Sweet Bailout


Looks to me like the $700 billion rescue package may have been $1.6 billion too large:

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

A lot of people are going to read this as a confirmation of the Sirota/Pence view that government intervention was unnecessary. I don’t see it that way. Credit conditions really did improve post-bailout, rather than get worse as it looked like they might have. The right thing to do is keep the crosshairs where they belong — on George W. Bush and Hank Paulson who decided to implement their recapitalization scheme in an irresponsible manner. Normally, when you “inject capital” into an enterprise you get a share of the action — board seats, voting shares, etc. — not just a dividend. That way, the public’s representatives would have had a way to ensure that the public interest was safeguarded as banks played with the public’s money. But Bush and Paulson care more about ideological correctness (free market!) and helping their buddies (Goldman!) than they do about safeguarding the public interest. Since there was no way to bring an alternative, less horrible administration to power back in October, I see no real alternative to doing something and then letting Bush and Paulson implement it poorly.

The question is, can Barack Obama do any better? With good reason, we’re not ordinarily comfortable with the government exerting vast control over the banking sector. But also with good reason, we’re not ordinarily comfortable with the government “injecting” hundreds of billions of dollars into the industry. But if the latter step is necessary, then so is the former.