Boo! Bailout $$$ to bank execs, shareholders?
Wake up and Happy Halloween. Don't mean to scare you, but the closer you look at the federal bailout, the greater the number of possible screw-ups emerge. Here's a gem. U.S. banks getting more than $163-billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years, the Washington Post reports. The 33 banks signed up so far plan to pay shareholders about $7-billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury's investment over the initial three-year term. So, in other words, more than $80-billion in emergency taxpayer funds will, in effect, be funneled to shareholders of banks. All the folks squawking about a "redistribution of wealth" in the presidential election have apparently been looking in the wrong place.
Wait, there's more! A new Wall Street Journal analysis finds financial giants getting injections of federal cash owed their executives more than $40-billion for past years' pay and pensions as of the end of 2007. The Treasury is infusing $25-billion apiece into JPMorgan Chase and Citigroup as it seeks to get credit flowing. In return, the federal government is getting preferred stock in the banks and warrants to buy common shares. The Treasury is injecting $125-billion into nine big banks and making a like amount available for other banks that apply.
It's imposing some restrictions on how they pay top executives in the future, such as curtailing new "golden parachutes" and barring a tax deduction for any one person's pay above $500,000. But the rules won't affect what the banks already owe their executives or make these opaque debts more transparent.
At this rate -- and I'm sure we'll see more potential detours of U.S. taxpayer funds to pad the pockets of executives or shareholders -- that should leave about $1.99 out of the original $250-billion bailout funds for banks actually going to lending. I exaggerate, of course. But I wonder by how much? Who gets the trick and who gets the treat?
-- Robert Trigaux, Times Business Columnist