What is it in John Thain's psyche that made the former Merrill Lynch chief think it was okay to dole out billions of dollars in bonuses just as his teetering firm was being bailed out through a merger with Bank of America with taxpayer help? And what is it that made Thain spend lavishly on an office makeover? Is it some unchecked sense of entitlement? Unadulterated avarice? Both?
Thain's story is just the latest of so many involving the financial wizards on Wall Street and in major banks. They seemed convinced that regardless of the devastation they have wrought, their executive perquisites should not suffer.
Thain was ousted on Thursday as the head of Bank of America's wealth management and corporate and investment banking divisions due to an apocalypse of bad judgment. He had rushed $3-billion to $4-billion in end-of-year bonuses to employees, slipping them in just days before the foundering investment firm was taken over by Bank of America — a marriage encouraged by federal regulators. Then it came to light that Thain had earlier spent $1.2-million to redecorate his Manhattan office, including buying a credenza for $68,000.
As Thain was dishing out the bonus largesse, Merrill was losing $15.3-billion in the fourth quarter. The result was that Bank of America had to ask the Treasury Department for an added $20-billion in financial rescue funds as well as tens of billions of dollars more in taxpayer-backed guarantees. Top executives in the financial sector don't seem to understand that their sandbox now has taxpayer-funded sand, meaning rich salaries, bonuses and perks have to end.
Congress failed to put strict limits on executive compensation when it initially authorized the $700-billion bailout for financial institutions. Former Treasury Secretary Henry Paulson was pushing for the money fast and with few strings, and Congress complied. To remedy this, there are some congressional efforts in the works. House Financial Services Committee Chairman Barney Frank is proposing that all bonuses be banned for the top 25 executives at banks receiving Troubled Asset Relief Program money. In the Senate, a bipartisan group including Florida Sen. Bill Nelson wants to bar TARP money from going for lobbying and restrict its use for corporate parties, travel and office renovations. Their measure would also require full disclosure of how TARP money is spent.
All such legislation is welcome, and the Obama administration also seems to understand what needs to happen as the second $350-billion in TARP funds is released. In a recent letter to Congress, Lawrence Summers, director of the White House National Economic Council, said that those receiving the emergency bailout funds "will be subject to tough but sensible conditions that limit executive compensation … ban dividend payments … and put limits on stock buybacks and the acquisition of already financially strong companies." And President Obama reiterated on Friday that there needs to be more transparency and accountability going forward.
American taxpayers were forced into this rescue in part because Wall Street botched things so badly that the entire economy was at risk. But banking executives such as Thain had the gall to use the public's money to continue with their extravagant ways. That party has got to end.