of 10 banks which received $161 billion in federal bailout money took home a cool $200 million – or $20 million each. Not bad for running a company or two into the ground (note to banks who are hiring: I will offer to run your company into the ground for a quarter of that).

Notably, Bank of America Chief Executive Ken Lewis earned a base salary of $1.5 million plus nearly $20 million more in “extras” in 2007. Vikram Pandit, the head of the beleaguered Citigroup, was said to have received a salary of $250,000 plus double that in “extras” in 2007 and total compensation of $573,813; the Wall Street Journal, however, claims that SEC and other filings put his compensation at closer $5.66 million for 2007. That’s still less than his predecessor, Charles Prince III, who as chairman and CEO of Citigroup received nearly $26 million in total compensation in the prior year. And good ol’ Martin Sullivan, who was ousted from AIG last year, still made out just fine: the British-born businessman took home $14.3 million in salary and compensation in 2007. For more information, you can check out this list of compensation for top bank executives as compiled by CNN.

All totaled, estimates are that Wall Street bonuses topped $18 billion for failing companies in 2008.

To put it into perspective, that translates into 1,321,197 full time wages for the year at the minimum wage rate of $6.55/hour. Yep, the equivalent of more than one million jobs low wage earning jobs. If you use the average wage (nationally) as determined by SSA and DOL wage data, it works out to 485,463 full time jobs for the year.

Nonsensical for sure and more than just a little offensive to most taxpayers who are finding it difficult to make ends meet.

In an effort to stave off complaints from ordinary taxpayers – those same taxpayers that have been called upon to “make sacrifices” – President Obama has announced that executives of companies receiving “exceptional assistance” in the way of federal bailout money will have their pay capped at $500,000 annually. Companies that want to pay their top executives more than $500,000 can issue restricted stocks that cannot be sold until money borrow from the government bailout plan is repaid. The new rules will also require banks to allow shareholders of financial institutions to have more say about executive compensation. The plan will also mandate greater transparency for discretionary spending such as holiday parties (remember the $440,000 bash at a California spa for AIG execs a mere week after the bailout was approved?) and office renovations (no more $35,000 toilets for Merrill Lynch execs?).

And the rules are, of course, prospective. That means that they would apply to future TARP assistance. We wouldn’t want to muck up what’s already in place – we blew that chance already.

So now everybody’s happy, right?

Um, not so fast.

There are a lot of issues to consider. For one, even though this feels like a good idea, do we really want this level of government intervention into what we’re at least pretending, for now, is the open market? And what are the penalties for failing to comply with the new rules? I haven’t heard much talk about penalties. Is it a dollar amount? Or, like a stern father, will we just threaten to “cut the banks off” from further borrowing? Will compensation in excess of $500,000 mean that the loans are called immediately? For the full amount? So many questions. And I’m not sure that I want to know the answers. Because the answers mean that we’re getting closer and closer to being the boss of the banks. And goodness knows, we really don’t want that.

And what qualifies as discretionary spending? No more bashes, we get that. But what else? Citibank has agreed to drop its plans for a new private jet but they may still be clinging to naming rights that they worked out with the Mets for their new stadium. And while I’d like for this corporate name stickering to stop (c’mon, the Mets can afford Beltran but they need corporate sponsorship to build a new stadium), I have to think that interfering in private contracts isn’t the best way to govern. The Mets say that they are “fully committed to our contract with Citi,” according to Mets spokesman Jay Horwitz. Of course they are. They’re on the good end of the deal. But Citi? Not so much. They’re kind of damned if they do and damned if they don’t. Again, not a fan of Citi (or the Mets – Go Phillies!) but I don’t know that we should be forcing companies to undo deals that they’ve negotiated.

Of course, there’s the argument that it’s our money. You know, since it’s a loan. But that’s kind of a scary road to go down. If you take a personal loan from one of these banks, do you want really them monitoring your spending on every dollar? It’s kind of like when your dad loans you money and then questions whether the purchase of new shoes was the best way to go (not that I remotely know of where I speak… ahem).

