Obama attacks 'outrageous' $18bn Wall Street bonuses

Published on Thursday 29 January 2009 21:02

BARACK Obama, the US president, last night said it was "outrageous" that Wall Street employees received more than £12.5 billion in Christmas bonuses last year.

Figures published yesterday by the New York State comptroller have revealed for the first time the extent to which leading US banks continue to puff up wages, despite relying on massive federal cash injections to stay in business.

"Whether it's government or the financial system, we're not going to be able to do what is needed to be done to stabilise our financial system if the American people read about this type of outrageous behaviour," a presidential spokesman said.

Later, Mr Obama added that the bonuses were "the height of irresponsibility" and " shameful".

The comptroller, Thomas DiNapoli, an elected official who audits public accounts, said the total of $18 billion in bonuses was the sixth highest on record, and called yesterday for the Obama administration to examine whether the bonuses came out of the government's $700 billion banking bailout.

The report comes amid daily reports of fresh excesses by the men and women once regarded as corporate titans.

Citigroup, which received $45 billion in federal aid, was this week poised to splash out $50 million for a top-of-the-range corporate jet with leather seats and a free drinks bar. The bank, subsequently shamed, has now cancelled the order.

The New York Post runs a "Rogues Gallery" to name and shame bosses of state-subsidised banks, pointing the finger at men such as Dick Fuld, the former boss of Lehman Brothers, who made half a billion dollars leading his bank to collapse.

And critics are attacking the notion of bonuses paid to executives as rewards for failure.

"Disconcerting," said Lucian Bebchuck, a Harvard law professor. "This was neither the sixth best year in terms of aggregate profits, nor was it the sixth most difficult year in terms of retaining employees."

But it is not just banks that indulge in the benefits bonanza: Figures from the pay data firm Equilar reveal corporate excess across the US economy.

Last year, despite falling profits, bonuses at 132 companies earning more than $1 billion a year actually increased by 14 per cent over the previous year, with the average reaching $265,594.

But some say the vilification uses too broad a brush. Over the years, bonuses have formed an ever larger portion of Wall Street salaries, rather as waiters rely on tips to supplement low salaries.

"People at the top, yeah, they probably don't deserve huge bonuses," said John-Andrew Forde, a marketing executive at New York PR firm Company Agenda. "But there are portions of banks who made money last year, and people who made money deserve to get bonuses."

Critics are turning their fire on the government for not insisting on tougher conditions from banks being bailed out.

"The administration and Congress have to set very strict standards before more taxpayer dollars are released," said Republican Congressman Peter King.

But so far, Congress has chafed at taking control of the banks.

"The time to hold people accountable never seems to arrive," says CNN's Anderson Cooper, in his TV series Culprits of the Collapse. "Politicians point fingers at members of the opposite party, but no-one ever seems to take real responsibility."

Spending like no tomorrow in face of disaster

AMONG Wall Street's fat cats under fire for taking bonuses, fewer are more pilloried than John Thain, the former chief executive of Merrill Lynch.

Even as his bank was collapsing under the weight of mismanaged assets, Mr Thain last year spent 850,000 on fixing up his New York office.

Shares might have been crashing and thousands facing lay-offs, but he saw nothing wrong in adding a 60,000 carpet, 20,000 curtains and a 7,000 lampshade. No expense was spared – even the wastepaper basket cost the company, the recipient of more than 30 billion in taxpayers' money, almost 1,000 – on the advice of a celebrity interior designer paid 560,000.

Mr Thain tried to get himself a 7 million bonus before being forced out after the bank merged with Bank of America, but still managed to rush through millions more in bonuses to his under-performing top executives.

Andrew Cuomo, the New York attorney general, has issued a subpoena to Mr Thain asking about Merrill's decision to pay big bonuses when the disaster the company faced was apparent.