For those who thought outsized pay for investment bankers and traders was a thing of the past, think again. Ditto with the idea that having been a key actor in a financial failure dims one’s employment prospects. The poster child is John Meriwether, the head of hedge fund Long Term Capital Management, whose collapse in 1998 nearly caused a systemic crisis, leading the Fed to broker a rescue. Meriwether went on to launch another large hedge fund.
From the UK’s Times:
Staff at Lehman’s New York office who helped to cause the world’s biggest corporate bankruptcy are to share in a $2.5 billion bonanza.
The bonus, which has been described by London staff as a “scandal” has been pledged by Barclays Capital, the British-based bank that last week acquired Lehman’s American operation and took on 10,000 staff.
The $2.5 billion (£1.4 billion) pot, which has been ring-fenced as part of the acquisition, has caused huge resentment among the 5,000 staff in the firm’s European and Middle Eastern operations who are not guaranteed to be paid after this month…
A Chapter 11 bankruptcy document filed by Lehman Brothers Holdings Inc says that Barclays has identified eight individuals out of the New York staff of 10,000 who are vital to make the deal succeed and a further 200 who are identified as “key”. It is thought that these eight directors will be locked into two-year contracts worth between $10m and $25m a year.
The $2.5 billion had been accrued as part of the contribution to Lehman’s group profits for the first nine months of the year. Barclays said there is no obligation to pay it out but analysts say the competitive pressure to keep key staff means he will have to….
Price Waterhouse Coopers (PWC), the administrator to Lehman’s European operation has demanded that the firm repay £4.4 billion that was transferred from the UK to Lehman’s US holding company just hours before the firm collapsed. This left London with no money to pay staff.
If PWC is successful, the European operation would be Lehman’s third-biggest creditor after Citigroup and Bank of New York. It is thought that PWC will want to look closely at how $2.5 billion had been ring-fenced as part of the deal with Barclays. It will want to know who negotiated the sale and the precise details surrounding who benefited….
The administrator is looking closely at how this cash was transferred. It was an unusally high transfer that raised eyebrows in the London office.
Yesterday Gordon Brown, the prime minister stepped into support PWC’s claim demanding the American division return the £4.4 billion….
The way that Lehman has set aside cash to reward staff has angered politicans. John McFall, chairman of the Treasury select committee, said: “This is socialism for the fat cats. Everyone in financial services recognised that the remuneration system is the cancer on the financial body politic here. Until that is tackled we can’t move on.”
Vince Cable, Liberal Democrat shadow chancellor, said: “This is outrageous and deeply cynical. Part of the problem with Lehman and the other weak investment banks was that they were driven by the bonus culture, which rewarded big deals rather than good deals. It was what destabilised the institutions in the first place. They are being rewarded for having adopted business behaviour that has wrecked their bank.”
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Soooo now, having stolen from their clients in effect and having soaked the public, the Inner Ring at Lehman’s is looting what’s left out from under their subsidiary employees? Remind me again: Just _what_ is the value added to society by the financial industry beyond full employment for those who pass a Bar Exam?
It is this example that shows exactly why the government needs to be in a position to seize, i.e. ‘nationalize’ failing institutions, because administrative procedures would immediately apply. Leaving tottering firms with billions of real, and in many cases liquid, assets to carve themselves up is a starter’s pistol shot to loot fast and furiously.
Unfreakingbelievable!
Do these megalomaniac asshats really believe these bonuses will be accepted as par for the course? They need 208 key employees to make a bankruptcy deal succeed? (Are you kidding me?)
Ah c’wan! It’s JUST a bankruptcy. Why should it affect ME? I’m oh so indispensable dude!
Can’t wait to see the reactions in Congress this weekend. The Democrats will have a field day with that one. LOL! How will the Republicans ever justified the non-inclusion of provisions against that?
BTW…Aren’t we supposed to write a blank check for, what, 700 billion of OUR dollars.
And this is to be used, among other things, to rescue other asshats?
Tough noogies, but no deal!!
“the government needs to be in a position to seize, i.e. ‘nationalize’ failing institutions, because administrative procedures would immediately apply.”
