Taxpayers foot the bill for billions in unearned bonuses

Taxpayers foot the bill for billions in unearned bonuses

In the final days of the last Congress, some members wanted to give the impression that they were going to get tough on people who came to Washington, D.C., with their hands out — especially if those hands belonged to executives of Detroit’s Big Three.

The irony, of course, was that as American automakers were being grilled for asking for tens of billions of dollars in loans, financial institutions were draining the treasury of hundreds of billions while Congress looked the other way. While auto executives were pilloried for flying to Washington on private company jets, bankers were giving each other hundreds of millions of dollars in bonuses. And they got these extravagant bonuses even while they were running their companies into the ground.

We’ve commented on some of these raids on bank funds and the U.S Treasury before, but the most egregious case only came to the public’s attention last week, after John Thain, the former CEO of Merrill Lynch resigned from his new position, head of a wealth management division of the merged businesses of Merrill and Bank of America.

Thain was the head of Merrill Lynch when the brokerage company was taken over by Bank of America, using billions of dollars in federal funds. The money was necessary, Bank of America told the feds, lest the failure of Merrill Lynch send deadly ripples through the U.S. economy.

Different stories

We now know that even as Bank of America was telling Treasury officials that Merrill was losing so much money that the acquisition deal might fall through without additional government support, Thain was handing out early bonuses to Merrill employees. Treasury ponied up an extra $20 billion to cement the deal; meanwhile Thain was giving out bonuses totaling between $3 billion and $4 billion to Merrill Lynch employees. These bonuses would have normally been paid in January, but the Bank of America was due to take control Jan 1. So Thain wrote the checks early.

Merrill Lynch lost $15 billion in the fourth quarter and more than $27 billion for the year, which would cause any sane person to wonder why anyone was getting bonuses. But apparently such questions are only asked by the poor slobs who don’t understand high finance. The same poor slobs who pay their taxes so that companies like Merrill Lynch can be saved and people like John Thain can pass out billions of dollars as if it were Monopoly money.

Thain even tried to arrange a $40 million bonus for himself, but Bank of America wasn’t buying that. Thain got no bonus, but we have to wonder what kind of separation deal was worked out when he agreed to resign.

We’re willing to bet it will dwarf the retirement benefits of autoworkers that some Senate members seemed eager to flush down the toilet during the debate over a bailout package for the Big Three.

The new Congress and the new administration have their work cut out for them. Not only do they have to continue propping up the faltering economy, but they have to go back in time and see how much taxpayer money that was meant as a lifeline for the insurance, banking and investment industries ended up in the pockets of the people who ran their companies into the ground.