With Wall Street executives raking in windfall profits for 2009 while the rest of the country staggered through a banker-caused recession, President Obama pledged last week to impose a levy on major banks and investment firms to recoup TARP bailout money.
Much of the bailout money that has not been repaid went to help these firms overcome a crisis spurred by huge losses in the housing and auto industry. Subprime loans to minorities, women and the elderly made up the lion’s share of the losses in the housing area.
Banks have come under renewed public scrutiny for earning high profits from once toxic assets now backed by government guarantee.
Upcoming earnings reports from blue chip banking companies over the next few days are expected to show record profits. Leading the pack is JPMorgan Chase with nearly $12 billion in profits in 2009, even higher than at the peak of the credit bubble.
The high profits mean huge perks. According to The New York Times, the bank had “earmarked $26.9 billion to compensate its workers, 18 percent higher than in 2008, much of which will now be paid out as bonuses. Workers in JPMorgan’s investment bank would, on average, earned roughly $272,000 each. Top producers, however, expect to collect multi-million-dollar paychecks.”
Meanwhile Jamie Dimon, JPMorgan’s CEO, has publicly opposed the tax.
Looking at the broader banking landscape, Democracy Now reports that “Obama’s announcement came as the Wall Street Journal reported the nation’s 38 largest financial firms will pay out a record $145.85 billion in compensation for 2009. The figure marks an 18 percent increase over 2008 and a 6 percent increase over 2007.”
A Capitol Hill hearing was convened last week to look into the banking crisis, including compensation. There, the chairman of Goldman Sachs came under sharp criticism over the trading practice known as “shorting the market.”
“Lloyd Blankfein, the chief executive of Goldman Sachs, took the brunt of the questions, especially on his firm’s practice of selling mortgage-backed securities and then betting against them,” msnbc.com reports.
Financial Crisis Inquiry Commission chair Phil Angelides told him, “I’m just going to be blunt with you. It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.”
The securities in question were composed primarily of housing loans.
The ongoing recession has resulted in a record-breaking number of foreclosures, up 120 percent over 2007. Over 4 million foreclosure filings on 2 million properties were recorded last year.
Much to the chagrin of the Obama administration, banks have been reluctant to renegotiate loan terms and have stiffly opposed allowing bankruptcy judges to lower interest payments.
Obama, speaking in a forceful language Jan. 14, said every dime loaned out would be repaid. “We want our money back, and we’re going to get it,” he said.
He continued, “If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers.”
A number of leading bankers earlier in the year did not show up for a White House meeting with the president, claiming inclement weather.