Question: Am I to understand that administrative procedures in case of nationalization supersede existing contracts with employees/directors of the firm?
If so, that explains why the Bushies won’t even talk about this option.
Disgusting!
Any nationalization protocal would give the designated Administrators power to suspend, though not abrogate, any existing contracts. That would include, fortunately or unfortunately depending upon ones perspective but of necessity, labor contracts. But yes, contracts between inner echelon stakeholders also would lie under an Administrator’s pen. Nationalization is sufficiently a radical option, obviously _not_ what anyone would want if a willing and functional buyer could be found, that there needs to be supervisory powers to cut through the gristly knot. The second worst option would be for a public takeover but with existing contracts and all their costs and rig ups in place. The worst of all possible options is unlimited guaranteed public financing, i.e. exactly what Paulson, Dubya, and the Wrecking Crew are doubled down for.
And re: Lehman’s, there _real_ assets are the clients they bring to firms acquiring units of the dead iBank. The NON-assets are the top traders who killed the firm: far from bonuses it’s boots to the tokhus that should accompany these ‘indispensible’ folks out the door. . . . But Barclay’s has bought into the culture, and so just doesn’t get that—because the same treatment might apply to them a quarter or two down the road, natch.
“The worst of all possible options is unlimited guaranteed public financing, i.e. exactly what Paulson, Dubya, and the Wrecking Crew are doubled down for.”
And here I was, thinking that people commenting that Paulson was still working for his banking buddies were just being cynical. Silly me!
On a more serious note, I am seriously wondering if Congress will see it the same way you do Richard.
I sure hope so.
Regarding Hank Paulson, one might have reason to give in to something less than utter cynicism examining his actions here, not that I grasp his thinking well, but. Take someone such as, say, William French Smith, Rahm Emanuel, or Alberto Gonzalez: individuals cut to such cloth have a track record of caring naught except for the acquisition of power and money to their immediate coterie. I’m not convinced that this describes Paulson’s actions entirely, my own heated rhetoric notwithstanding. It seems clear that Paulson emphatically sees it as his present role to _defend asset values at ALL costs and by any means necessary_. Really. This has been the consistent bias of every plan and statement that I can think of which have come over his name for the last year plus, so the available evidence suggest that he really believes this is desirable, necessary, and possible. And this buy-up has that outcome—price support—as an ostensible effect, other issues (kleptocratic transfer to financial insiders, fatal damage to US sovereign finance, etc.) notwithstanding. So yes, Paulson is thinking of, like, and for his peers and buddies, but he may very well believe that he ‘is doing the right thing.’ That is perhaps the worst of it, here, the self-delusion, if such is the alternative explanation than total venality.
And it isn’t just wealth-shills like Paulson who drink the Kool Aid. Reading over at Paul Krugman’s blog, someone whose thinking and philosophy I broadly agree with and often respect despite sharp divergences at times, it would appear at first reading that only Saturday, 20 September, at 1:23 PM did it finally occur, really, to Paul that the US financial system is, in fact, involvent in aggregate. It is hard to believe that he ‘didn’t get this,’ but if true it would explain many of the less credible musings and tangents which I have heard him posit in pixels and print throughout the financial crisis. If one believe that only _some_ were dead, but that in aggregate the whole just needed better liquidity and re-reg, than his positions would make more sense. If one accepts, as surely I do, that the locked in loss vectors for China-syndrome ASBs meant that the system was dead, than a different approach is warranted. That’s a long way of saying Paulson acts more nearly as, in the role of a company representative on the Titanic, one in the Ballroom calling for more prayer rather than one in a launched lifeboat calling for a steward to throw his wallet down to him for safekeeping. —But decide for yourself.
I fully expect Congress to approve this bailout with minor visual adjustments by next Friday. I would love for them to prove me wrong, but this lot has neither sense, guts, or conscience as far as I can tell. More to the point, they have ducked any serious oversight or intervention for fourteen months, and the great tendency is for groups to keep on doing what they have been doing. Bail and pray stays on-vector, so that is what they are going to do, to me. . . . How do you think it feels to conceive that they only group in Congress standing between us all and _that_ outcome are the Australopithicus Republican anti-government Right, a few of whom might throw their (not up for re-election) bodies down on the rails to try to block this mega-theft? Gut-shot, that’s how.
