Former Treasury Secretary Henry Paulson finally agrees with average Americans that Wall Street deserves its reputation for greed and arrogance. He now says that the big bonuses paid to Wall Street bankers in the midst of the financial crisis cemented bad feelings about the financial industry and demonstrated "a colossal lack of self-awareness." Those sentiments are welcome coming from a former chief of Goldman Sachs, but they are a little late. Remember that Paulson failed to put tighter strings on the bailout money to protect taxpayers from Wall Street's greed.
Paulson was treasury secretary under President George W. Bush when Wall Street's house of cards collapsed. After Lehman Brothers went bust in September 2008, Paulson took immediate action to prop up failing banks and keep credit moving. His $700 billion taxpayer backstop, the Troubled Asset Relief Program, or TARP, stabilized the financial sector by providing liquidity to the nation's biggest banks when private sources froze up. Economists generally credit this and other federal intervention with preventing a slide into another depression.
But Paulson didn't do enough at the time to ensure that bankers used all of the TARP funds wisely. The money came with only token compensation limits, such as a bar on golden parachutes for executives. Knowing Wall Street as he did, Paulson should have anticipated that bankers would easily sidestep the rules. During the crisis, bonuses of up to $10 million each were paid to executives at Goldman Sachs, Bank of America, Citigroup and 14 other financial firms that received TARP money, many of which had experienced major losses in late 2008 and early 2009.
It was a betrayal of the help given by American taxpayers. Bankers weren't particularly remorseful for helping to create the Great Recession that put millions of Americans out of work. Yet they still felt entitled to enjoy jackpot-size paydays. It took President Barack Obama to place strict limits on executive compensation for TARP recipients soon after coming to office in 2009.
Paulson has a lame excuse for letting his industry friends continue to enrich themselves. He told the New York Times that the banking industry as a whole would not have participated in TARP had there been strict compensation limits, noting how the banks rushed to repay the U.S. Treasury after Obama's $500,000 limit on compensation. In fact, Paulson missed an opportunity to reform an out-of-control financial sector and bring compensation levels down to earth. He says the bonuses Wall Street awarded itself in the throes of the crisis were a violation of "what was right" and he is more than "disappointed" with them. That's great, but it would have been more helpful if he had taken stronger action to prevent such abuses before they occurred.