Mr. DeMille, They're Ready For Their Closeups!

by hilzoy

New York Magazine has what Felix Salmon calls "an astonishing concatenation of moans and whines from New York’s monied classes". It's truly surreal. For example:

""Without exception, Wall Street guys have gotten accustomed to not being stuck in the city in August. So it becomes a right to have a summer home within an hour or two commute from Manhattan," says the Goldman vet. "There’s a cost structure of going with your family on summer vacation that's not optional. There's a cost structure of spending $40,000 to send your kids to private school that is not optional. There's a sense of entitlement, that you need that amount of money just to live, that's not optional."

"You can't live in New York and have kids and send them to school on $75,000," he continues. "And you have the Obama administration suggesting that. That was a very populist thing that Obama said. He’s being disingenuous. He knows that you can't live in New York on $75,000.""

And yet, strange to say, in 2007 the median family income in New York City was $52,871.  Maybe New York takes in floods of new residents every year, and so many of them die of starvation that the median income is actually below the level needed to survive. Maybe over half of the families in New York are zombies. Or maybe -- just maybe -- over half the families in New York live well below the level this "Goldman vet" thinks you just can't live on. 

Likewise (this is a different speaker): 

"That said, he continues, "We’re in a hypercapitalistic society. No one complains when Julia Roberts pulls down $25 million per movie or A-Rod has a $300 million guarantee. We have ex-presidents who cash in on their presidencies. Our whole moral compass has shifted about what's acceptable or not acceptable. Honestly, you can pick on Wall Street all you want, I don’t think it's fair. It's fair to say you ran your companies into the ground, your risk management is flawed -- that is perfectly legitimate. You can lay criticism on GM or others. But I don’t think it's fair to say Wall Street is paid too much.""

Wrong. People at firms that would not have survived without government assistance might have been Julia Roberts a couple of years ago. Now, they're Norma Desmond. 

If you want to say that whatever the free market in its wisdom dictates that people are paid is fair, then the fair wage for people at AIG, Citi, and any other firm that would not have survived without government assistance is zero. If you want to use some other metric, then Julia Roberts et al are irrelevant. But you do not get to appeal to the marvels of the market to justify your exorbitant salary when times are good without accepting its conclusions when it implies that the fair value for your work is nothing. 

And I don't even know what to say about this:

"There is rage at Obama for pushing to raise taxes ("The government wants me to be a slave!" says one hedge-fund analyst)"

If raising the marginal tax rate to 39.6% counts as "slavery", then I suppose that the fact that top marginal tax rates during the Truman, Eisenhower, and Kennedy administrations were over 90% is a Holocaust. Or, you know, maybe not.

Seriously: I recognize that it's tough when the world you've known disappears. It's less tough when that means that you have to figure out how to survive on a six-figure salary than it is when your house gets foreclosed on, but still. That said, the degree of self-delusion on display in this article is just astonishing.

They don't get the fact that it is abnormal when people right out of college or business school can command more money than most people will ever see in their lifetimes. They don't get the fact that the firms for which they worked produced an economic catastrophe that has reduced people all over the world to genuine poverty (as opposed to living on $75,000 in New York.) They don't get the fact that the compensation at those firms had a lot to do with that catastrophe. They don't get the fact that because of their greed and stupidity, we had to rescue those firms -- which means that their lifestyles are being supported by truckdrivers and pharmacists and primary school teachers across the country, many of whom would love to try to scrape by on $75,000 a year. 

And they really don't seem to get what's wrong with this:

""I'm not giving to charity this year!" one hedge-fund analyst shouts into the phone, when I ask about Obama’s planned tax increases. "When people ask me for money, I tell them, 'If you want me to give you money, send a letter to my senator asking for my taxes to be lowered.' I feel so much less generous right now. If I have to adopt twenty poor families, I want a thank-you note and an update on their lives. At least Sally Struthers gives you an update.""

How fortunate for that analyst that most of us don't feel the same way. Writing three hundred million thank you notes would take an awfully long time.

Comments

[ScentOfViolets]

Brett, Sebastian, do you have any reputable cite for banks being 'forced' to accept TARP money? I've looked around and haven't found any.

No, Cato, Heritage, et al are not reputable cites, and no, telling banks that if they don't take money now that if they need it later they will receive less favorable terms is not 'force'. I would have thought force would have been 'at the point of a gun'. You know, like the government collects taxes. Supposedly.

So let's see these cites.

[Brett Bellmore]

It appears that, while the banks theoretically could refuse the money, banks are sufficiently vulnerable to federal regulators' arbitrary decisions that they were under a lot of pressure to do what the government was telling them to, even if they weren't legally required to.

At least, a fair number of bank executives say that they weren't given any real choice. US Bankcorp CEO Richard Davis:

"I will say this very bluntly: We were told to take it. Not asked, told. 'You will take it,' " Davis said. "It doesn't matter if you were there on the first night and you were told to sign on the dotted line before you walked out of the office, or whether in the days that followed, you were told to take it."