Richard – I am starting to agree that nationalization is our best option at this point, and I share your opinion that Congress is too weak-kneed to actually lead on this issue.
When I think of how much of the $700 billion is going to go into bonus pools to reward this den of vipers and thieves for their outstanding performance in saving their firms by finding a buyer for their distressed assets, I become physically ill.
Did you expect anything different.
“only group in Congress standing between us all and _that_ outcome are the Australopithicus Republican anti-government Right”: who, we must now assume, are the only ones to have seen right to the bottom of the problem. Rather like Churchill’s circle in the late 30s, eh?
So dearime, no, I don’t think that is accurate. I supremely doubt that the extreme Republican right sees to the bottom of anything; they just hate central government. One can be completely right for completely wrong reasons, and that would be my assessment here. However, such wingnut Republicans really, really believe that THEY are right, no one else, and so they are the only mob in Congress who acts with some regularity ‘on principle’: “We’re [the] Right, what part of that don’t you understand?”
—But they will be ill-pleased by bonuses for Lehman’s worthys {sic}, and I share that sentiment with them, if little else beside a common genus.
Folks, not to worry. Tomorrow, John McCain will call for firing these Lehman staffers.
And if the deal doesn’t succeed? What are these key people going to do then? Shop around for someone else to give the 2.5 billion dollars? Just exactly who has the power in this negotiation and why?
Or is it just an old boys network?
Has the new way of doing corporate takeovers become using the federal government as a finance source?
Personally Ive thought for a while that’s what Bear Stearns was.
I wonder if reasoned argument can prevail against the fear, stupidity, mediocrity, and the establishment mentality of deference to those presumed to have special expertise that prevails in Washington. I mean look who’s Speaker of the House — that disgusting Nancy Pelosi. Not to mention idiots like Frank and Schumer.
1- Shouldn’t they launch an investigation to know who triggered the trasnfer.
2- What crap, these people are “essential” or “key”. They are damns donkey that almost (or are) destroy the U.S. Empire. They should be in jail instead.
3- When short selling is put back, maybe Barclay should get a dose of that.
September 21, 2008
Reminds me of the CEO noodle at SF, B of A that sold the company down the river for a paltry $23 million bonus. Better, and more on the mark, to consider the $2.5 Billion “bonus” as a bribe to do the deal at less than market value. And this then makes Barclays as culpable as the “bribe” receivers.
Just a thought.
Earl
On a sunny September day on the beach. (Glad something’s sunny!)
I’m certainly not suggesting this as a course of action – far from it… It would be a further breakdown of law that we’d end up sliding waaaaaay down…..
However, Don’t the bozos who will be getting this $2.5 Billion fear anything? Aren’t they afraid that one or two of the folks who either lost their jobs or lost their life savings will try to take it out on THEM? Guns, bullets, knives, baseball bats (even name brands like Louisville Sluggers) are cheap and plentiful. All they need is one or two disgruntled ex-employees or customers to snap, and the ill-gotten booty becomes moot.
Oh, I suppose they could afford a nicer casket, but I don’t think that’s what they are planning on spending it on.
Hope they can afford better security now. I hope they won’t need it.
Is George Herbert Walker one of the essential guys?
He’s W’s cousin.
Gee, let’s not let facts get in the way of a good story.
Did you know that Barclays is not picking up the division at Lehman that blundered?
dismay, utter dismay.
Has anyone pursued the morality/ ethics/ legality/ constitutionality of a former CEO of one of the banks facing imminent collapse (Goldman Sachs), now US treasury secretary, using the federal coffers to bail out himself and his mates? Surely there’s at least a conflict of interest here that precludes him from involvement in the bail-out. If so, will this not inevitably end up in the Supreme Court?
Lehman to Barclays: “Thanks, suckahs!”
Paulson to US taxpayers: “Thanks, suckahs!”