Bailout Banks Ready To Pay Executives $40 Billion in Pensions And Bonuses

The problem presented by outlandish executive bonuses has been surprisingly well-covered in the media, so much so that the Treasury Department has even stipulated that recipients of its bailout funding must accept some limit on executive pay.

However, the very companies that are being bailed out still owe tens of billions of dollars in back-pay to their executives derived from last year’s profits. It is unclear whether they will be allowed to use bailout funds to cover these costs, according to Wealth Bulletin.

Among the biggest debtors, Goldman Sachs owes its executives (which may include current Assistant Secretary of the Treasury Neel Kashkari) $11.8 billion for last year. JPMorgan Chase owes nearly $8.5 billion, while Morgan Stanley owes perhaps $10-$12 billion. At some institutions, the pensions and bonuses owed to executives outweigh outlays to the entire remaining payroll.

While the banks will not directly use the Treasury’s funds to pay what they owe their executives, they will use the Treasury’s funds to cover the costs of other operations while they pay off executives with the money they already have on hand. Essentially, their reserves will be paid out and replaced (at no cost) by reserves from the Treasury. This system does not guarantee that the bank will eventually repay their debts, but it does insure that the super rich executives will get the bonuses they clearly do not deserve.

There have been some interesting ideas about how to pay executives for their contractual obligations, including paying them back in foreclosed real estate, which seems fittingly fair to those of us being punished by the housing market. But the problem is still paramount.

According to the Treasury, every bank was required to accept the terms and conditions of the bailout. Included in these were limitations on “golden parachutes” and a proposed $500,000 cap on executive yearly salary. Unfortunately, financiers are clever and adept at moving money around to guarantee personal profits, so it is possible that the contractual obligations accrued before the bailout will be paid for money gained after the bailout.

Source Wealth Bulletin:

But overlooked in these efforts is the total size of debts that financial firms receiving taxpayer assistance previously incurred to their executives, which at some firms exceed what they owe in pensions to their entire work forces.

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The practice of incurring corporate IOUs for executives’ pensions and past pay is perfectly legal and is common in big business, not limited to financial firms. But liabilities grew especially high in the financial industry, with its tradition of lavish pay.

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The liabilities are an essentially hidden obligation. Even when the debts to their executives total in the billions, most companies lump them into “other liabilities”; only a few then identify amounts attributable to deferred pay.

Source: Economy in Crisis

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