Sens. Olympia Snowe of Maine and Ron Wyden of Oregon have temporarily lost their effort to force financial institutions to repay taxpayers for the huge bonuses they handed out after receiving federal bailout money. Their plan deserves another chance.
“Clawback,” in the Newspeak used as we try to deal with the deepening economic collapse, means recovering money that never should have been paid in the first place.
Sen. Snowe, one of the only three Republican members of Congress to vote for the stimulus bill, teamed up with Sen. Wyden, a Democrat, to attach an amendment to that effect. Their measure made it into the Senate bill but was removed without explanation in the closed-door talks that prepared the final bill that President Obama has signed.
Sen. Snowe has been a leading advocate of transparency and accountability in the government’s financial bailout program. She charged that the $700 billion TARP (Troubled Assets Relief Program) enacted last fall “left open an escape hatch of golden parachutes for top executives on Wall Street.” She said that many of the executives who got bonuses that often ran into many millions of dollars were the very ones whose mistakes hurt the financial system and forced taxpayers to foot the bill.
The amendment would have kept banks and other financial institutions from using TARP funds to pay bonuses of more than $100,000. It would have required those that got the bailouts either to repay the government for any individual bonuses over that limit or else pay an excise tax of 35 percent on the money.
Several senators are said to have questioned the legality of the plan, since Congress had not limited the bonuses when it approved the TARP program last October. But a letter from the Joint Committee on Taxation said that the measure “presents a strong case for constitutionality since it has only a modest look-back period.” Most of the bonuses were paid in the last two months of 2008. Some bankers also make the questionable argument that money is “fungible” and they can’t figure whether a bonus came out of their own or government funds.
Financial institutions received more than $274 billion from the bailout program and paid an estimated $18.4 billion in employee bonuses, the committee said.
Many Wall Street figures oppose restrictions on bonuses and similar “retention payments” on the ground that they are essential to keep brokers and traders from jumping ship in a mounting recruiting war. The Wall Street Journal reported in its Feb. 14-15 issue that Morgan Stanley and Citigroup plan to pay brokers about $3 billion to keep them from being poached from their joint venture.
But, as Sen. Snowe has suggested, many of these brokers, who hope to get huge incomes from a recovered system, helped break the old system by peddling risky investments and encouraging excessive borrowing.
Better to build a new pragmatic financial culture than reward past greedy mistakes.