On Government Bailouts, Wall Street Wins Again
Jul 31, 20203.8K Shares760.7K Views
Well, let’s see. Detroit does a lousy job of managing the auto business and comes to Washington for a bailout. The government sendstop executives home empty-handed. Lawmakers say later they might consider some sort of lifeline, under some pretty tough conditions, including cutbacks and restructuring, so the people responsible for the mess don’t look like they’re getting a free ride.
Then Citigroup, which did a lousy job of managing toxic subprime mortgage-backed assets, comes to the government for yet another bailout…. and just gets one.No tough talk, and full job security at the top for the no-talent executives who almost brought one of the world’s biggest banks to its knees, along with the rest of the economy because of greed.
It’s the ultimate triumph of Wall Street over Main Street. As economist and former Labor Secretary Robert Reich notes,if you ever doubted whether connections mean anything and that Wall Street is far more important to politicians than the possibility of several million unemployed autoworkers out on the street, the Citigroup bailout puts that to rest.
From Reich:
“„This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.
“„Meanwhile, more than a million workers in the automobile industry, along with six million mortgagees, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.
Reich’s not the only outraged one. The government may have had little choice but to save Citi - it probably is too big to fail - but the terms seem unusually favorableto the bank, and don’t set a clear standard for how to save other banks in need. And to sweep in as Citi’s savior as strong emotions swirl around the politics of bailouts only adds to the sense that government help is random and arbitrary, part of a system where the fix already is in, depending on your links to the people in power.
Here’s Yves Smith, at Naked Capitalism:
“„GM may not make the best cars, but Citi and other banks sold products that were terrible, destructive, that resulted in huge losses and are wrecking economies, damage crappy cars could never inflict (environmentalists might quibble, but never has so much seeming wealth evaporated in so little time, and with the main culprits readily identified). They paid huge bonuses, yet their 2004-mid 2007 earnings have been wiped out by subsequent losses. But while UAW workers will have to give up on deals cut earlier, in terms of health care and pension promises (entered into, by the way, to bridge difference over wage levels), I guarantee no Wall Street denizen of the peak years will have to cough up one penny of his bonus from those days.
The government is at least considering some compensation limits for Citigroup executives. But that’s hardly enough. If Citigroup takes help from Washington, it should have to put up with the same kind of conditions automakers are being told to accept. Maybe someone could add up the millions of dollars in bonuses awarded to top Citi executives at the height of the subprime boom and figure out a way they’ll have to return some of that money to the government. Also, let’s keep a close eye, please, on the year-end bonuses at Citi coming up soon - and let’s make sure they don’t happen.
Better yet, how about forcing top Citi people to spend some of their free time volunteering to help the government figure out how to get loan workouts accomplished? The day the public sees some Wall Street executive actually engaged in public service in return for the government’s money might be the day the continuing rescue of the financial sector, which seems more and more to come at the expense of the rest of us, makes a little more sense.
Hajra Shannon
Reviewer
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