Bonuses on a resurgent, if not shrunken, Wall Street bounced back to more than $20 billion in 2009, up 17 percent from the year before, according to new data from the New York Comptroller's office. The average bonus was $123,850, and at three of biggest banks on the Street—Goldman Sachs, Morgan Stanley, and JPMorgan Chase, all of which taxpayers bailed out—bonuses jumped even more, up 31 percent from 2008. Mind you, 2009's bonus checks are nowhere near the ludicrously high totals we saw at the peak of the bubble, like the $34 billion in 2006 and $33 billion in 2007. (Who can forget this typical New York Times headline from bonus season in 2004: "That Line at the Ferrari Dealer? It's Bonus Season on Wall Street.") Still, when one in five Americans is "underwater" on their home and nearly one in ten are unemployed, $20 billion in bonuses is a staggering, incomprehensibly large sum that could go a long way if spread out across the rest of the population.
In that spirit, here are five alternative uses for that $20 billion in bonuses that might alleviate our current economic woes:
You could pay the salaries of more than 390,000 public school teachers across the country.
First, happy Credit CARD Act day! As I wrote last week, the second phase of the Credit Card Accountability Responsibility and Disclosure Act of 2009 goes into effect today, cracking down on unfair and predatory practices like universal default and unfair interest rate hikes. You can read more about those changes here [PDF]. Sadly, banks are trying awfully hard to pass along the cost of new regulation to their customers. In my post from last week, I told how a Citi Card customer who contacted us here at MoJo could face a $60-a-year fee for—get this—not charging enough money to her card.
James Kwak, over at Baseline Scenario, heard from a reader with a similar story on how Chase is pleading with its customers keep their overdraft service which consumers can now opt out of thanks to the new legislation. Kwak, who posted Chase's letter to its customer, wasn't surprised:
There's nothing particularly evil about this—banks will no longer be allowed to charge overdraft fees without your consent, and even I will concede that there are some people who might want this service, so now they have to ask for permission. Of course, it's a pretty hard and misleading sell: they focus primarily on the issue of funds availability (deposits may not be available immediately), and they try to frighten you with "an unexpected emergency like a highway tow." If you do get a letter like this and are not sure what it means, remember that the bank will not tell you when you are about to overdraw your account, and it will charge you $34 each time, even multiple times per day, no matter how small the overdraft.
I was interested to note that the bank doesn't even promise that it will cover your overdraft—it says only that it may cover your overdraft, at its discretion. I suppose this makes sense, since they don’t want to cover an overdraft for $100,000, but couldn’t they guarantee it up to some fixed amount? I mean, if this service is supposed to give you peace of mind, how much peace of mind do you get when the bank reserves the right not to cover your overdrafts? [emphasis mine]
For all their convenience, overdrafts can be a nasty, unfair practice; if you calculate the APR from the average overdraft fee, it's more than 10,000 percent. No matter how well Chase or any other bank cloaks the practice is corporatespeak, we're all better off now with the chance to opt out of overdraft fees.
So, the New York Post reports, the firm's fearless, Bronx-born leader, Lloyd Blankfein, did what any rightminded corporate CEO would do: He brought in some PR muscle To spruce up Goldman's image Blankfein turned to Public Strategies, a slick Texas-based firm led by Dan Bartlett, a close confidante to George W. Bush and Karl Rove. From the Post story:
Earlier this month, Goldman clients and Wall Street analysts starting filling out an exhaustive, online questionnaire seeking to pinpoint exactly what people thought of Blankfein's firm. One question wanted survey participants to compare Goldman to other Wall Street banks—and names rivals JPMorgan Chase, UBS, Bank of America, Citigroup and Barclays. Respondents were asked to fill in blanks from least favorable to most favorable.
"For the first 139 years it wasn't that relevant to us to explain ourselves," Blankfein told Fortune recently. "And now it became very relevant and the press did an important thing for us, they pointed out to us that that was a deficiency in our strategy, not to reveal ourselves...I'm just trying to take pains, which we should have done all along, to make sure that people understand what we do in the world."
