Freakout in the Bonus Bubble

Did you hear the one about the hedge fund employee complaining that he’s got to scrape by on $350,000 this year because of his lower bonus?

This is not an anti-banker joke, it’s a Bloomberg News story.

In the story, reporter Max Abelson gets finance industry workers to open up about their feelings about their financial sacrifices in the wake of a reduction in bonuses this year.

One hedge fund marketing director acknowledges that he is “freaking out, like a rat in trap on a highway with no way out” because he will be unable to keep up with his kids’ private school tuition, summer rental and the upgrade to his Brooklyn duplex.

Bonuses were down about 14 percent across the financial industry last year in the wake of a second annual plunge in profits of more than 50 percent.

Noting that profits plunged a lot more steeply that the bonuses, the New York Times Dealbook column, which often takes the Wall Street view, couldn’t summon much sympathy. Reporter Kevin Rose sniffed, “It is apparently going to take more than shrinking bank profits to put a big dent in Wall Street bonuses.”

Wall Street bankers remain by any measure well paid, with an average annual compensation, including bonuses, of $361,180 in 2010, the last year for which averages are available. That’s 5 ½ times the average pay for Americans.

So to help put the bankers’ problems in perspective for the rest of us who might be having a hard time working up any empathy, Bloomberg rustles up a high-priced accountant.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”

What a load of malarkey.

What the Bloomberg report neglects to mention is that the financial industry actually compensated for the lower bonuses by raising bankers’ salaries.

While some bank defenders claim the brouhaha over bonuses is just envy, a report from New Bottom Line earlier this year puts the bankers’ bonuses into sharp focus. It found that bankers’ total compensation at the six biggest banks amounted to $144 billion last year – second only to the total paid out in 2007 before the meltdown.

Since the 2008 financial collapse, the banks we bailed have paid out a total of half a trillion dollars in compensation.

According to the report, if the bankers let go of just half of their compensation packages, banks could afford to underwrite principal on all the underwater mortgages in the country.

If bankers chose to forgo just 72% of their bonuses, they could fill the nearly $103 billion budget gap plaguing the nation’s city and states.

The bankers aren’t getting this money because they have contributed so much to the well being of the country. They’re getting it because they’ve captured both the political system and their regulators, who continue to do the bankers’ bidding. We can’t expect them, the bankers or the politicians or the regulators, to stop on their own.

We’re going to have to do it.

Check out our constitutional amendment to undo U.S. Supreme Court’s Citizens United ruling, which opened the gates wide for bankers and other corporate titans to influence our government with an unlimited and anonymous tidal wave of cash.

 

Bonuses / Martin Column - 03/06/2012

Don't Foreclose on the Rule of Law

As the foreclosure process implodes in the U.S., the big banks and their defenders are scrambling to defend the mess they’ve created, dismissing serious legal issues as mere technicalities.

I covered courts as a reporter for years and I learned something about legal technicalities.

What I learned was that whenever some lawyer started dismissing some legal rule as a technicality, they were about to try to heave some of their adversary’s fundamental rights out the window.

In the foreclosure mess, those adversaries would be the banks’ former business partners, their borrowers, the people they loaned money to.

Now the big banks are trying to dismiss the rules that govern the foreclosure process as legal technicalities.

Take for example the Florida case in which a judge ruled earlier this year that a document that was supposed to show that U.S. Bank owned the mortgage in December 2007 wasn’t created until the following year. The document filed by the bank, the judge wrote in March, “did not exist at the time of the filing of this action…was subsequently created and…fraudulently backdated, in a purposeful, intentional effort to mislead.” She dismissed the bank’s case.

The bank’s lawyer blamed carelessness. He explained: “Judges get in a whirl about technicalities because the courts are overwhelmed....The merits of the cases are the same: people aren't paying their mortgages.”

One of the other things I learned was that judges tended to use very precise wording in their rulings. If the judge in the Florida case was feeling overwhelmed, she didn’t mention it. What she did say what that somebody had fraudulently created a document.

That’s not a technicality. And it doesn’t matter if you’ve been making your mortgage payment or not. Banks are not allowed to foreclose on a home using fraudulent documents. Period.

One of the aspects of the rule of law is that it applies the same to everybody: a bank isn’t allowed to submit fraudulent documents to a court any more than a pauper is. That’s not a technicality. That’s the rule of law.

In the most recent brouhaha, a number of big banks, Ally, PNC Financial, J.P. Morgan Chase and Co and Bank of America, have acknowledged that their officials didn’t actually read key foreclosure documents before submitting them in court. Some documents appeared to have been forged; others appeared to contain false information.

A number of state attorney generals across the country have threatened legal action against the banks. Faced with a firestorm, some banks have voluntarily halted foreclosures in 23 states: the ones where judges oversee foreclosures. Only Bank of America has halted foreclosures in all 50 states.

One of the first banks to acknowledge that its own paperwork hadn’t been properly reviewed was Ally Bank, formerly known as GMAC. The latest controversy wasn’t the first time GMAC’s legal work on foreclosures came under scrutiny.

In 2006, Bloomberg News reported, another Florida judge sanctioned the company, finding that it submitted false affidavits to the court in a foreclosure case. The judge ordered GMAC to submit an explanation, certify that its policies had changed and pay the opposing party’s legal costs of more than $8,000.

As a result, GMAC’s legal department issued a statement that told employees “not to sign verifications on court pleading documents unless you have independently reviewed and checked the facts.”

The new policy, the Journal reported, was distributed in June 2006; it also stated in italics and boldface that GMAC employees should sign documents only in the presence of a notary. GMAC told the court  that the policies were “being corrected.”

