New York’s financial firms paid about $18.4 billion in bonuses for 2008, an amount the New York Times reports as the “sixth-largest haul on record.” These are the same financial firms that lost billions of dollars, the same firms whose disastrous investment and risk management practices propelled the world economy into the worst downturn since the Great Depression. Did these firms use Troubled Asset Relief Program (TARP) bailout money to pay bonuses? Money is fungible. It’s a red herring to ask whether bonuses were paid with taxpayer money. Any firm that accepted a dollar from TARP should be prohibited from paying employee bonuses. The government should sue to recover any bonuses paid. One theory of recovery is that the companies hold TARP funds in a constructive trust for use only in connection with disposition or workout of troubled assets. Another theory is that the executives whose companies received TARP funds owe a fiduciary duty to taxpayers to ensure the funds are used for TARP purposes. The companies and their employees lost any right to privacy in bonus compensation when they took TARP funds.
New York attorney general Andrew Cuomo is investigating these bonuses. He issued subpoenas to former Merrill Lynch CEO John Thain and other executives at Merrill-acquirer Bank of America “asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.” The Wall Street Journal notes that Merrill incurred a net fourth-quarter loss of $15.31 billion. The finance industry claim “that they need to pay their best workers well in order to keep them” is hollow, clueless, and insulting to everyone outside the finance industry.