SAN FRANCISCO (MarketWatch) — Top Wall Street executives reacted harshly on Friday to proposed legislation that would punitively tax bonuses awarded to employees at firms receiving federal assistance.
Citigroup Inc. Chief Executive Vikram Pandit and Bank of America Corp. Chief Executive Ken Lewis issued strongly worded internal memos about the proposed tax legislation, according to the online edition of The Wall Street Journal, while J.P. Morgan Chase & Co. Chief Executive Jamie Dimon sought to reassure his top executives that the firm is engaging with lawmakers on the matter.
The legislation, passed by the House on Thursday, would impose a 90% tax on bonuses for employees making over $250,000 a year at companies receiving at least $5 billion in federal aid under the Troubled Asset Relief Program, or TARP.
Citi’s Pandit criticized the proposed legislation in a memo to employees on Friday, arguing that it could result in the firm losing top talent.
“The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial-services employees,” he wrote. [Pandit’s full memo]
Bank of America’s Lewis, for his part, said that he’s written to lawmakers about why the proposed tax legislation “is of such grave concern to us,” adding that it has “the potential to damage the ability of the government to engineer a financial recovery.” [Lewis’s full memo]
The tax legislation emerged in reaction to news earlier this week that employees of insurance giant American International Group Inc., which has been propped up by heavy government assistance, received $165 million in bonuses.
The legislation was introduced by House Ways and Means Chairman Charles Rangel, D-N.Y.
From Trading Markets:
The U.S. Senate will take up bipartisan legislation the week of March 23 crafted by top members of the tax-writing Senate Finance Committee addressing the issue of bonuses at American International Group Inc. and other firms receiving federal assistance, after an attempt to push a bill passed March 19 by the U.S. House through the upper chamber failed to clear a procedural hurdle.
Just hours after the House adopted H.R. 1586 by a 328-93 margin, Senate Majority Leader Harry Reid, D-Nev., attempted to have the bill adopted by the Senate under a procedure known as unanimous consent. The bill would levy a 90% tax on bonuses given by companies that have received at least $5 billion in federal assistance, including not only AIG but also such firms as GMAC LLC, Wells Fargo, Citigroup and Bank of America.
However, the vote was derailed by an objection from Sen. Jon Kyl, R-Ariz., who suggested the bill might run afoul of the U.S. Constitution’s prohibitions on ex post facto laws — those that apply retroactively to behavior before the law existed — and bills of attainder, those that target specific individuals for punishment.
The upper chamber will instead take up the Compensation Fairness Act, introduced by Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Chuck Grassley, R-Iowa. Co-sponsored with Sens. Ron Wyden, D-Ore., and Olympia Snowe, R-Maine, S. 651 would impose a 35% excise tax on bonuses granted by employers who received at least $100 million in funds from the Treasury Department’s Troubled Asset Relief Program. A separate 35% tax would be applied to those receiving the bonuses. Small banks would be exempt from the rule.
Meanwhile, the House Financial Services Committee will mark up legislation calling for even more stringent restrictions on compensation at bailed out firms. Introduced by Chairman Barney Frank, D-Mass., the would prohibit “any bonus payments by companies who have received capital investments under the TARP [Troubled Asset Relief Program] program and the Housing and Economic Recovery Act until these investments are repaid in full.”
The measure would prohibit payment of any bonus to any employee, including those agreed to by contract prior to federal assistance, as well as prohibiting “unreasonable or excessive” compensation, as defined by the Treasury Department. It also would prohibit any supplemental payment to an employee that wasn’t set in accordance with “performance-based standards.”
Both [Federal Reserve Chairman Ben] Bernanke and [Treasury Secretary Timothy] Geithner have been under fire in recent days about whether they knew, and failed to disclose or prevent, AIG from providing hundreds of millions in bonuses to company executives, including $165 million in retention bonuses to those at the company’s Financial Products unit. AIGFP was a unit that wrote credit default swaps and other derivatives that ultimately imperiled AIG’s solvency when it was unable to meet tens of billions of dollars in collateral calls following a series of rating downgrades in September 2008.
Geithner, who has said he would deduct the $165 million from a new $30 billion standby equity capital facility the Treasury agreed to provide the company earlier this month, also has been facing questions about his role in altering an amendment to the $787.2 billion stimulus package passed by Congress last month that would have capped compensation retroactively at firms receiving more than $500 million in government assistance.
The amendment to the American Recovery and Reinvestment Act initially was proposed by Senate Banking Committee Chairman Chris Dodd, D-Conn., based on a similar amendment by Snowe and Wyden. However, Dodd altered language in the final amendment so that it only applied prospectively. Recently, he has claimed the change came at the behest of Geithner and the Obama administration, who were concerned about litigation and potential constitutional challenges.
With his cabinet secretary under fire, Obama has looked to absorb some of the blame from Geithner, telling a town hall meeting in California “we’re going to do everything we can to deal with these specific bonuses.”