"We were told to take it so that we could help Darwin synthesize the weaker banks and acquire those and put them under different leadership," he said. "We are not even allowed to mention that. ... We were supposed to say the TARP money was used for lending."

[ScentOfViolets]

You're not posting any evidence Brett. Where is this evidence? Or is this the closest you can get to an admission that you don't have any?

[Brett Bellmore]

Ok, a bank CEO saying he was forced to take the money isn't evidence that he was forced to take the money. Have it your way, this is a waste of time.

[ScentOfViolets]

You're right. It is a waste of time. Because you won't come through. Why don't you post something by an administration official, Paulson, say, or Bernanke? And from a reputable source, like the NYT? Instead of from people whose reliability is suspect to put it mildly, and have every incentive to misrepresent the situation. I'm guessing you won't even admit to the fact that they do stand to gain if they are allowed to pay back those monies with no penalty.

What's doubly funny here is that even you can't come up with a mechanism by which this transfer of funds was 'forced'. And that once again, you are making not the remotest attempt to be persuasive.

[Phil]

Wow. Lowering your limit and then charging you overlimit fees is crazy!

Yeah, kinda like deliberately clearing the largest items from your bank account first, so that if you're going to be overdrawn, you'll be overdrawn on several small items rather than one large item, so that the bank can charge you multiple NSF fees rather than one. This is SOP for banks. They do it every single day.

[TJ]

Ok, a bank CEO saying he was forced to take the money isn't evidence that he was forced to take the money.

You're missing the "or else". And if the only "or else" is the threat of an audit, then I discount pretty much everything that Davis says.

[ScentOfViolets]

A bank CEO saying he was forced to take money isn't even evidence that anything like that occurred. These are not trustworthy people, they are people who have every incentive to distort, deceive, misdirect and flat-out lie. I'd like to see some transcripts of this supposed incident, or failing that, some corroboration from the government side.

I've looked for a while on Google using every search string I can think of, following links, etc, and I just can't find anything that's not some sort of right-wing site or hearsay. You'd think that if this actually happened, I could get the story from CNBC, the NYT, Meet the Press, . . . but nothing. Nada. Zip.

[Brett Bellmore]

You want trustworthy sources, or http://www.commentarymagazine.com/blogs/index.php/rubin/63031>somebody from the administration? Got to make up your mind, it can't be both.

[ScentOfViolets]

Uh-huh. So why don't you actually give some cites? Not hearsay from unreliable bankers.

You can't, can you? But you want me to believe you anyway. Is that about the size of it?

[Brett Bellmore]

Yes, you wouldn't want any cites from the people who were actually there, would you? What are first hand accounts worth, anyway, compared to administration talking points?

[ScentOfViolets]

Why should I believe these particular people? And what sort of 'force' do they claim has been brought to bear? Finally, why don't we have any quotes from administration officials who were at that meeting?

These aren't difficult questions to answer.

[ken]

It is not a matter of controvery that in the initial round nine banks were pressed by Paulson to take various amounts of TARP funds by way of selling the treasury preferred stock with a 5% coupon (with warrents attached).

Looking back we see that, at the time, a few like C and BAC needed the extra capital but others like JPM, GS and WFC did not. Paulson made it clear, however, that each of the nine largest banks did not have a choice in the matter but that all would take the deal so no one could be singled out as in need of government rescue.

Later this was expanded into the TARP Capital Purchase Program and was opened up to all banks. These later participants had to apply for funds, the treasury did not approach them.

The official position of the Treasury is that this entire program was voluntary, but that is not completely true. To get the program started the first nine banks were strong-armed into going along with the deal. The rest, however, were in fact voluntary participants.

It should come as no surpise to anyone that a few of the voluntary participants have already redeemed the preferred shares determining that the subsquent restrictions inposed by Congress and Treasury were not worth the trouble. In each case there was a nice profit to the treasury.

[Fraud Guy]

Phil,

I have another one, from my latest bank statement.

Three items cleared in one day--two bill payments and my direct deposit payroll.

They were posted @ 6pm, @ 6:30pm, and @ 5am, respectively.

Guess which two posted first on EOD reconciliation, which would have caused an overdraft if I didn't have enough funds prior to the payroll.

Messed up: yes
Fraudulent: yes (attempted theft by deception)
Legal: yes (Fed rule allows banks to post items how they want when received on same business day, so long as they are consistent)

[Brett Bellmore]

"To get the program started the first nine banks were strong-armed into going along with the deal.

...

In each case there was a nice profit to the treasury."

Nifty deal that, forcing banks that didn't need to be bailed out to take loans they didn't want, AND making a nice profit on it.

[ken]

Brett, none of the first nine banks have redeemed the preferred shares, yet. Citi may never redeem them but may instead convert them to common shares. All nine have paid fat dividends into the treasury while imposing deep cuts on the dividends paid to private investors.

I am aware of five smaller banks that have actually redeemed their preferred shares already. (Read it on Bloomberg) The 'profit' to the treasury comes from the 5% dividend paid, which cost the treasury 2-3% in borrowing cost.

