A similar version of this story was published in the February 9th, 2009 issue of The Cauldron
Reid J May
A lot of big financial figures have been thrown around Washington D.C. in the past several weeks. As debate rages over the prospects of President Obama’s $819 billion dollar stimulus plan, repercussions of the $700 billion dollar wall-street bailout are beginning to become more evident.
While the second half of the bailout has just been released to the new administration, the corporate expenditures funded by the first half are creating some serious concern within the government. News broke last week that Citigroup, the recipient of more than $300 billion in federal capital infusions and loan guarantees, had recent plans to purchase a new $45 million dollar corporate jet. Perhaps even more disturbing, Sandy Weill, one of Citibank's executives used a company jet to fly his family to a luxury resort in San Jose del Cabo at a cost of $12,000 per night during the New Year holiday.
Merrill Lynch, recently sold to Bank of America, paid out 4 billion in year-end bonuses even though they posted a $27 billion dollar total loss for 2008. It was also revealed that Wall Street executives had passed out a total of $18 billion dollars in bonuses in 2008.
AFP recently reported that Wells Fargo canceled an extravagant employee getaway rewarding 1000 of its executives and their guests with trips to Las Vegas, after sharp public criticism of its plans. Wells Fargo lost $2.3 billion in the fourth quarter of 2008 and received $25 billion in Federal bailout funds.
According to the Jakarta Globe, through Associated Content, Morgan Stanley, recipient of $25 billion in Federal bailout funds, canceled two employee recognition trips this week, one to Monte Carlo and one to the Bahamas, when its plans became public. Morgan Stanley already funded an employee trip to Palm Beach after receiving Federal bailout funds.
This very uninhibited spending—and this is only a small sample of such spending—of taxpayer dollars has generated serious concerns in from the Whitehouse and Congress alike. USA Today quotes President Obama as thinking it is “outrageous” that firms paid their top executives this type of money last year. Obama was also quoted as calling the spending “shameful” and the “height of irresponsibility.”
The same news prompted Senator Claire McCaskill (D-Missouri) to introduce a new bill to cap compensation of any employee that receives federal bailout money. Under the terms of the legislation, no employee could make more than the President of the United States ($400,000). CNN quoted McCaskill as saying, “We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer. They don’t get it. These people are idiots. You can’t use taxpayer money to pay out 18 billion in bonuses.”
House Minority Leader John Boehner (R-OH) also expressed concern over the leeway allowed to banks in bailout fund spending. According to CNN, this came on the heels of reports that a lot of bailout money could go to bank dividends, satisfy old debts, buy other banks or shore up bottom lines. Boehner said, “Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses. These are not the type of expenditures described on Capitol Hill.”
However, this irresponsibility was not entirely unexpected. There was a lot of concern expressed about the oversight involved with a bailout of this size, and most of the spending control was lost in the transition between Former President Bush and President Obama. The task today, is properly overseeing the remaining funds, and reigning in the “irresponsible spending.”
On that note, USA Today quoted President Obama saying, “We’re going to be having conversations as this process moves forward directly with these folks on Wall Street to underscore that they have to start acting in a more responsible fashion if we are to together get this economy rolling again. There will be a time to make profits and there will be a time for bonuses – now is not that time.”
Stimulus Bill up for fight in Senate
In related economic news, President Obama’s economic stimulus bill passed the House, but with no bi-partisan support. A strict vote on party lines left the package with no GOP votes and eleven Democrat defectors.
The Senate announced late Friday night that it has reached a compromise on a $780 billion dollar stimulus plan. Days of private meetings between several moderate Democrats and a group of five key Republicans—including Ohio Senior Senator George Voinovich—resulted in a version that Democrats assert will pass the final Senate vote scheduled for Tuesday.
Several Republican Senators expressed continued disappointment at the bill, calling it partisan politics and a lot of pork spending. According to CNN, John McCain, R-Arizona said, “This is not bi-partisan. If this legislation passes it will be a very sad day for America.”
Sen. Barbara Boxer, D-California told opponents of the bill to “Get over it.” Boxer added that the election was about change and that forty-two percent of the bill is already allotted to trickle down tax cuts—which the Republicans seek to increase—that didn’t work under Bush, and are “responsible for where we are today.”