What's Shameful, Now?

by dday

Barack Obama is mad as hell and he's not going to take it anymore.

President Barack Obama issued a withering critique Thursday of Wall Street corporate behavior, calling it "the height of irresponsibility" for employees to be paid more than $18 billion in bonuses last year while their crumbling financial sector received a bailout from taxpayers. "It is shameful," Obama said from the Oval Office. "And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility."

The president's comments, made with new Treasury Secretary Timothy Geithner at his side, came in swift response to a report that employees of the New York financial world garnered an estimated $18.4 billion in bonuses last year. The figure, from the New York state comptroller, drew prominent news coverage.

The bully pulpit is important, and Obama has actually been successful in shaming Wall Street corporate titans at the margins. Maybe he'll even claw back a couple billion in bonuses after this outburst.

Still and all, he IS the President, and he can probably get on the phone to Congress and, you know, tell them to pass the legislation the Senate is blocking that would put retroactive bonus limits on any firm who took TARP money.

[HR 384] Adds the stricter executive compensation limits from the auto bailout bill to firms that receive TARP money. The stricter limits include a ban on bonuses and incentives for to the 25 most highly compensated employees of a company, "any compensation plan that would encourage manipulation of such institution's reported earnings to enhance the compensation of any of its employees," and a mandate to divest in private airplanes. Notably, these stricter limits would apply retroactively to executives from companies that have already received TARP money.

Better than a "letter of assurance," any day.

Furthermore, given the fact that Obama's economic team and Wall Street executives have been in close collaboration about setting up a "bad bank," which would wildly overpay (with taxpayer money) for worthless securities and enrich bank CEOs to the tune of $250 billion, Obama's complaint borders on pathetic.

So, let me get this straight:

1. President Obama is outraged by the $18 billion going to salary bonuses on Wall Street;
2. President Obama and Treasury Secretary Geithner will make this point directly to Wall Street bankers;
3. The conversation will then return to exactly how President Obama and Treasury Secretary Geithner will give Wall Street bankers $250 billion in exchange for a bunch of worthless assests.

We'll be LUCKY to get away with $250 billion. That's only the remainder of the TARP II funds. The number being floated now by Wall Street is FOUR TRILLION. That's something like 30% of GDP.

The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.

The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.

Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.

New York Sen. Charles Schumer has said that a number of experts thought that up to $4 trillion may be needed to buy the bad assets, an estimate that a Senate aide said was based on informal conversations with people in the industry.

In Obama's defense, if you hide the words "billion" and "trillion," 18 is bigger than 4.

There's minor value in angry missives about bonuses, but there's major value in, uh, four trillion dollars. Especially when the more elegant solution is to take over the insolvent banks and stiff the shareholders. But such things are forbidden hippie-talk.