10 Worst Bailout Boondoggles
I found this on MSN and thought I would reproduce it here, for that eventuality when the link no longer works (the original link is here). As you read it, keep in mind that at least THREE of these points are specifically about AIG, who just posted a $60 billion quarter loss, the worst quarter loss in corporate history, and is asking for more government aid (story here). Send this to your friends! Voice your displeasure to the powers that be! (Check out my post below for more of my recent 'angry man' letter writing. GM actually phoned me to talk about it!)
The 10 Worst Bailout Boondoggles by Michael Brush, staff
Slideshow appearing March 4, 2009
Canadian Finance Minister Jim Flaherty has all but assured mistakes will be made as Ottawa rushes to spend $40 billion in stimulus. But a look south of the border at mistakes made with U.S. bailout dollars gives reason to be wary of how governments spend taxpayer dollars. Click the arrows to get started.
1. Pay to Play: Millionaire players on the New York Mets and the Manchester United soccer team should be slapping high-fives over government bailouts. The reason: The money is helping to pay their salaries. Without $45 billion in government help and a $306 billion backstop on its portfolio of rotten mortgage-backed securities, Citigroup would likely have disappeared. If so, the bank would have reneged on a $400 million, 20-year deal to name the new Mets stadium "Citi Field." And thanks to $144 billion in bailout money, AIG can make good on the $47 million it had agreed to pay for the right to plaster its logo on Manchester United soccer jerseys for the next 18 months. Glory, glory, Man United.
2. Empire Building: Many American banks are playing "Let's Make a Deal" and building empires with bailout money, instead of using it to make loans that help the U.S. economy. Shortly after PNC Financial Services got a $7.7 billion cash injection, it announced a buyout of National City. BB&T and Zions Bancorporation have said they have the urge to merge -- now that they've collectively pocketed $4.5 billion in bailout funds. Mergers have created more banks that are "too big to fail" -- so when they come back for more money, it'll be even harder to say no. BB&T says it would buy only "problem" banks, in the spirit of the bailout program.
3. Golden Parachutes for Failure: Cleveland's National City bank was run so badly that it was virtually ruined, mainly by imprudent exposure to subprime mortgages. Management's reward for creating this colossal disaster: $200 million in golden parachutes. And U.S. taxpayers will get fleeced a second time. Because of a last-minute change in tax rules, PNC Financial Services, which bought National City, will get about $725 million in income-tax credits. Those credits stem from the $19.9 billion PNC expects to lose on bad loans made by National City.
4. A Bailout for China: U.S. taxpayers were told the $700 billion financial-system bailout would create jobs by helping the American economy. Instead, one of the banks getting the most bailout money is plowing tens of billions of dollars into foreign companies. Bank of America, which will get $25 billion in bailout loans, recently spent about $7 billion to double its stake in state-owned China Construction Bank. B of A, whose CEO is Kenneth Lewis (pictured above), says it would've spent the money even without a cash infusion from the feds.
5. AIG’s $400,000 Post-Bailout Party: While American taxpayers were still absorbing the shock of having to foot an $85 billion bill (a tab that later grew to $144 billion) to bail out American International Group, executives at the insurer headed straight for the exclusive St. Regis resort in Southern California just days after their company got the money. The $440,000 tab for their eight-day stay at the Tuscan-style resort included $150,000 for meals, $23,000 in spa charges and $7,000 for golf outings. AIG says the event was held mainly to reward performance of independent insurance agents and brokers who were not company employees.
6. How Gold is My Parachute: Peter Kraus joined Merrill Lynch in early September to head up its strategy team. But Bank of America, bolstered by $25 billion in bailout money, won shareholder approval this month to take over Merrill. The deal will trigger a golden-parachute clause in Kraus' contract, allowing him to pocket as much as $25 million for his two months on the job, according to The Wall Street Journal.
