$50 billion of bailout going to bonuses

October 31, 2008

If it isn’t enough to make you sick to your stomach that U.S. taxpayer monies are apparently going to bailout the world’s economies, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Already investigations are beginning into the nine banks that took in the first $125 billion. Yes, the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.

There are many feathers in a ruffle over this and New York Attorney General Andrew Cuomo and several congressmen are furious that over $20 billion has already been earmarked as bonus monies for management and employees. Unbelievably, that is just the estimates from Goldman Sachs (GS), Morgan Stanley (MS) and Merrill Lynch (MER). There are six more banks that are also working on similar heists.

Here is the rationale for why they need to use these funds: Read more…

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Written by Andrew Horowitz · Filed Under Economy, MarketMash

Comments

1078Comments2008-10-31+12%3A01%3A20Andrew+Horowitz to “$50 billion of bailout going to bonuses”

Tracy Rotton on October 31st, 2008 9:47 am

And have you seen this? http://tinyurl.com/6ydacj Is this what the Republicans mean by “spreading the wealth”? The hypocracy that’s going on here is unfathomable!!!!
Mark on October 31st, 2008 10:32 am

It is a crime to pay bonuses to those who are even partially responsible for putting us in this mess. Is that really who these bonuses are being paid to? Is the $20 billion that has been earmarked for bonuses really coming directly from the $125 billion of bailout funds or is it coming from different business unit’s funds?

Market forces define salaries and bonuses. Those in greater demand tend to get more money. Is it fair? Fair does not matter. Why would I work for you for $200m/year if someone is willing to pay much more for the same job? If you don’t provide incentives to those of value then there is a high probability that they will defect.

The bigger question is how do you determine who are the valuable employees and who are the problem employees? Using profitability alone has not worked. It encourages greater short-term risks. Maybe using profitability as a measure for bonuses is part of the reason why we are in this mess. Why else would these be such excessive use of leverage? Why else would there be the packaging and repackaging of debt? Those things were done to increase profitability.

I don’t know what the solution is. All I know is that there must be accountability.

In case some of you have not yet seen this:
http://bigpicture.typepad.com/photos/uncategorized/2008/10/27/sevendeadlysins1.gif
$50 Billion From Bailout Going to Pay Bonuses » jon phillips on October 31st, 2008 11:13 am

[...] $50 billion of bailout going to bonuses | The Disciplined Investor If it isn’t enough to make you sick to your stomach that U.S. taxpayer monies are apparently going to bailout the world’s economies, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Already investigations are beginning into the nine banks that took in the first $125 billion. Yes, the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses. [...]
Mark on October 31st, 2008 11:40 am

Jon,

I appreciate your response but I did read the article. I used the word “really” as in “are you sure”? I also stand by my comment that “It is a crime to pay bonuses to those who are even partially responsible for putting us in this mess.” I look forward to the findings of the investigations. If someone was responsible for this mess then they should be held accountable and certainly not be given a bonus. However, I do feel that larger incentives are necessary to retain top talent and top talent will be necessary to help undo this mess. I don’t know what the solution is to defining top talent but I do want to reiterate that “All I know is that there must be accountability.”

Mark
Barbara on October 31st, 2008 1:13 pm

With all of this bonus money, could you take a collection and help my children and I keep our home? The government will help the big corporations and not people that need a temporary help. My children will be without a home for the holidays. If this is “spreading the wealth”, please spread it my way.
Mark on October 31st, 2008 3:59 pm

Popular article! There are over 115,000 views and almost 1,500 comments as of 4:00 ET today.

Good for you Andrew! Now that’s performance worthy of a bonus. :-)
Employee Bonuses « Phil’s Favorites on November 1st, 2008 9:02 pm

[...] Andrew Horowitz has expressed his feelings on the outrageous plans for the bailout money to be spent on bonuses [...]
Xander McIntire on November 2nd, 2008 8:33 am

“If it isn’t enough to make you sick to your stomach that U.S. taxpayer monies are apparently going to bailout the world’s economies”

I’m not sure that’s true; a lot of governments are rescuing/bailing out/whatever ‘their’ respective nationally anchored banks, but that sentence makes it sounds like the U.S. (my) government is doing this out of the goodness of it’s heart, and not because, in many ways, it bears a lot of the responsibility for why we’re here.

That aside, this money going on bonuses is shameful. Sorry to the employees who weren’t the cause, but there’s many a minor/car builder who didn’t choose his company’s direction, but got put out of work anyway.
Banks: “We Don’t Need No Stinkin’ Lending” | The Disciplined Investor on January 14th, 2009 6:00 pm

[...] real name? Maybe the acronym TRAP is more fitting. It appears that the TRAP was simply designed to use taxpayer money to pay for huge trading losses. [...]

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