Economy -- Shameful Corporate Greed

January 30, 2009

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, and Ryan Powers

ECONOMY

Shameful Corporate Greed

In 2008, "the brokerage units of New York financial companies lost more than $35 billion." According to a report by the New York state comptroller, these companies simultaneously doled out an estimated $18.4 billion in bonuses, "the sixth-largest haul on record" and the same amount as distributed in 2004, "when the Dow Jones industrial average was flying above 10,000, on its way to a record high." Reacting to the news, White House Press Secretary Robert Gibbs characterized the story with one word during yesterday's press briefing: "Outrageous." "Whether it's government or the financial system, we're not going to be able to do what is needed to be done to stabilize our financial system if the American people read about this type of outrageous behavior," Gibbs said. When the Troubled Assets Relief Program (TARP) was passed last September, Congress made a show of limiting executive pay. President Obama will have to strengthen TARP and other financial regulations to make a real impact on outrageous corporate malfeasance.

PRESIDENTIAL OUTRAGE: Obama made it clear yesterday that he was frustrated by such corporate greed. While meeting with Treasury Secretary Timothy Geithner, Obama condemned the "shameful" Wall Street bonuses. "That is the height of irresponsibility. It is shameful, and part of what we're going to need is for folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility," Obama said emphatically. In a way, the banks are holding the American people hostage, as they "find themselves in the difficult position that if they don't provide help, the entire system could come crashing down on our heads," Obama said. He added that Americans, "are serious about their responsibilities. I am too in this White House. And I hope folks on Wall Street are going to be thinking in the same way."

OUTLANDISH PURCHASES: The shameful bonus report was just the most recent proof of Wall Street's irresponsibility. Last week, as former Merrill Lynch CEO John Thain was agreeing to resign from Bank of America, news broke that he had spent more than $1 million redecorating his office, including paying $800,000 for a celebrity designer and spending $87,000 on an area rug. All this while Merrill was collapsing -- the bank reported a loss of $15.31 billion in 2008 -- and the newly merged Merrill Lynch-Bank of America was requesting more aid from the government. Thain had also doled out $4 billion in executive bonuses to favored Merrill employees just before the merger. Just last week, the Treasury Department agreed to give Bank of America $20 billion in additional aid. Separately, it was revealed earlier this week that Citigroup was in the final stages of purchasing a $50 million private jet -- after receiving $45 billion in public TARP funds this fall. After the Thain scandals, the Citi jet seemed to be the final straw for Obama. "Secretary Geithner already had to pull back on one institution that had gone forward with a multimillion-dollar plane it purchased at the same time as they are receiving TARP money," Obama said exasperatedly. "We shouldn’t have to do that, because they should know better." The jet deal for Citigroup has since been canceled.

FIXING THE PROBLEM: Obama believes that the initial TARP legislation "failed to live up to the expectation that all of the American people had for it," in terms of reining in executive compensation, Gibbs said yesterday. "That's why this administration and this economic team are taking the time to evaluate how we move forward." Also yesterday, the congressional panel that oversees TARP recommended that financial regulators "consider revoking bonus pay for executives of failing institutions needing government help." The panel said the threat of losing bonuses might help executives "avoid excessively risky behavior." Susan Reed, a CBS business correspondent, had another idea: "A more productive way to distribute rewards is by only awarding company stock. This would keep employees mindful of the risks they are taking to their organization and would tie their company’s performance to their own. ... And it would require employees and managers to shoulder their own risk." One indication of how seriously the Obama White House will address the problem of "outrageous" executive pay is former Fed chairman Paul Volcker's role as an economic adviser. Last November, he "blamed excessive pay packages for leaving the world with a 'broken financial system,'" condemning a system full of "tremendous rewards and payment of magnitude for presumed success and not much penalty for failure."

CONGRESS -- FLASHBACK: McCONNELL SAID STIMULUS WON'T HAVE ANY PROBLEM 'GETTING OVER 60 VOTES': On Wednesday, the House passed the American Recovery and Reinvestment Act on a 244-188 vote, with every Republican voting against the legislation. Now the bill moves to the Senate for debate and a potential vote next week. The Senate version of the legislation is not entirely in sync with the House's version. McClatchy reported last week that the Senate Finance Committee has already "added some provisions desperately sought by corporate America," such as allowing "some companies to reduce taxes if they buy down their debt between late 2008 and 2011." The U.S. Chamber of Commerce and other business groups lobbied heavily for the measure. Even with these extra business provisions — which conservatives have complained are absent from the House bill -- nine out of 10 Republicans on the Finance Committee voted against the draft. Just few weeks ago, Senate Minority Leader Mitch McConnell (R-KY) said that he doesn't think the economic recovery bill will have "any problem getting over 60 votes." He also reportedly promised that Senate Republicans "would not filibuster against the stimulus package." On NPR yesterday, however, Sen. Chuck Grassley (R-IA) issued a filibuster threat, saying that the recovery package would need 60 votes to pass. Will McConnell keep his word? Or will conservatives continue to block the economic recovery while advocating a return to Bushonomics?

LABOR -- OBAMA TO REVERSE ANTI-UNION BUSH ORDERS: Today, President Obama will host labor leaders at the White House, where he is expected to undo four anti-union Bush-era directives. The orders that Obama will reverse include one that "allowed unionized companies to post signs informing workers that they are allowed to decertify their union." Another Obama order will prohibit federal contractors from being reimbursed for expenses "intended to influence workers' decisions to form unions or engage in collective bargaining." Labor leaders were also on hand yesterday when Obama signed his first major piece of legislation, the Lilly Ledbetter Fair Pay Act, which bolsters workers' ability to bring pay discrimination lawsuits. In an interview with CNBC yesterday, Vice President Biden vowed to help labor get "a fair share of the pie." Obama's orders will come at the end of a week that has seen another massive wave of job losses.

