'Well I have an alternative plan that doesn't (god forbid!) involve nationalization or government mandates, but compels the banks to spend government bucks for the purposes intended by Congress when it OK'd the bailout: vouchers. Submit the banks to the privatizing discipline of vouchers that has been used in the education and housing markets, and is the logic behind food stamps. (You can't spend them on movies or a ballgame, you gotta buy food with them.)'Geithner Loves the Market so Give him Banking Vouchers
Finding a way to hold banks accountable for the money that they receive as bail-outs is a good idea.
I have no idea how a voucher system would work in this situation.
Food stamps are somewhat easy to scam (a lot less easy since they changed the delivery system) and I am sure that banks would have a whole lot of motivation to figure a way past any restrictions.
Posts: 9303 | Location: PA, USA | Registered: 06-05-02
Obama may well be choked up with anger, but what can he actually do about these "bonuses"?
It looks as though AIG was bailed out without the government taking the company over i.e. the US government is not a majority shareholder. If so, it is merely a creditor (and an unsecured one, at that).
Our government has the same problem with Sir Fred Goodwin, the boss of a failed bank, who is due to get an enormous pension which he carefully arranged when the business was bust, semble with the government allowing it as part of a deal.Had he had this as a 'bonus' he'd have big problems.The majority shareholder (us, the British taxpayers) would have said that he'd been in breach of his fiduciary duty to the company, in running it so incompetently that it went bust,so they would not allow him the bonus.As it is, he may argue that a pension is protected, being a product of his length or time of service and not a 'reward'. That presents a greater legal problem. We'd have to show, in effect,that he obtained it dishonestly and we did not know what he'd been doing as an employee, a bit difficult when we agreed to it after the business went bust.
Interestingly,in Goodwin's case, two of the institutions that lost money , either literally as deposits or as shareholders with what we call preference shares ["deposit shares/stock" in the US] have been advised by US lawyers that they can sue in the US to stop him getting his pension. Hmm.Their representative said we (in Britain) should understand that they act on 'no win, no fee'and would not act in a hopeless case. True, perhaps, but their costs as against the fees for winning are worth a gamble.Unlike in Britain, if they lost they'd not be required to pay the costs of the other side too
On the face of it, Obama's problem is that it will require a bill to be passed to stop these bonuses being paid.In what way would that be 'unconstitutional' as suggested?
The alternative looks to be either arguing in court that the bonuses are to defeat creditors or arguing that the bosses concealed material facts from shareholders/creditors when they passed/ allowed to be passed the bonuses and that therefore the bonuses can be stopped or retrieved as 'unjust enrichment'.Neither looks very promising, but they may be worth a run.Appealing to the good nature of the recipients and threatening them with bad publicity is never going to work!
AIG is 80 per cent owned by the US government, apparently, so has been 'taken over'. That makes life easier.
An American law professor has pointed out another angle.You could argue that the contracts, including bonuses, were rendered incapable of performance.(In part or in whole that was due to the mismanagement by the contracted parties, but that's secondary and not legally relevant to this exact point) As matters stood, the company was so 'bust' that it did not have the funds to pay bonuses and so the contracts were frustrated.The government arriving with money to get or keep the business running did not change that fact. The money was to a new purpose, not a past one, and the contracts and the claiming parties should be treated as in statu quo ante.That's quite an appealing point to argue and has a certain attractiveness to any judge who has an eye to equity and the public mood.
'We have here broad acknowledgment that the first bank intervention didn't work because the banks used the money to bolster their capital ratios instead of lending the money out, which was the whole point of the intervention in the first place. Additionally, we have Obama talking about the need to "set up a securitized market... outside of the banking system" in order to "get credit flowing again," and establish the very lending that the bank intervention was supposed to have achieved.'What Obama Said Last Night That Really Was Controversial
It seems to have been very naive - to have handed so much money to the banks in the vague hope that they'd do something public-spirited with it.
Originally posted by newnickname: More on misuse of the bank bailout funds:
'We have here broad acknowledgment that the first bank intervention didn't work because the banks used the money to bolster their capital ratios instead of lending the money out, which was the whole point of the intervention in the first place. Additionally, we have Obama talking about the need to "set up a securitized market... outside of the banking system" in order to "get credit flowing again," and establish the very lending that the bank intervention was supposed to have achieved.'What Obama Said Last Night That Really Was Controversial
It seems to have been very naive - to have handed so much money to the banks in the vague hope that they'd do something public-spirited with it.
But predictable (and predicted). Our government has, and rather expected, the same problem and is trying measures to force the banks' hands.
'What we have is something perilously close to a dictatorship of the Fed and the Treasury, acting in the interests of Wall Street. The contrasts with the first hundred days of the Roosevelt administration are striking. Like Roosevelt, Obama faces an economic emergency. Like Roosevelt, he faces an angry public, which has been bilked by excesses on Wall Street. And like Roosevelt, Obama has a supportive Democratic Congress that is willing to substantially defer to the White House on an emergency recovery plan.
But unlike Roosevelt, who used the public's indignation and Congress's support to constrain the barons of private finance, Obama's economic team is using government funds to put the most abusive players on Wall Street back in the saddle.'Obama's Banking Rescue: O for Opaque
