Congressional Bonuses: Are congressmen receiving campaign contributions from companies that have been taken over by the government?

From Newsweek Magazine, care of Amy Redinour at the National Center Blog:

A Newsweek review of recent filings with the Federal Election Commission found that the political action committees of five big TARP recipients doled out $85,300 to members in the first two months of this year—with most of the cash going to those who serves on committees who oversee the TARP program...

And we thought the bonuses themselves was bad...

The Trillion Dollar Question: Will protecting economic risk takers from themselves work as a national economic policy?

Will the federal government succeed in strengthening the economy by protecting risk takers? From the risk? They're taking? Martin Wolf, from The Financial Times, on the Obama administration's bank rescue efforts (a.k.a. bank nationalization):

[W]ill it work? That depends on what one means by “work”. This is not a true market mechanism, because the government is subsidising the risk-bearing. Prices may not prove low enough to entice buyers or high enough to satisfy sellers. Yet the scheme may improve the dire state of banks’ trading books. This cannot be a bad thing, can it? Well, yes, it can, if it gets in the way of more fundamental solutions, because almost nobody – certainly not the Treasury – thinks this scheme will end the chronic under-capitalisation of US finance.

HT: Calculated Risk

Times writer charges "Economic arson"

Joe Nocera at the New York Times notes that if the government had let AIG go into bankruptcy, there would have been no problem with executive bonuses, since under bankruptcy rules, they could have renegotiated the contracts:

A rich irony here is that any nonfinancial company in A.I.G.’s straits would be in bankruptcy, and contracts would have to be renegotiated. The fact that the government is afraid to force A.I.G. into bankruptcy, despite its crippled state, is the main reason Mr. Liddy felt he couldn’t try to redo the contracts.

As it is, the politicians in Washington, spooked by a public furor over news of the bonuses, reacted as politicians always do to such crises: They calmly reviewed the evidence, looked at all the figures, considered the ramifications--and then panicked.

More from Nocera:

Oh, and let’s not forget the bill that was passed on Thursday by the House of Representatives. It would tax at a 90 percent rate bonus payments made to anyone who earned over $250,000 at any financial institution receiving significant bailout funds. Should it become law, it will affect tens of thousands of employees who had absolutely nothing to do with creating the crisis, and who are trying to help fix their companies.

Does anyone remember this fact? That we are trying to save these companies? So why are the politicians hauling a guy who gets paid a dollar a year and who only took over AIG last September before a Congressional Committee for a public caning?

As Nocera points out, most the people actually responsible for AIG's current state are in retirement and are unaffected by the new tax. But we're punishing a bunch of people who were not responsible for mismanaging the company and leaving the real culprits alone.

Just one more reason we don't need politicians running the economy.

Why Politicians Shouldn't be Running the Economy, Friday, March 20th Edition: Driving talented people out of the companies we are trying to save

Yesterday the Congress voted to penalize a company it is trying to save. This is considered a rational action in our nation's capitol.

In what one writer calls the "Popular Rage Tax," the Congress voted to slap a 90 percent tax on bonuses that put the household income of any family that includes someone working for one of the companies now run by the government with annual income over $250,000. Since it is on household income rather than individual income, that means this if you are married to someone at one of these companies, your bonus will be subject to the same tax.

Henry Blodget, at Clusterstock puts it nicely:

Thanks to our stupidity bailouts, we now own major stakes in these firms--at mind-boggling expense. So it's not clear why we want to destroy them. But that's what we seem determined to do.

Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)

...The real lesson here, unfortunately, is that it's a disaster for the government to run private companies. We used to understand that. But ever since we started telling ourselves that we had to save bankrupt institutions by taking them over and pretending not to "nationalize" them, we have apparently forgotten.

So instead of making it attractive for talented people to work for companies that need them very badly, we have made it less attractive. In what world does this make good economic sense?

HT: Marginal Revolution

"Stunningly stupid move": FDIC endangers successful banks by slapping them with extra charge on FDIC deposits

Once again, the people who did what they were supposed to do are getting hit with the bill to bailout the people who should have known better. In what one insurance industry writer called a "stunningly stupid move," the FDIC is charging banks an extra 20 basis points on their FDIC insurance to help fund the bailout of unprofitable banks.

One banker I talked to said this caused his FDIC insurance fee this year to go up ten-fold. He said his bank was profitable, so it wouldn't cause them major grief, but, he said, there are many banks on the tipping point right now--banks that, given a shock like this, will go under. His prediction? 1500 more banks out of business as a result of the government charging them to help banks that are in danger of going out of business.

Got that?

Here is the post from Insurance News:

In a stunningly stupid move, the FDIC, led by Sheila Blair, has recommended the assessment of a one time 20 basis point fee on bank deposits. It will use this to pay for its projected $80 billion in bank failures for 2008 through 2013.

This is clearly ridiculous.

To start with, the government is pumping hundreds of billions of dollars into the banking system, and trillions of dollars into the country at large. This assessment will hit large and small, strong and weak, banks alike. So it’s sort of like taking from the rich and giving to the poor. Recycle, and rinse. Take from all banks, and pump that money back into the banks that could not survive on their own. When that money runs out, repeat, and put more money into the banks that could not survive on their own (Citi?).

Why weaken the strong banks, who will either lose capital through this, or just pass the costs in the form of lower yields to consumers? Take the money from TARP and whatever the next round of $700 billion financing is called, and fund the FDIC properly. No one said that the government is supposed to fund the FDIC, but no one said that these times are normal. After all, the risk modelers in the FDIC obviously didn’t contemplate the fall of housing prices and the subsequent carnage (they didn’t charge the banks enough to properly self-insure).

Should all banks have to pay the price? Think of the bank that is muddling its way through this Great Recession. It gets hit with this fee and teeters a bit more. The government is not going to fund it, because it’s not a monolith that will cause armageddon upon failure. What happens?

It fails.