On Friday I gave a Doofus award to the US investment banks who were preparing to spend a large chunk of the ‘rescue package’, given to them by the US Government, on bonuses and incentives for their executives.
A report today suggests that if this happens, it will be illegal.
Using bail-out money for anything other than lending – such as paying bonuses or pensions to Wall Street executives – will be a criminal offence, the powerful chairman of the U.S. House of Representatives Financial Services Committee has said.
The news comes after reports financial giants owe bosses some $40billion in bonuses and pension promises.
Reports that Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses – despite asking the U.S. government for an emergency bail-out – ignited fury among taxpayers.
The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged earlier this week.
Each of the firm’s 443 partners is on course to pocket an average Christmas bonus of more than £3million.
The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.
“I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the president’s request to respond to the credit crisis by making funds available for increased lending,” Rep. Barney Frank, a Massachusetts Democrat, said in a statement today.
“Any use of the these funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the Act,” he added.
Frank said U.S. Treasury Secretary Henry Paulson must make it absolutely clear to a participating entity that the federal government will insist on compliance.
I hope that Rep. Frank’s warning is heeded by the banks – and, if it isn’t, I hope that he’ll ensure that those responsible are prosecuted to the fullest extent of the law. I don’t think the bail-out should have been approved in the first place: but now that it’s been approved, let’s make sure that the fat-cats don’t get fatter on its proceeds!
I hope readers will join me in urging their representatives and Senators to keep a watchful eye on this situation, and to take action immediately if the banks are so incredibly self-centered and foolish as to misuse bail-out money in this way.
Peter
“We are using the government money for lending–That just frees up our existing funds for bonuses…”
Kind of like Ohio’s Lottery funds going to schools–while the portion of school funding coming from the general fund was cut by an equal amount.