Bailout Report

Add to the list of questionable obligations assumed by the nation’s banks in the routine course of business, $41 Billion worth of loans to directors, top executives, employees, and other insiders. 

These insider loans, generally made to high net worth individuals, most of whom have suffered significant declines in their net worth due to investment portfolio losses, could very conceiveably become bad loans given the likelihood the loan criteria used in making these loans was favored.  And to think public, tax payer money has been used to support parts of these insider loans.  Seven of the 10 banks with the largest insider loans received a total of more than $50 billion in the banking bailout late last year.

Add these perks to the outrageous bonuses and you see the public outrage has only just begun.

(Photo: Texas Agricultural and Mechanical College. Boar.  Arthur Rothstein, January 1942.  Depression era photograph captions by financial professional Cathleen Rittereiser.)

Is the furor over AIG bonuses justified or political grandstanding?  Does a 0.01% investment in salaries for the staff overseeing the wind-down of a $1.6 Trillion portfolio justify harikari as Senator Grassley suggested?

Does it take 73 millionaires to wind-down a toxic investment portfolio?

What about the bonuses paid to other Wall Street firms?  Last week Merill  Lynch was in the crosshairs for shotgunning year-end bonuses just prior to the Bank of America takeover.  Is AIG merely the culprits of the week or was the firm’s bonus behavior more egregious than that of other TARP recipients?

Typically, investment banks pay out as much salary as they net in income.  That’s nearly $10,000,000 for banks like Goldman Sachs and Morgan Stanley.  That would buy AIG’s Financial Products staff many tmes over.  On a per employee basis, the investment bank average bonuses are far higher than AIG’s for many job categories.

AIG is no exception to the conduct of other bailout recipients.  It’s employees, however, may be the victim of a slow news cycle.  News of Merril’s bonuses hit while the Madoff scandal was receiving full press news coverage.  Misuse of bailout dollars was indeed in need of a poster child.  That the message turned out to be delivered on a Most Wanted poster is testimony to the growing public outrage.

(Comic captions of Depress-era photos by financial professional Cathleen Ritterreiser.)

The US Treasury Department provided $1,415,882,000 ($1.4 Billion) to banking institutions under the Troubled Asset Relief Program’s (TARP) Capital Infusion Program during the month of February in the form of preferred stock with warrants.  Banks receiving TARP funds in February, 2009 are:
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AIG Citibank Bailout" src="http://bailout.uslaw.com/wp-content/uploads/2009/03/aig_citibank_pigs.jpg" alt="" width="500" height="375" />

On the same day the federal government announced an additional $30 Billion of aid for insurance giant AIG, the Fed Chariman and Treasury Secretary had this to say about the company in seperate Congressional hearings:

“AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
- Federal Reserve Chairman Ben Bernanke

“AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision.”
- U.S. Treasury Secretary Timothy Geithner

(Bailout captions of Library of Congress Prints and Photographs by financial professional Cathleen Rittereiser.)