7. Pay to Fail: Should U.S. taxpayers pay to keep executives who steered a company into a ditch? AIG thinks so. It recently agreed to pay retention bonuses to 130 executives, including $3 million for Jay Wintrob, who heads the division that sells annuities. Last year, he earned $2.5 million in salary, bonus, stock and options. Other AIG execs will get more than $500,000, or about 200% of their salaries, to stay through 2009, according to Bloomberg. The insurer had previously promised to forgo bonus payouts as part of the bailout plan. AIG says retention bonuses are needed to keep execs from leaving while it restructures and that departures could cause the company's reinsurers to cancel contracts.
8. Extravagant Pay: As millions of Americans learn what it's like to make ends meet on unemployment insurance, executives at banks getting U.S. taxpayer bailouts will continue to live the high life. Capital One Financial CEO Richard Fairbanks (pictured above) got $73.1 million in pay last year, according to The Corporate Library. That's 1,456 times the median household income of $50,233 earned by taxpayers footing the bill for Capital One's $3.55 billion federal bailout. Bank of America chief Kenneth Lewis last year took home $23 million, or 458 times the income earned by taxpayers covering his bank's $25 billion bailout. Both CEOs also make way more than the median of $8.85 million for CEOs at S&P 500 companies. Despite having to lean on U.S. taxpayers with modest incomes for help, both CEOs will likely continue to earn stratospheric pay. Neither bank has indicated it plans to cut CEO pay.
9. Free Use of Corporate Jet for Personal Travel: While hard times are forcing many of us to stretch another year out of the family jalopy, the CEOs at U.S. banks getting bailout money will continue to ride -- and fly -- high. John Mack (pictured right), who heads Morgan Stanley, which has taken $10 billion in U.S. government bailout money so far, enjoyed $356,000 worth of personal use of a corporate jet last year. JPMorgan Chase has gotten $25 billion in bailout money. Its chief, James Dimon (pictured left), took $211 million worth of use of a company jet last year. He used company cars at an estimated cost of $68,000. So far, neither company has indicated it will cut back on CEOs' personal use of corporate jets as part of its acceptance of taxpayer bailout money.
10. Lobbying: Citigroup, Bank of America and JPMorgan Chase each spent around $5 million lobbying the U.S. federal government during the first nine months of 2008. Citigroup is getting $45 billion in bailout money, while the two others are getting $25 billion each. You can expect millions of dollars of that money to be spent on wining and dining Washington lawmakers; none of the banks has indicated it plans to cut back on lobbying.
The 10 Worst Bailout Boondoggles by Michael Brush, staff
Slideshow appearing March 4, 2009
Canadian Finance Minister Jim Flaherty has all but assured mistakes will be made as Ottawa rushes to spend $40 billion in stimulus. But a look south of the border at mistakes made with U.S. bailout dollars gives reason to be wary of how governments spend taxpayer dollars. Click the arrows to get started.
1. Pay to Play: Millionaire players on the New York Mets and the Manchester United soccer team should be slapping high-fives over government bailouts. The reason: The money is helping to pay their salaries. Without $45 billion in government help and a $306 billion backstop on its portfolio of rotten mortgage-backed securities, Citigroup would likely have disappeared. If so, the bank would have reneged on a $400 million, 20-year deal to name the new Mets stadium "Citi Field." And thanks to $144 billion in bailout money, AIG can make good on the $47 million it had agreed to pay for the right to plaster its logo on Manchester United soccer jerseys for the next 18 months. Glory, glory, Man United.
2. Empire Building: Many American banks are playing "Let's Make a Deal" and building empires with bailout money, instead of using it to make loans that help the U.S. economy. Shortly after PNC Financial Services got a $7.7 billion cash injection, it announced a buyout of National City. BB&T and Zions Bancorporation have said they have the urge to merge -- now that they've collectively pocketed $4.5 billion in bailout funds. Mergers have created more banks that are "too big to fail" -- so when they come back for more money, it'll be even harder to say no. BB&T says it would buy only "problem" banks, in the spirit of the bailout program.
3. Golden Parachutes for Failure: Cleveland's National City bank was run so badly that it was virtually ruined, mainly by imprudent exposure to subprime mortgages. Management's reward for creating this colossal disaster: $200 million in golden parachutes. And U.S. taxpayers will get fleeced a second time. Because of a last-minute change in tax rules, PNC Financial Services, which bought National City, will get about $725 million in income-tax credits. Those credits stem from the $19.9 billion PNC expects to lose on bad loans made by National City.
