Big Banks Criticize Bonus Limits
Citigroup, Bank of America, and JPMorgan today stated their annoyance with congress' taks to tax bonus payments to their executives. In an ideal world, I agree with the banks that bonuses should not be taxed. Of course, our current situation is far from an ideal world, and I will discuss more below.
Citigroup, Bank of America, JPMorgan Criticize Limits
March 21 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., recipients of more than $100 billion in U.S. rescue funds, criticized congressional proposals to tax Wall Street bonuses.Bank of America Chief Executive Officer Kenneth Lewis called the tax “unfair” in a memo to employees yesterday, while Citigroup’s Vikram Pandit said his bank is “working in every appropriate way with policymakers.” JPMorgan’s Jamie Dimon held a conference call with about 200 executives, saying the firm is concerned about retention and is working with lawmakers.
The banks are responding to an outcry in Congress over $165 million in bonuses paid by American International Group Inc. after the insurer received $173 billion in federal bailout funds. The Senate will vote next week on levies on bonuses after the House of Representatives approved a 90 percent tax on bonuses at companies that received bailout funds.
I do not think that bonuses should be taxed at all, nor do I think that the income of any individual should be taxed at all. In this respect, these banksters do have a point.
The main caveat with this logic is that the government should have never given these banks any money whatsoever to "bail them out".
Since we did give them large amounts of money, however, we (the government and the taxpayers) should have a right to decide what any of their employees get paid. This is because the taxpayers are essentially the largest shareholders of these companies (even though we don't even own as much as we should thanks to terrible, terrible deals crafted by the Fed and the Treasury).
The banks never had a problem with taking government money, and in fact they essentially requested it. Citigroup was allowed to essentially write up the terms of its own bailout to lay before the congress, and they got most of what they wanted. This is absolutely ludicrous and should never have been allowed to happen. Since they did get money, and they did get what they want, now they simply seem to be complaining that we are trying to tell them how to run their businesses even though we are significantly large shareholders.
Banks can't have it both ways, and the fact that they think they can is just sickening.
In an ideal world, labor would not be taxed at all. This would include salary, bonuses, and whatever else. But in that same ideal world, governments would not bail out poorly run businesses with trillions of taxpayer dollars. Had these banks not been bailed out to begin with, many of them may not even exist today, and I'm sure their executives would not be getting these bonuses at all because these companies would have no money. Even as things are right now, these banks are insolvent anyway.
Talented People
“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,” Pandit said in the memo, whose contents were confirmed by a Citigroup spokesman.
Does anyone really believe that Citigroup has an "talented people" on their staff? If this were the case, why could they not even survive without hundreds of billions of dollars to help keep them going? How smart can they be? Companies like this should fail; this is how markets have worked for hundreds, if not thousands of years.
Citigroup removed the people who caused its financial distress and acted quickly to strengthen the business, Pandit wrote. “You have been invaluable in our collective efforts to put the company on solid footing,” he wrote, saying the legislation would affect people who would find it “difficult, if not impossible,” to repay bonuses.
Pandit is still at Citigroup, so I find it quite hard to believe that they have removed the people who "caused it financial distress." In addition, they have not acted quickly to stregthen the business, they simple acted quickly to get free money from the Fed and the Treasury so that it would look like they had stregthened their business. This is a disgrace.
The House bill would affect employees whose household income is more than $250,000 at companies that received more than $5 billion. JPMorgan took $25 billion as part of the first round of infusions. Citigroup got $45 billion and agreed to allow the government to become its biggest shareholder. Bank of America, including Merrill Lynch, has received $45 billion in cash and a backstop on $118 billion in assets.
Why does the government even need to be involved in this process? Had we not given them any bailout money, nobody would even be working for these companies anymore because they would be broken up and sold off in pieces in bankruptcy.
The banks are complaining that their owners are regulating what they do. They have a valid point in that we shouldn't be telling them what to do, except they cant have it both ways.
Either we shouldnt tell them what to do and we should have given them no money whatsoever, or they can pay out all the bonuses they want with their own money as long as they can stay solvent (not very long for most).