Three and a half years later, a GMAC employee said in a deposition that his team of 13 people signed about 10,000 documents a month without reading them.

Deborah Rhode, a Stanford Law professor, told Bloomberg, “It’s not ‘technical’ when people attest under oath to knowledge they don’t have, and it doesn’t matter that in fact there isn’t actual error or discrepancy,” Rhode said. “Any court would take this very seriously.”

Bank of America (BoA) / Foreclosures / Martin Column - 10/10/2010

Fear Factor, Financial Crisis Edition

The administration has been touting what a good deal the Troubled Asset Relief program turned out to be for taxpayers – most of the $700 billion has been repaid; the banks after all, did not collapse, and it only ended up costing us around $50 billion after repayments.

“TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system,” Tim Geithner, the treasury secretary, said in a statement today.

But now we’ve got a whole new threat to the financial system, according to the bankers. They contend that if the public ever finds out the facts surrounding the rest of the bailout, it will cause them “irreparable harm.”

This is the part of the bailout the administration doesn’t talk about, with costs that dwarf the piddling billions spent on the TARP program. These are the trillions in secret loans the Federal Reserve provided financial institutions.

If it wasn’t for a dogged reporter at Bloomberg News, it would all still remain a big secret.

But the reporter, Mark Pittman, convinced his employer that the public had a right to know who the Fed was loaning the taxpayer’s money to, and under what terms. Bloomberg filed suit in November 2008.

The Fed and the banks fought the lawsuit for nearly two years. But in August a federal appeals court rejected the Fed and the banker’s arguments. Fed president Ben Bernanke announced in late September that the agency would finally make the information public by December 1.

Anybody care to bet on the chances that the big banks will fold when the information comes out? Any bets on revelations that will graphically show just how cozy both Bush and Obama administrations were with the big banks?

The banks’ response to the lawsuit reminds me of the atmosphere of fear and crisis the previous administration and the banks created, with the major media’s assistance, at the time of the original bailout. No time for questions, no time for debate. Hand over the blank check now or the whole economic system will blow up, they screamed.

Pittman died last year at 52. He remains one of the few heroes that emerged from the financial collapse, who raised tough questions in the months and years leading to the meltdown and was not intimidated by the banks’ fear mongering, continuing to demand answers.

Meanwhile, at some point, the bureaucrats will get around to the audit of the Federal Reserve’s activity since 2007. Congress passed that audit with broad bipartisan support in the face of fierce opposition from the administration, as part of financial reform. No doubt we will hear another round of predictions of disastrous consequences as the results of that audit are readied for release. It’s supposed to be conducted by the General Accounting Office.

From the beginning of the crisis to today, fear has been the most potent weapon used by the bankers and the bureaucrats to get their way, along with the complexity of the system the banks are always ready to clobber the public with. The spirit of reporter Mark Pittman remains one of the strongest antidotes we’ve got.

Around the Web / Federal Reserve / Martin Column - 10/06/2010

Around the Web: Rookie Senator Fumbles Financial Reform

The news media / blogosphere have been having too much fun at the expense of the former Cosmo model who could be the key 41st vote if Republicans decide to kill financial reform.

It’s no shock Sen. Scott Brown would oppose it, given the enthusiastic support he got from Wall Street in his recent election, taking the Massachusetts seat long held by Ted Kennedy.

But Brown apparently got a little flustered when a reporter asked him to explain what exactly he was opposed to. It was one of those trick questions: What areas in the bill would Brown like to see fixed?

Brown responded by asking what the reporter thought. “Well, what areas do you think should be fixed?” Brown said. “I mean, you know, tell me. And then I’ll get a team and go fix it.’’

Eat the Press’s Jason Linkins snorted on Huffington Post: “Yes. Some reporter may want to point out the epic collapse of the derivatives market to Scott Brown, and he will assemble a team of... I don't know...sled dogs? To fix it? Is that good? Will that work?”

Brown told the Globe he opposed a consumer financial protection agency because it would add another layer of regulation.

“Which is, of course, true,” pointed out Washington Monthly’s Political Animal Steven Benen. “ That's the point of the legislation. The financial industry went unchecked and nearly destroyed the global economy. That's why the legislation is being considered – to bring oversight and accountability through regulation.”

Brown also faces some hard second-guessing on a novel argument he made against financial reform on Face the Nation last week: it’s a jobs killer. He asserted that it would cost his state 35,000 jobs – about 17 percent of the state’s financial sector workforce.

When the Globe followed up to nail down Brown’s source for that statement, his staff told the newspaper he got the figures from MassMutual, an insurance company based in the state that has opposed financial reform.

But company officials said Brown had misunderstood them; they were talking about job losses the state had already suffered. Even those figures were grossly inflated, the Globe found. According to the state’s Executive Office of Labor and Workforce Development, the state has lost about 19,000 jobs in the financial sector, which includes the insurance industry, and also at banks, securities firms, investment management companies, and real estate businesses.

A MassMutual official insisted the company agreed with Brown anyway; similar losses could result from financial reform, he insisted. Sen. Brown stood by his earlier statements.

Whatever. A Globe columnist found Brown’s projections, as well as MassMutual’s, preposterous. “The idea that anything in the Senate bill could create additional job losses on a similar scale as the damage caused by the earthquake in the real estate and brokerage industries is simply nuts,” Globe columnist Steven Syre wrote.

Perhaps sensing an opportunity in Brown’s confusion, President Obama put in phone call to Brown from Air Force One.

The president probably didn’t bring up the question posed by Washington Monthly’s Benen: “Do you ever get the feeling that maybe Scott Brown isn't quite ready for prime-time, and that his service in the Senate is more humiliating than it should be?”

Around the Web / Martin Column - 04/21/2010