Obama Fails to Stem Bonus Abuse - TheStreet

Obama Fails to Stem Bonus Abuse

President Obama has failed to stop the awarding of multimillion dollar bonuses to the financiers who put the nation on the edge of financial ruin.
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Goldman Sachs

(GS) - Get Report


JPMorgan Chase

(JPM) - Get Report

and other big Wall Street banks are awarding multimillion dollar bonuses to the same financiers who pushed the nation to the brink of financial ruin.

President Obama voices outrage but has failed to stem the abuse.

Wall Street leaders argue the bonuses were earned, much like jewel thieves refer to a big heist snatched from an impenetrable safe.

Wall Street has kept its mischief legal by salting the pockets of politicians running for Congress and president, and by making certain that key policymakers at the Treasury and

Federal Reserve

are faithful Goldman Sachs alumni.

Those bonuses were made possible by billions in taxpayer-financed funds from the Troubled Asset Relief Program and nearly $2 trillion in loans from the Federal Reserve and through the Federal Deposit Insurance Corp.

Those funds helped Wall Street financial institutions, deemed too big to fail, survive their own misdeeds. Bankers used this cash, much obtained at near-zero interest rates, not to make loans for homes and businesses but to trade derivatives, currency futures and other exotic contracts.

The fallout is a dramatic drop in the interest paid by banks for private capital too. Retirees suddenly found certificates of deposit that once paid 4% or 5% interest now pay 2% or 3%.

Essentially, Treasury Chief Timothy Geithner and Fed Chairman Ben Bernanke are taxing grandma to subsidize Goldman Sachs and finance huge big paydays for bankers who hatched the greatest financial calamity in 80 years.

Meanwhile, Goldman Sachs, JPMorgan and others continued their pay cartel salaries to everyone from top executives to the mailroom clerk.

It is not surprising that their CEOs, who get the biggest paydays, claim huge bonuses are essential for rewarding talent. When my students grade themselves, they reach self-serving conclusions too.

Sadly, Obama, Geithner and Bernanke could halt this madness, but don't.

These banks serve as primary dealers in U.S. Treasury securities -- a very profitable business -- and depend on Fed lines of credit to sustain business. Status as primary securities dealers and access to Fed financing could be withdrawn from banks that refuse to establish sane compensation practices going forward.

Cynically, Wall Street has contributed mightily to the campaigns of Senate and House committee members who make the rules and Obama's election campaign.

Goldman Sachs and others paid Obama's senior economic advisor Lawrence Summers millions in speaking and consulting fees the year between being fired as president of Harvard and joining the Obama administration.

Americans should expect better but won't get it as long as Obama has the audacity to hope voters will look the other way.

Professor Peter Morici is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.