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Wall Street Bailout Plus Bonuses

JohnMaynardKeynes
Posts: 1,512
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7/18/2014 12:26:39 AM
Posted: 2 years ago
This sounds like a peculiar question -- especially since I'm supposed to know this stuff -- but I heard an ostensibly spurious claim the other day that I thought I could easily fact check, but it turns out, it's harder than I thought. So I turn to DDO to see if someone can fact check this statement before I lose my mind even further at not knowing it.

In a conversation on the Wall Street bailout (TARP, not the $13 trillion from the Fed), a news anchor said the following:

"Most of the bonuses paid out following the bailout came from banks that didn't receive bailout money."

Now, the claim itself was almost impossible to research. Every piece I found on the subject merely pointed out that AIG, Goldman et al. paid out giant bonuses, which should be case closed. But I'm still dying to know the answer to this.

So, does anyone happen to know whether this is true?
~JohnMaynardKeynes

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slo1
Posts: 4,318
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7/20/2014 12:03:35 PM
Posted: 2 years ago
At 7/18/2014 12:26:39 AM, JohnMaynardKeynes wrote:
This sounds like a peculiar question -- especially since I'm supposed to know this stuff -- but I heard an ostensibly spurious claim the other day that I thought I could easily fact check, but it turns out, it's harder than I thought. So I turn to DDO to see if someone can fact check this statement before I lose my mind even further at not knowing it.

In a conversation on the Wall Street bailout (TARP, not the $13 trillion from the Fed), a news anchor said the following:

"Most of the bonuses paid out following the bailout came from banks that didn't receive bailout money."

Now, the claim itself was almost impossible to research. Every piece I found on the subject merely pointed out that AIG, Goldman et al. paid out giant bonuses, which should be case closed. But I'm still dying to know the answer to this.

So, does anyone happen to know whether this is true?

By our standards the bonuses were big, but they were drastically cut from pre-recession times, so I think he is technically correct.

The fundamental problem that I have with the premise is that it implies that the direct gov bailout did not indirectly help other businesses.

The simple fact of bailing out AIG allowed it to pay the money they guaranteed writing credit default swaps. If they went insolvent ant the world's banks and institutions lost all value on those contracts there would have been a lot more hell to pay and many other companies may have gone insolvent or at the very least cut executive bonuses for performing so poorly.

That does not even include the liquidity shortage that caused tremendous problems for many businesses to fund their short term operations.
slo1
Posts: 4,318
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7/20/2014 12:06:14 PM
Posted: 2 years ago
Also if recall TARP had compensation requirements for any company accepting funds.

http://www.treasury.gov...

So at a micro level, the guy was correct, but on a macro level was very incorrect.
fazz
Posts: 1,617
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9/24/2014 10:54:31 AM
Posted: 2 years ago
At 7/20/2014 12:03:35 PM, slo1 wrote:
At 7/18/2014 12:26:39 AM, JohnMaynardKeynes wrote:
This sounds like a peculiar question -- especially since I'm supposed to know this stuff -- but I heard an ostensibly spurious claim the other day that I thought I could easily fact check, but it turns out, it's harder than I thought. So I turn to DDO to see if someone can fact check this statement before I lose my mind even further at not knowing it.

In a conversation on the Wall Street bailout (TARP, not the $13 trillion from the Fed), a news anchor said the following:

"Most of the bonuses paid out following the bailout came from banks that didn't receive bailout money."

Now, the claim itself was almost impossible to research. Every piece I found on the subject merely pointed out that AIG, Goldman et al. paid out giant bonuses, which should be case closed. But I'm still dying to know the answer to this.

So, does anyone happen to know whether this is true?

By our standards the bonuses were big, but they were drastically cut from pre-recession times, so I think he is technically correct.

The fundamental problem that I have with the premise is that it implies that the direct gov bailout did not indirectly help other businesses.

The simple fact of bailing out AIG allowed it to pay the money they guaranteed writing credit default swaps. If they went insolvent ant the world's banks and institutions lost all value on those contracts there would have been a lot more hell to pay and many other companies may have gone insolvent or at the very least cut executive bonuses for performing so poorly.

That does not even include the liquidity shortage that caused tremendous problems for many businesses to fund their short term operations.

What kind of hell to pay? What companies would go insolvent?
fazz
Posts: 1,617
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9/30/2014 7:18:23 AM
Posted: 2 years ago
btw Slo, you made a claim that the bailouts were fair. Your silence tells me that your hiding something..
hatshepsut
Posts: 72
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10/6/2014 6:39:35 PM
Posted: 2 years ago
I checked the "Interim Final Rule" on compensation, link below. It seems to have applied only to the 20 highest-paid officers in a TARP firm. And bonuses could be paid bonuses for "back years" even after a firm received TARP. Bonuses could also resume in the year after a firm last got TARP. (See especially pp. 13, 88, 94 in the doc.)

http://www.treasury.gov...

My understanding is that as TARP was debated and passed in Congress, there were at first no compensation restrictions at all. It was only after AIG and certain other companies announced big bonuses that TARP was modified to address that. And the bonus provisions still did nothing about the multimillion-dollar "base" salary and options packages for officers responsible for running the firms into the ground.