Goldman Returning TARP Funds? Status of “Suicidal” 90% Bonus Tax.
In the context of proposed legislation to tax Wall Street bonuses at 90%, Goldman Sachs head Lloyd Blankfein is reportedly going to return $10b in TARP funds his firm received. Another unnamed Goldman exec said “It’s just impossible to run our business in this environment,” which is an understatement given the shortsighted proposal for such a tax—that proposal passed the House last week amidst mass hysteria over AIG paying $165 in bonuses to members of its division that was responsible for creating and selling credit default swaps—insurance contracts that were widely used by speculators as a method of shorting bonds—that resulted in a $173b government bailout of AIG.
Now that the AIG hearings have passed, legislators are possibly now realizing that there’s more to this situation than just bowing to justifiably angry but uninformed taxpayers and media outlets. And make no mistake, it was mass hysteria…last week, Republican Senator Charles Grassley said AIG execs “should either do one of two things: resign or go commit suicide”. This is a senior member of the decision making team in Congress. But like most of his Congressional colleagues looking for “effective” (translation: utterly tasteless and amateur) soundbytes on the situation, he fails to understand that the smartest execs are needed to solve this.
Even if it’s not the ones that created it, you have to compensate the smartest possible people to fix it. If this new tax passes the Senate and becomes law, it will do one of two things: (1) force the smartest execs to move to private companies where there is no scrutiny of their compensation, or (2) cause financial firms to pay higher base salaries, thus removing any incentives for execs to actually try. Talk about resignations and suicide.