There’s just so much going on here with the loans and the rules and spending…

I have the real answer. It’s incredibly simple. And yet, apparently too complicated a concept for the CEOs of big banks to grasp. Try being accountable and responsible. Then government wouldn’t need to monitor anything – but then, if they had done that in the first place, they likely wouldn’t be begging for money now.

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So let’s see. AIG gets a bailout. Banks get a bailout. The Big 3 automakers get a bailout.

Who’s next?

If Larry Flynt and our old friend and alleged tax evader Joe Francis have their way, it would be porn.

Flynt and Francis have penned a (no jokes, please, remember that my mom is reading) letter to Congress asking for a $5 billion bailout to save the porn industry. I’m sorry, I meant the adult entertainment industry.

Neither Flynt nor Francis claim to be in financial trouble (despite Francis’ tax and other legal woes). They note that while DVD sales are down, growth on adult entertainment web sites has been steady. Yet, Flynt believes that a porn bailout would do the country good, saying: “People are too depressed to be sexually active. This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex.”

Francis released a statement that “the US government should actively support the adult industry’s survival and growth, just as it feels the need to support any other industry cherished by the American people.” Cherished? Really? He’s such a wordsmith.

Congress has not responded to the letter.

My take? You’re expecting me to be indignant, I’ll bet. Only I’m not. It’s rare that I find myself in Larry Flynt’s corner but today I do. I get the absurdity of it all – which is exactly the conversation that he’s trying to start. The string of bailouts at the expense of taxpayers (though I’m not thoroughly convinced that Francis can count himself among taxpayers considering his pending charges for federal tax evasion) is making us weary. The numbers are starting to blur. What’s $5 billion anymore? We don’t even blink at those kind of numbers now that Congress is handing out $700 billion “virtually no strings attached” checks – remember, that’s our money. Ours.

So maybe we should spend it on things that make us happy – the folks at AIG certainly did.

Or maybe we should think a little bit harder about where our money is going and why.

With that, if you need me, I’ll be sitting at my desk drafting my own appeal to Congress for the tax blogger bailout…

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Is Santa Bringing Bush a Chrysler for Christmas?

12 December 2008

In a surprise move, the Bush administration has indicated that it might use taxpayer dollars previously earmarked for banks through the Troubled Asset Relief Program or TARP, to save the Big 3 automakers.
No, no, don’t read it again. You got it right the first time.
The White House had initially said “no way” to the [...]

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Fix the Tax Code Friday: Auto Industry Bailout

21 November 2008

It’s Fix the Tax Code Friday!
For most of the week, the headlines have involved the crisis in the automotive industry with eyes on the “Big Three”: Ford, General Motors (GM) and Chrysler. Execs from the Big Three jetted to DC to beg lawmakers for loans worth billions of dollars, warning that the failure [...]

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AIG Sues IRS for Enormous Refund

15 November 2008

AIG has revealed that they are suing the IRS for $329 million, claiming a refund for back taxes and penalties. Hmm, I wonder if they’ll return some of that bailout money if they win?
Oh wait. They won’t win.
That’s because the IRS has already labeled the transactions “abusive” and penalized the company for taking [...]

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PNC and Other Banks Benefit from Bad Debts

3 November 2008

Boy, am I glad that the government pumped billions of dollars into the banking industry!
Since that time, borrowing has become significantly easier. Wait, that hasn’t happened?
Well, at least the Dow regained its faith in the market. Wait, that didn’t happen either?
What did happen? Oh yeah, banks made more money.
Need proof? [...]

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You Get a Tax Perk! And You Get a Tax Perk!

8 October 2008

I’ve been tossing around blog post after blog post in my head, trying to figure out what to write exactly about the tax provisions in the most recent bailout package. And I think I’ve finally figured out what’s been bothering me: the darn thing just doesn’t make sense.
I knew that the bill was [...]

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Everything But the Kitchen Sink

1 October 2008

Why is it that Congress can’t pass a bill without a bunch of add-ons? As it turns out, the bailout of the economy will be no different.
This evening, the Senate passed a version of the bailout bill by a vote of 74 to 25 (in case you’re wondering, both McCain and Obama voted yes).
The [...]

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