Bankers robbed the banks

Wasn’t it only in October ’08 that we all were told to believe that the whole financial system had collapsed/was on the verge of collapse and that we need to shell out $780 billion of tax payers money to the exact same bankers has cost us upwards of $5 trillion to-date (per President Obama on the Letterman Show)?

So what happened?

Goldman Sachs (GS) reported $3.4B in profits for the 2Q09. GS plans to pay $18B in total compensation to employees averaging a staggering $600K/employee.

However, Unemployment is still at 16.5% (including semi-employed and people who have given up looking for a job).

That’s what happened.

People are so worked up about the Health Care reform when what we are talking about is A) keeping people alive/healthy which will “actually” benefit the economy B) saving the long term “social” model (yes, social) of Medicare, Medicaid and VA that will not survive unless we control cost and C) most importantly, making it affordable to buy insurance for individuals.

That to me is completely misplaced anger. We all have reason to be angry, reason to feel disoriented, reason to feel like we’ve been had and reason to lose trust. But directing it at Health Care reform is not only wrong it is a disservice to the country. It is much better to focus on reforming our Financial Industry and I contend, the only way to do that by reforming our election campaign finance – remember that issue that was hot before the 2008 elections and oh yes, also before the 2004 elections? Though, I must admit right on the outset that I am not very hopeful that either can happen.

However are some plausible ways to make a dent:

1. Make Banking boring —  Banks should, asPaul Krugman points out, return to being “boring” and provide money at reasonable, conservative rates to support the rest of the society to invest, innovate and develop “real products” not consider credit default swaps as a product….ever! In effect, behave like a Utility Company….like they use to back in the 50s and 60s.

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The real bailout prescription

Banks Only

It seems like I am in a statistical state-of-mind lately.
If you were to go to the IRS website you will find the total number of Individual Income Tax Returns for the year 2008 is: 156,297,000 (Source: http://www.irs.gov/taxstats/ –>Filing Season Statistics –>Filing Season Weekly Reports –> Report for filing year 2008 –> End of Year End Report.)

Let’s take the top 25% of tax payers out and we are left with 117 million individuals.
Next, let’s take the $3.8 Trillion (anticipated government spending across current and pending stimulus and bailouts including Bush bailout) and distribute it evenly to the 117M individuals that filed taxes.

You will arrive at the astounding number of $32,478!

That’s what we all could have gotten (except for the top 25% of earners who shouldn’t need it) instead of the current morass of bailouts and stimulus.

Let’s play this hypothetical scenario out a little further:
Imagine how fast our economy would have recovered if we were given this money, income tax free in a special account, to spend within two years within United States including purchase of airline tickets to fly out of United States (money spent abroad will not count). For any one with credit card loan or mortgage default, there would be additional stipulation that they pay off the loans/mortgage first. I am sure IRS can think of many other stipulations (and that would be fine). At the end of each of the two years we all would have to submit receipts to ensure we complied with the stipulations.

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Why AIG Bonus is an important issue?

I know the furor on AIG bonuses is behind us but I didn’t come across any article that really hit the mark on why it is so important to focus on it — at least to my satisfaction.

Admittedly, Mr. Blow, in his column at the New York Times   came close. On the other hand, another NYT columnist, the famous Mr. Brooks,  in his recent column minimizes the issue — he doesn’t get it.

This is not about the $165M and the pittance it is in comparison to $2T required to “fix” the banks. It is about values that 95% (I believe) of us live by: a value system that has in-built checks within the system and more importantly within us as individuals that prevents us from conducting daylight robberies at the same companies that provide us sustenance. In AIG’s case it is obviously worse — they are not just stealing from the company money they don’t deserve, they are stealing from the American Treasury and the American people. We want to be ensured that we ALL understand the world the same way. This is a very important point — otherwise the foundation for a civilized society is pulled from underneath it. It is akin to driving by making your own rules — there will be accidents and deaths galore. Secondly, and equally importantly, unless we “fix” the thinking that afflicts Wall Street, I don’t know how people like Mr. Brooks and others imagine that we can “fix” the current situation? Despite the $2T bailout.

So in ending, it is not as much about revenge or repatriation, it is about making us believe that we all have the same understanding of rights and wrongs. It is about restoring confidence in our leaders and system more so than restoring confidence in our markets. I would like my leaders to restore my confidence in the following saying: “With great power comes great responsibility,” and stop convincing me that with great power comes great opportunity to fleece the system and unsuspecting people.

Obama restricts Executive pay!

The news is just in and I cannot be happier:  New York Times is reporting that the Obama administration plans to impose a cap of $500,000 for executive pay for any firm that will benefit from the next round of bailout money. This restriction is obviously not retroactive but many of the big banks are expected to come to the well once again given the deepening recession.

Yahoo! News reports, “Administration officials have said that the new restrictions would apply only to those struggling large firms that receive “exceptional assistance,” such as the American International Group Inc., Citigroup Inc., and Detroit automakers. They would not apply to healthy banks that receive government infusions of capital.

And Obama’s chief economic adviser, Larry Summers, has proposed that firms that want to pay executives above a certain threshold would have to compensate them with stock that could not be sold or liquidated until they pay back the government funds.”

On the same day, Obama was brave enough to admit that he made a mistake in nominating Tom Daschle for the Cabinet position — I like the courage in contrition displayed by our Commander-In-Chief. 

Hail the new President!

Why not socialism for all in bad times?

When it was reported that $18.4B were paid in bonus by the New York based Investment banks who were recently bailed out by tax payer money, the recriminations were swift: Obama called the act “shameful” and Senator McCaskill, reported Kansas City Star, called Wall Street executives “idiots” and proposed limits on some of their salaries.  For all in politics who were enraged by the mind-numbing greed and psychotically selfish behavior of these “guardians” of our financial system, the shocking part was that there were equal number of highly influential people who were supporting the bonuses!

The two that stand out are former NYC Mayor Rudolph Giuliani and the legendary former GE CEO Jack Welch.

Jack Welch said on Charlie Rose (paraphrasing), “while it might sound horrible but you have to realize that these people did not chose to cure cancer, educate kids. These people chose to make money, Charlie. And if we do not pay them bonuses they will go to other investment banks because they all know each other.”

And equally loopy logic from the egotistical Mayor Giuliani, “If you somehow take that bonus out of the economy, it really will create unemployment,” Giuliani said on CNN. “It means less spending in restaurants, less spending in department stores, so everything has an impact.” 

Mr. Welch and Mr. Giuliani, let’s start with basics: bonus is given based upon performance. The more enriching to the company an individual’s performance is, the more the bonus payout for the person. If you have sunk $1 trillion in wealth, taken anywhere from $200 to $300 billion of real cash in compensation and bonuses in previous years all under, what is obvious now, false premise of having grown money and then turned around and asked $350 billion in tax payer money to save your lousy, wretched enterprise then you should not be allowed to spell the word bonus! You should be sick to your stomach everyday on behalf of wrecking free enterprise and should be asking forgiveness of every person you have fleeced in your career.

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