[Spartacvs]

Nifty deal that, forcing banks that didn't need to be bailed out to take loans they didn't want, AND making a nice profit on it.

I believe the Bush administration complaints dept. has shut its doors, so I guess you and the banksters are SOL on that one. Though there is the consolation that as a taxpayer you came out ahead on the deal to consider.

[Nate]

Brett: Please re-read the following:

"It should come as no surpise to anyone that a few of the voluntary participants have already redeemed the preferred shares determining that the subsquent restrictions inposed by Congress and Treasury were not worth the trouble. In each case there was a nice profit to the treasury."

[Brett Bellmore]

Ok, let me be clear:

1. Is there any reason to believe that the banks which were forced to take the loans won't similarly end up paying a "nice profit to the treasury", if they're ever allowed to redeem those shares, which really stinks for a deal they couldn't say "no" to.

2. They didn't want or need the loans, are equally subject to the subsequent conditions; If they haven't redeemed those shares, isn't this pretty good confirmation of stories that the feds aren't letting them pay the loans back even though they could, and want to?

Forced to take a loan they don't want, terms unilaterally changed after the fact, not permitted to pay it off. Why should I cheer about the treasury department getting into loansharking?

"Though there is the consolation that as a taxpayer you came out ahead on the deal to consider"

Um, no: The treasury came out ahead on the deal. The treasury not being the same as the taxpayer.

[Spartacvs]

The treasury came out ahead on the deal. The treasury not being the same as the taxpayer.

So the government doesn't need to tax you as much or borrow as much, which means you come out ahead, right?

[ken]

Brett, only a few banks were actually pressed into the deal by Paulson. Citibank may never redeem the preferred shares but instead may end up converting the treasuries senior preferreds into common shares. At least that is the agreement they have with Treasury should they need to go that route. JPM can redeem the shares right now but will not be allowed to until they can raise capital through unsecured bond sales. Right now they are using the FDIC guarantee (for three years) to sell bonds. GS has recently raised private money with a common equity secondary issue. But again, as long as they cannot sell unsecured bonds they will be in need of the capital provided by the TARP Capital Purchase Program. WFC and some of the other banks are in the same situation.

Those that do not need the capital provided by the preferred shares and can sell bonds outside of FDIC insured program are the ones who can 'escape' the additional restrictions imposed by congress and the treasury on their operations by redeeming the preferred shares.

In spite of the nice profits (used to shore up capital) made by many of the large banks in the first quarter they are not yet out of danger. I suspect the treasury will enjoy collecting some fat dividend payments on their holdings for another year or two.

While it is still early I think that we make money in the long run on the treasury investments.

[ScentOfViolets]

It is not a matter of controvery that in the initial round nine banks were pressed by Paulson to take various amounts of TARP funds by way of selling the treasury preferred stock with a 5% coupon (with warrents attached).

Looking back we see that, at the time, a few like C and BAC needed the extra capital but others like JPM, GS and WFC did not. Paulson made it clear, however, that each of the nine largest banks did not have a choice in the matter but that all would take the deal so no one could be singled out as in need of government rescue.

You keep saying this as if it will make it somehow true. Again, where is the evidence that these banks were 'forced' to take money? What power of government was brought to bear, explicitly? Were the heads of banks threatened with jail? I'm not even sure the government even has the sort of powers you're claiming for it.

[d'd'd'dave]

SOV

"I'm not even sure the government even has the sort of powers you're claiming for it."

The major asset class of banks is loans. Estimating the collectability of a loan is a subjective endeavor. All the govt has to do is get the FDIC or Federal Reserve to conduct a bank examination and come to the conclusion that a banks loans are substantially less collectable than has been previously thought. Suddenly the bank would have to take a big loan loss reserve which would appear as a loss and reduce capital. The bank could be forced in this way by the stroke of a pen into having a regulatory capital deficiency. The feds could issue a cease and desist order which would prevent the bank from lending. The FDIC could withdraw it's insurance. Poof. Instantly there is a run on the bank. The bank is gone.

You are naive if you think Paulson's threat was not force.

Paulson: "If you don't take the money now you might not be able to get it if you need it later"
Wells Fargo: "Uh...why would I need it later?"
Paulson: "Isn't your quarterly bank examination starting in a couple weeks? Wink Wink"

[Brett Bellmore]

"So the government doesn't need to tax you as much or borrow as much, which means you come out ahead, right?"

If the government is taxing as much as it can get away with, and borrowing every cent people are foolish enough to give it, no, it just means it has that much more to spend on increasing it's control over the economy.

If this bailout has taught people anything, it's a lesson politicians are very happy to have everyone learn: Campaign donations have a much higher rate of return than any real investment.

Having that be true is a terrible thing for a country.

[Fledermaus]

Since I was the one wondering how the fed was forcing banks to take money this certainly bolsters the case:

In an interview with this Office, Secretary Paulson largely corroborated Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management.