The idea that a financial institution should seek and receive a government/taxpayer-funded bailout because it is failing, but too big to fail (in other words failure would ruin our whole economy) and then turn around and reward its top executives with huge bonuses seems absurd on its face. And yet this is happening.
Wall Street institutions paid out more than $18 billion in bonuses last year (while the taxpayers are being robbed of billions to be handed out to these “poor” institutions supposedly to keep them from failing).
Of course it is not happening without complaint. The public is outraged. President Obama says he is outraged. He calls it “shameful”. And he promises there will be safeguards from now on to make sure things like this don’t happen (we’ve heard that before, but that was from the prior administration, but we have heard it before).
At least one senator said the government should take back that bonus money (we’ve heard that one before as well).
Yes, I think the government should do just that on the grounds that the financial institutions claiming to be in danger of failing defrauded the government. Any company that can afford to lavish bonuses does not need government help (and if they can’t afford it and are doing it anyway, that has to be malfeasance and out and out theft). There is an argument that bonuses are just part of the compensation package. Then why are they called “bonuses”? And besides, perhaps the “compensation” is too lavish for “failing” institutions (and the logic behind it is key to why they are failing).
This situation reminds me of the D. H. Lawrence short story “The Rocking-Horse Winner”. An upper middle class English family was in a desperate financial bind because the husband gambled and the wife overspent. She had to go to her brother to bail the family out. When her brother told her they would have to cut back, she refused to accept that. I think the Wall Street types are not accepting that either. In this case, the rich uncle is Uncle Sam, but Uncle Sam is not a person, he’s just the symbol of all the taxpayers.
Probably the rich uncle in the D.H. Lawrence story should not have bailed his sister out with her attitude. And I am beginning to think that Uncle Sam should not have bailed out any of the financial institutions (and you may recall I did not tend to support the bailout thing from the beginning).
The very idea that any business is too big to fail seems flawed to me. Are there not bankruptcy courts? (Kind of sounds like Scrooge: “are there not poor houses?”)
I have read speculation that the government may have to nationalize the banking system.
But if we are to maintain free enterprise (and I support that) and an essentially private banking system (and I support that, with regulation), then we have to allow institutions to fail.
When any business fails, eventually the void that it leaves, if any, is filled by another entity.
No one wants to see the major institutions fail and then the whole economy be wrecked. But to an extent it is already happening, even with bailouts.
Unless the government takes over the money institutions (and other businesses – auto makers?), it will have a hard to impossible task of telling them how to use their funds — and does the government really want to take them over?
Back to the bonus question. Some argue that there is logic in a failing institution paying bonuses because that is the custom in the business (and I don’t understand that one – paying bonuses for losing money) and the money used for bonuses is not the same that was received from the government bailout funding. Nonsense! Money is money and money is fungible.
Such shenanigans would not fly in a federal bankruptcy court if the average citizen was involved.
This nation is likely to fare better from the pain that will be caused by major institutions going bankrupt than by the mountain of debt that the government is now absorbing from failing institutions and the amount of debt it is incurring from future bailout plans.
I am more for our government stepping in and helping citizens in times of crisis (we are the force behind government; we are helping ourselves or each other) and only on an emergency and needs-tested basis.
P.s. And finally, I say to any business: pay your executives as much as you want, just not with taxpayer money!