ECONOMY -- HOUSE GOP LAUNCHES MEDIA BLITZ PROMOTING DISCREDITED ALTERNATIVE RECOVERY PLAN: House Republicans have launched a district-by-district media blitz to justify their unanimous rejection of the economic recovery package and have offered an alternative plan. The plan, a throwback to Bush-like tax cuts, claims to create 6.2 million new jobs, reduce "most" income tax rates by 5 percent, and cut taxes on small businesses by 20 percent. They claim their plan as being based on "methodology developed by the president's nominee to chair the White House Council of Economic Advisors, Dr. Christina Romer." But as, James Kvaal at the Center for American Progress notes, their numbers are based on distortions of Romer's 2007 calculations on the benefits of tax cuts. Republicans left out Romer's conclusion that tax cuts are an effective way to create jobs only when the economy is healthy. Her explicit statement that tax cuts are unsuccessful when used to offset anticipated changes in private economic activity -- such as an economic recovery package -- also did not appear in the Republican plan either. Since 2007 Romer has calculated that government investment has a stronger multiplier effect for creating jobs and is a more effective method for stimulus.

President Obama chastised Wall Street executives yesterday for distributing over $18 billion in bonuses in 2008. "That is the height of irresponsibility. ... There will be time for them to make profits, and there will be time for them to make bonuses. Now is not that time," Obama said.

Today, Exxon Mobil "reported a profit of $45.2 billion for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 percent from a year ago." Exxon's previous record was $40.6 billion in 2007.

President Obama has approached Sen. Judd Gregg (R-NH) about becoming Commerce Secretary, "a step that could open the way to significant shift in the balance of power in Congress" as New Hampshire Gov. John Lynch, a Democrat, would most likely to pick a Democrat to replace Gregg. Though Gregg refused to comment on the discussions, his office confirmed that he had been approached.

In a 66-32 vote yesterday, the Senate voted to expand the State Children's Health Insurance Program by $32.8 billion over the next 4 1/2 years. As the AP notes, "Nine Republicans joined 57 Democrats in voting for the bill. No Democrat voted against it." The bill now heads to the House.

Sen. Chris Dodd (D-CT) has said he will "use all legal means available to confiscate Wall Street bonuses paid out at the end of last year." Dodd said the bonuses "are unacceptable at a time when the government is pouring tens of billions of dollars into banks to shore up the ailing financial market."

The chief judge at the Guantanamo Bay war court declined President Obama's request to freeze military commissions, "saying he would go forward with next month's arraignment of an alleged USS Cole bomber in a capital terror case." The other two Gitmo war court judges had granted military prosecutors "four-month delays so the new administration could study detainees' files and its legal options."

After voting for the economic recovery package, Rep. Dan Lipinski (D-IL) "said he was concerned about the bill's inclusion of an extra $20 billion for food stamps." Progress Illinois reminds Lipinski of the stimulative effect of food stamps.

At the World Economic Forum in Davos, Switzerland yesterday Turkish Prime Minister Recep Tayyip Erdogan "stormed off a stage" after criticizing Israeli President Shimon Peres for his country's invasion of Gaza. Peres blamed the violence on Hamas while Erdogan accused Israel of "turning Gaza into a prison and killing 1,300 Palestinians."

Joint Chiefs Chairman Mike Mullen said defense budget cuts may target spending on weapons. Mullen said he expects the entire federal government will come under pressure for budget cuts and "the Department of Defense is going to have to do its share. ... It's important for all of us in defense to look realistically at what our requirements are."

And finally: President Obama plans to have a bipartisan congressional get-together for Super Bowl Sunday. Invitees include Steelers fan Sens. Bob Casey (D-PA) -- who's going to bring some "Eat'n Park Cookies" -- and Arlen Specter (R-PA) -- who's still deciding whether or not he can come. Obama also invited Cardinals fans Sen. John McCain (R-AZ) and Jon Kyl (R-AZ), who have both declined.

Vice President Biden announced he will lead "a task force on the middle class" that will make sure that the benefits of economic growth "reach the people responsible for it."

THINK PROGRESS: Torture lover John Yoo excoriates President Obama for banning torture.

WONK ROOM: Conservatives distort research to claim they'll create 6.2 million jobs.

YGLESIAS: The death of journalism's business model has happened before and it will happen again.

MARC LYNCH: The Obama administration should stick to its stated goals of drawing down U.S. forces in Iraq.

ILLINOIS: In his final hours in office, Gov. Rod Blagojevich (D) issued two pardons.

MISSISSIPPI: Following Alaska Gov. Sarah Palin's (R) lead, Gov. Haley Barbour (R) may try to sell his jet on eBay.

WASHINGTON: Gov. Chris Gregoire (D) unveils Green Jobs legislation.

"[E]very Republican in the House rejected [the economic recovery bill], and I think every Republican in the Senate might do as well."
-- Sen. Jim DeMint (R-SC), 01/29/09

VERSUS

"I don’t think [the bill is] going to have any problem getting over 60 votes."
-- Senate Minority Leader Mitch McConnell (R-KY), 01/09/09

Think Progress

Shameful Corporate Greed

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