Americans rightly blame Wall Street’s and big banks’ reckless gambling in derivatives and other exotic, and often toxic, investments for the financial implosion that has wrecked the economy and spurred long-term unemployment. A report issued Friday by the Obama administration’s special master for executive compensation, Kenneth Feinberg, confirms what we have suspected about the extent of bankers’ greed that drove them to make those risky investments.
With the financial system about to go over the cliff in late 2008, a group of 17 of the nation’s largest financial institutions that had already taken hundreds of billions of dollars in TARP funds to avoid collapse quickly paid some $2 billion in mind-boggling bonuses to the group’s 600 highest-paid executives. His study showed that nearly 80 percent of that money ($1.58 billion of the $2.03 billion in question) was unmerited.
His criteria for that judgment: The bonuses were either overly generous exit packages, or there were no clear performance guidelines or other rationale for them.
Taxpayers might assume that there would be a claw-back provision to get back bonuses awarded under such questionable circumstances in the review period — from October 2008, when the first bailouts were issued, until February 2009, when the stimulus bill took effect. But that’s not the case.
Neither Mr. Feinberg nor the administration has legal grounds to demand reimbursement. Their case is diminished, as well, by the quick payback of TARP funds by 11 of the 17 banks. Indeed, it has been clear for some time that the reason for the banks’ rapid repayments of TARP aid was to eliminate the prospect of a demand for reimbursement of bonuses.
Even among the six banks that have not repaid their TARP loans, there apparently is little Mr. Feinberg can do except point out the excesses and hope Congress will come up with stiffer rules for banks. The most egregious bonus was the $100 million payout given by Citigroup to Andrew Hall and another trader in the bank’s Philbro energy trading section. Mr. Feinberg’s criticism of that bonus when he uncovered it, however, did prompt Citigroup to sell the Philbro unit to Occidental Petroleum last fall.
European banking regulators may point the way to put outsized bonuses under some regulatory guidelines. They adopted tough new standards earlier this month to rein in such abusive pick-pocketing of banks by their executives. Congressional banking overseers should follow suit.