After all the abuses of law, morals and ethics by the Bush administration over the last 8 years, I never thought that my outrage meter could get pegged again. Wrong.
The Financial Times reported that Merrill Lynch accelerated its normal time schedule for awarding bonuses and distributed $ 4 billion dollars on Dec 29, just 3 days before its takeover by Bank of America. At the same time Merrill posted $15 billion in losses for the fourth quarter. The total compensation for Merrill Lynch employees in 2008 was $15 billion.
That’s way more than just an outsized sense of entitlement, that’s flat-out stealing. And the money for this comes from, you guessed it, the US government. The Bank of America was prepared to back out of the deal once the size of the Merrill Lynch loss became apparent. The deal was completed only after guarantees of government money by the US Treasury.
This has got to stop. These are the same people who created the god-forsaken mess in the financial markets and yet are continuing to flaunt their greed and incompetence and literally daring anyone to do anything about it.
Unfortunately, the history of Obama’s economic advisors does not give one a general sense of relief or change that you can believe in. As Professor Willem Buiter of the London School of Economics said yesterday, while commenting on the general trajectory of bailouts in the UK:
This is very much in the US tradition, promoted by the US Treasury, the Fed and the FDIC, of maximising moral hazard for a given amount of immediate crisis fire-fighting. In the incoming Obama administration, both Treasury secretary Tim Geithner and NEC chair Larry Summers have had many years of experience, in the US and all over the globe, throwing good money after bad in pointless bail-out packages. The trio of Ben Bernanke, Geithner and Summers are likely to produce a veritable moral hazard monsoon.
Indeed, today’s report seems to verify that. One can only hope that Obama will set the tone rather than let his advisors do it for him.
Updated: The original post contained an error concerning the amount of total compensation vs the bonus compensation. That's been fixed.
Updated 2X: There has been considerably commentary about the taxation issue around bonuses and I likely stand corrected. My assumption (and I think it's a fair assumption) was that the lion's share of the bonuses were going to trader's and fund managers and that these folks were granted long term capital gains treatment due to the "carried interest" exclusion that works so well for hedge fund managers. Perhaps not. I've removed the offending paragraph so that others may focus on the issue of bonuses being offered, effectively at the same rate as in a profitable year, with a guarantee provided by the government to enable those bonuses for an otherwise bankrupt business.