Compensation for financial executives were limited under TARP, the Government’s capital infusion that allowed financial institutions such as Bank of America, Citi, JP Morgan Chase, Wells Fargo, etc. to remain solvent. That Government aid came with the condition that salaries would be limited and bonuses would only be granted on a performance basis.
Limitations to Executive compensation were necessary to sell the idea of the bailout to the American public, as it lead them to believe that fundamentally the industry would change for the better and that the bailouts were in the best interest of main street. WTF Finance smelled the rat from the very beginning. Remember the day of the 777 point drop in the Dow, which was followed by President Bush and Treasury Secretary Paulson begging the Nation on public television to accept the bailouts? Yes, those two Republican “conservatives”….How convenient that this drop occurred after the initial “Nay” vote when Americans were still opposing a bailout of the industry. It certainly wasn’t the first and won’t be the last time that the financial industry manipulated the market to its advantage in order to drive their political agenda.
While many might argue that TARP was a success and that many financial institutions repaid TARP in full, WTF Finance understands the dynamics that allowed insolvent businesses to turn to record profits within a year. Without a change in accounting rules away from mark-to-market these financial institutions wouldn’t be making record profits. Without the Federal Reserve buying toxic assets from these banks they wouldn’t be solvent, let alone be profitable. So in essence the “success” and “profits” those financial institutions enjoyed since April 2009 has absolutely nothing to do with a change to conservative and efficient business but all with creative accounting. In fact, the change away from mark-to-market is the exact same anti-free market accounting gimmick that allowed Enron to report excessive profit numbers.
Since Banks no longer have to be limited by TARP boundaries they can compensate their executives without any government limitations. “I get the new reality and I will make sure Citi gets it as well”, said Vikram Pandit, CEO of Citigroup, Inc. in a testimony in front of the U.S. House Financial Services Committee in 2009. In response Pandit took a symbolic $1 salary until the bank returns to profit and faking their way to profitability Citi Group did.
“Citigroup Inc. boosted Chief Executive Officer Vikram Pandit’s base salary to $1.75 million from $1 after the bank’s first profit for a year under his watch as Wall Street firms announced pay packages for top managers.”
“Vikram has worked tirelessly to put Citi back on the right track, spearheading a restructuring that has returned the company to profitability and positioning the company for future growth,” Chairman Richard Parsons said in a statement.
WTF Finance disagrees that it took tireless work. It’s not difficult to accept billions in free money, lend it out at multiples through fractional reserve banking, exchanging junk loans your company made for treasuries through the Federal Reserve’s bailout policy while simultaneously inflating the book value of your assets to bubble pricing. Congratulations for this miraculous accomplishment made possible with the many anti-free market, big government policies put in place by both political parties.