Britain and France announced that they will levy a one-time tax on large bonuses paid by bailed-out banks, while US banks who benefited from taxpayer bailouts are set to dole out bonuses that are even larger than bonuses during 2008. I guess it's been a good year-for the banks.
Wall Street banks are on track to pay $26 billion in bonuses for 2009 performance...That's up from $18.4 billion in 2008.
When the foreclosure and credit crisis threatened to crush banks such as Goldman Sachs, JP Morgan, Morgan Stanley and Bank of America, the American taxpayer and the taxpayers of other countries rushed to their aid with bailouts. In return, we have seen foreclosures increase, bankruptcies increase and consequently, banker bonuses have increased for "performance" during 2009. As we have all suspected, the bank's definition of good performance is radically different from the average American's definition of the word. While the "value" of many banks has increased during this crisis as they rack up a portfolio of foreclosures, bad investments and bad loans, the average American taxpayer has not reaped the benefits of that increased value. And in at least the case of CIT group, we won't even get a repayment of the bailout money.
The government's pay czar, Kenneth Feinberg, recently slashed pay for the top 25 executives at the seven companies that received the biggest bailouts: Bank of America, AIG, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial. But if you thought that would put other banks on notice, you're only partly right. Feinberg's move has not only put banks on notice, it has created a stampeded of banks rushing to repay their bailout loans so they can avoid pay caps.
Bank of America repaid its $45 billion bailout this week, while Citigroup is scrambling to pay back a portion of its $45 billion rescue. Meanwhile, Goldman Sachs, JPMorgan Chase & Co. and Morgan Stanley have already repaid their bailouts and face no caps on employee pay.
The U.S. government should seriously consider the possibility of taxing bonuses at all of the banks who received bailout money regardless of their repayment status. Even if the bank repaid their bailout loan, they still benefited from a taxpayer handout and should be required to share some of that benefit especially if they did so well that they can pay out fat bonuses to their employees. The taxes levied against fat bonuses could be used to help homeowners facing foreclosure and/or a job loss.