Yes, please, Lloyd—do explain to the people what exactly the purpose of a synthetic collaterized debt obligation is apart from a massive casino chip.
Five former Treasury Secretaries, from Democratic and Republican administrations alike, voiced their support for the "Volcker Rule" on Sunday in a joint letter to the Wall Street Journal. The secretaries—Michael Blumenthal, Paul O'Neill, George Shultz, Nicholas Brady, and John Snow—said the rule, which would separate banks' riskier trading operations like hedge funds from their more staid commercial banking duties—wrote that "Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services."
The former secretaries' support adds momentum behind the proposed regulation, offered by former Federal Reserve chairman and Obama ally Paul Volcker, going into a week when the Senate, led by banking committee chair Sen. Chris Dodd (D-CT), plans to unveil its version of comprehensive financial reform. (The House's version of financial reform, passed in December, gives the Treasury and the president the power to divest assets from banks if necessary.) Broadly speaking, the Volcker Rule is supported by Congressional Democrats involved in financial reform as well as many finance experts. Despite the massive amounts of speculation that fueled the economic meltdown, large financial institutions generally say they're more than capable of policing their own risky trading operations, and don't see the need to split those hedge funds and private equity funds from their rest of their company. We'll see sometime this week whether Dodd and Sen. Bob Corker (R-TN), Dodd's latest partner in financial-reform talks, decide to include the Volcker Rule in their plans.
Is President Obama's latest foreclosure fix, a $1.5 billion program targeting hard-hit states, another boondoggle in his housing rescue?
Earlier today, Obama announced in Las Vegas the program to tackling the housing crisis in states like Michigan, Nevada, Florida, and a few others by asking state and local Housing Finance Agencies, or HFAs, to create innovative new ways to address mounting foreclosures tailored to their areas. HFAs, in Obama's new plan, will submit program designs to the Treasury Department specifically geared to help homeowners who're unemployed, underwater (they owe more than their home is worth), or grappling with second mortgages on their homes. The $1.5 billion in funding will come from the bailout bill passed in 2008 that set aside $50 billion for housing-related programs, including the Home Affordable Modification Program. "The funding announced today will help target resources to those hardest hit markets, promoting innovation that tailors programs to meet local needs and complementing our national foreclosure relief efforts," said Shaun Donovan, the Department of Housing and Urban Development secretary.
The new program arrives at something of a crossroads for the housing industry. While a report by credit analyst TransUnion earlier this week found that mortgage delinquencies—traditionally a precursor to foreclosures—were at record levels, statistics released today by the Mortgage Bankers Association suggest that, as the organization's chief economist put it, we've reached "the beginning of the end" of the foreclosure crisis. Fewer people, the MBA found, are late on their loan payments, which points to a potential upturn on the horizon. With that in mind, Obama's new program could be a catalyst in that budding recovery.
Lending experts, however, voiced doubts over whether the program will really do all that much. "This latest effort is just a Band-Aid," said Kathleen Day with the Center for Responsible Lending. Day said what's needed is a housing relief program in which loan modifications are mandatory, which isn't the case with the multi-billion dollar Home Affordable Modification Program, Obama's flagship relief program. Running with the medical theme, Day went on to say, "Every additional Band-Aid helps, but we need take a more wholistic view of the patient and need a more fundamental diagnosis and prognosis."
But even this new Band-Aid is no guarantee to stop the bleeding in the housing market. As Herb Allison, the Treasury's TARP czar, told reporters in a conference call today, the new $1.5 billion program was created to "foster innovation" and promote outside-the-box ways for addressing housing problems specific to hard-hit areas but potentially applicable on a national level. Innovation, however, is no easy, quick task, and to think that HFAs will generate novel ideas for stemming foreclosures in a month or two is probably wishful thinking. Allison said rules on the program would be issued in two weeks, and that the application process would begin sometime after that, though he declined to elaborate further. All of which is say, even if Obama's new housing Band-Aid generates smart new ideas for helping homeowners, it won't be happening anytime particularly soon.