4. A Bailout for China: U.S. taxpayers were told the $700 billion financial-system bailout would create jobs by helping the American economy. Instead, one of the banks getting the most bailout money is plowing tens of billions of dollars into foreign companies. Bank of America, which will get $25 billion in bailout loans, recently spent about $7 billion to double its stake in state-owned China Construction Bank. B of A, whose CEO is Kenneth Lewis (pictured above), says it would've spent the money even without a cash infusion from the feds.
5. AIG’s $400,000 Post-Bailout Party: While American taxpayers were still absorbing the shock of having to foot an $85 billion bill (a tab that later grew to $144 billion) to bail out American International Group, executives at the insurer headed straight for the exclusive St. Regis resort in Southern California just days after their company got the money. The $440,000 tab for their eight-day stay at the Tuscan-style resort included $150,000 for meals, $23,000 in spa charges and $7,000 for golf outings. AIG says the event was held mainly to reward performance of independent insurance agents and brokers who were not company employees.
6. How Gold is My Parachute: Peter Kraus joined Merrill Lynch in early September to head up its strategy team. But Bank of America, bolstered by $25 billion in bailout money, won shareholder approval this month to take over Merrill. The deal will trigger a golden-parachute clause in Kraus' contract, allowing him to pocket as much as $25 million for his two months on the job, according to The Wall Street Journal.
7. Pay to Fail: Should U.S. taxpayers pay to keep executives who steered a company into a ditch? AIG thinks so. It recently agreed to pay retention bonuses to 130 executives, including $3 million for Jay Wintrob, who heads the division that sells annuities. Last year, he earned $2.5 million in salary, bonus, stock and options. Other AIG execs will get more than $500,000, or about 200% of their salaries, to stay through 2009, according to Bloomberg. The insurer had previously promised to forgo bonus payouts as part of the bailout plan. AIG says retention bonuses are needed to keep execs from leaving while it restructures and that departures could cause the company's reinsurers to cancel contracts.
8. Extravagant Pay: As millions of Americans learn what it's like to make ends meet on unemployment insurance, executives at banks getting U.S. taxpayer bailouts will continue to live the high life. Capital One Financial CEO Richard Fairbanks (pictured above) got $73.1 million in pay last year, according to The Corporate Library. That's 1,456 times the median household income of $50,233 earned by taxpayers footing the bill for Capital One's $3.55 billion federal bailout. Bank of America chief Kenneth Lewis last year took home $23 million, or 458 times the income earned by taxpayers covering his bank's $25 billion bailout. Both CEOs also make way more than the median of $8.85 million for CEOs at S&P 500 companies. Despite having to lean on U.S. taxpayers with modest incomes for help, both CEOs will likely continue to earn stratospheric pay. Neither bank has indicated it plans to cut CEO pay.
9. Free Use of Corporate Jet for Personal Travel: While hard times are forcing many of us to stretch another year out of the family jalopy, the CEOs at U.S. banks getting bailout money will continue to ride -- and fly -- high. John Mack (pictured right), who heads Morgan Stanley, which has taken $10 billion in U.S. government bailout money so far, enjoyed $356,000 worth of personal use of a corporate jet last year. JPMorgan Chase has gotten $25 billion in bailout money. Its chief, James Dimon (pictured left), took $211 million worth of use of a company jet last year. He used company cars at an estimated cost of $68,000. So far, neither company has indicated it will cut back on CEOs' personal use of corporate jets as part of its acceptance of taxpayer bailout money.
10. Lobbying: Citigroup, Bank of America and JPMorgan Chase each spent around $5 million lobbying the U.S. federal government during the first nine months of 2008. Citigroup is getting $45 billion in bailout money, while the two others are getting $25 billion each. You can expect millions of dollars of that money to be spent on wining and dining Washington lawmakers; none of the banks has indicated it plans to cut back on lobbying.
posted by Kris at 9:58 AM
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