The unfolding news of Merrill Lynch just about boggles the mind. From “Merrill paid employee bonuses before sale to Bank of America” on livemint.com:
Despite Merrill reporting a massive loss of $21.5 billion in the fourth quarter of 2008, the report noted that the company had “set aside $15 billion for 2008 compensation, a sum that was only 6% lower than the total in 2007, when the investment bank’s losses were smaller”.
“The bulk of 15 billion dollars compensation was paid out as salary and benefits throughout the course of the year,” the report said. Further, attributing to a person familiar with the matter, the report said that an estimated $3 to $4 billion dollars was paid out in bonuses in December.
Merrill and the Bank of America shareholders had approved the takeover on 5 December. “Three days later, Merrill’s compensation committee approved the bonuses, which were paid on 29 December,” it added.
It’s one thing for a profitable company to pay out big bonuses. It’s another thing altogether for a company that is losing money to do it, then add the fact that the company is in the middle of being sold to a company that is being propped up with taxpayer funds. This is the kind of thing that makes people very cynical. Sooner or later it may even make them mad…
Here’s a take from a fellow I knew in college who writes a financial blog called Mean Street for the Wall Street Journal, Evan Newmark, in a recent post “Rise, Taxpayer, Rise”:
…it is amazing that Washington is still considering sending more tax money Chrysler’s way.Not that Chrysler isn’t pulling out all the stops to get it. This week, it announced a “global strategic alliance” with Fiat, another marginal, cash-starved automaker.
This “alliance” is not a plan for Chrysler’s viability. It’s a plan to wring another $3 billion in funding out of Congress to go along with the $5.5 billion of taxpayer money that’s already been put in.
Is Fiat putting any money in? No. Is Cerberus, Chrysler’s principal shareholder, putting any more money in? No. Will any investors put any money in? No.
It’s all up to you, the taxpayer. And with a trillion dollars in government stimulus in the making, that’s not going to change anytime soon.
But after another outrageous week like this last one, you may soon come to the conclusion that enough is enough.
Bob Reich’s calling it ‘Lemon Socialism’.
Put it all together and at this rate, the government — that is, taxpayers — will own much of the housing, auto, and financial sectors of the economy, those sectors that are failing fastest.
What’s left? Most of high-tech, entertainment, hospitality, retail, and commodities. So far, at least, we taxpayers are not propping them up. And when the economy turns up — perhaps as soon as next year, most likely later — these sectors have a good chance of rebounding.
But the others — the ones the government is coming to own or manage — are less likely to rebound as quickly, if ever. If anyone has a good argument for why the shareholders of these losers should not be cleaned out first, and their creditors and executives and directors second — before taxpayers get stuck with the astonishingly-large bill — I would like to hear it.
It’s called Lemon Socialism. Taxpayers support the lemons. Capitalism is reserved for the winners.
Folks who made bad decisions need to pay the price; if you want to profit from the upside, then you have suffer on the downside. Enough with the giveaways that prop up undeserving losers (who don’t seem at all embarassed to be paying themselves off with the funds).