On March 19, AIG turned over details of bonuses it has paid to New York state Attorney General Andrew Cuomo, who had subpoenaed the information.
Similar subpoenas were handed down by Attorney General Richard Blumenthal of Connecticut, where AIGFP’s U.S. operation was based, and 19 other states joined New Jersey in filing requests for the details. In March 18 testimony before Congress, Chief Executive Officer Ed Liddy related physical threats he has received in the past week, and was reluctant to provide Frank with the information without a promise of confidentiality.
22 responses to “The Bonus Round”
This bonus crap is ugly. I’m afraid that it might be a paper tiger , being used to make people think that something is being done that will help the economy to “recover”. The bonus money is chump change, compared to the other “money”, that is swirling down the AIG.
the bonus money is chump change relative to the amounts that are being thrown around. however, the bonuses are symbolic of the problems with wall street and the financial sector. it’s all about greed and nothing about accountability.
I guess I was trying to say that, I hope that using the the bonus babies as scape goats won’t make people satisfied. If the symbol gets people to wake up, then it’s a good thing. If it’s a show, it is insult to injury.
there are so many fingers pointed in so many directions, it’s amazing that there have not been eyes poked out all over capitol hill and wall street. the bonus babies are really just a distraction right now. the only way they will be useful is if they go to jail if cases can be proven against them. of course, even that won’t solve the whole mess. there has to be a fundamental change. we need to get back to actually producing stuff and treat the stock market as the crap shoot that it has always been, not as the foundation of our economy.
Ken Lewis has the perfect face for a hateful corporate prick.
His cruel mouth and cold gray eyes make him look like the guy they’d cast as the cold-hearted, philandering executive, married to a woman with terminal cancer on one of those Lifetime for Women movies.
Lindsay Wagner would play the pathetic wife.
P.S. And Vikram Pandit’s name sounds a little too much like “Victim Bandit” to me.
But at least that crooked bastard has the decency to smile while he’s fucking us.
i’m sure all of them are smiling all the way to the bank. i hope they will soon be crying all the way to the penitentiary.
True dat, Nonnie. This is so completely depraved. When I think of all the stories I’ve seen on individuals and families suffering and contrast that with the sense of entitlement seized by these financial fucks, it’s sick.
you have to wonder if they blacked out their windows in their ivory towers. do they really not see the suffering they helped create?
oh great dartboard material! yipee! you found villains!
it’s not like they’re hard to find nowadays. go into any big bank or corporation! 😉
I wonder what Dr. Evil (Paulson) and Mini Me (Kashkari) are up to these days?
kash-n-karry is still working for the administration i think. as for paulson, i hope he’s preparing himself to visit all his wall street friends in jail.
It does take some kind of arrogance to be a big-name bank exec, huh?
On the one hand, I actually agree that this kind of legislation is a bad idea and very dangerous territory.
On the other hand, hearing these pigs say it, I want it to pass just to spite them. Sort of like being the public defender who has to defend a child molester, I have a principle, but my heart’s not exactly in it.
However … What’s this concern about losing top talent? Is AIG really claiming that they’re run by top talent?
I’m pretty sure that if we had AIG run by two monkeys and a high-school dropout that it would be managed more competently than it has been.
hey wickle! 😀
i agree with you. i don’t want the constitution trampled on, but i don’t want these greedy assholes getting away with their thievery. i’m waiting to hear what all the legal scholars have to say. just like the pigs always seem to find loopholes, maybe some smart attorney can find a few, too, and there will be a legal way to get all that money back. what would be even better is if a few of them at the top wound up rotting next to bernie madoff in the big house.
It’s not just the bonuses folks..check out the retirement packages for these carpetbaggers. The ‘staff’ don’t get anything even remotely like the ‘executives’ get.
well, why shouldn’t they have a sense of entitlement when the people whose pockets they grease get all their health care taken care of for life and pensions and perks? of course, i mean those in congress. hell, even those who go to jail get their pensions and benefits. there are different classes of people in this country, no matter how much the propagandists want to say that isn’t so. do you remember robert hanssen? he was the fbi guy who went to jail for selling secrets to russia. there’s little doubt people died because of him. he’s in jail for life, but his wife got to keep their house and she’ll get his pension for the rest of her life. they live by other rules.
It’s a conundrum for sure. I mean, they’re right, we wouldn’t want to lose at that valuable talent…
Can’t imagine how we’d all survive.
(nice tag line on the poster!)
i say we corral all that talent and stick ’em all in one place. one place with bars. and i will write to my congresscritter to suggest that the food here convenience store gets the contract to supply all the dairy products for their meals.
this is one big shell game — these people ALL just take care of each other — -and if they keep taking and taking (which they have every intention of doing) – they will turn this country into a real banana republic and will need every cent to build gates 30′ high
let them eat cake
they’re like nasty little kids who keep doing bad things but are allowed to get away with it. they grow up to be worse adults who think they are immune to consequences, so they continue doing their nasty deeds.
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