Five years ago this week, the financial system came unhinged due to years of recklessness on Wall Street and regulatory neglect in Washington. The American people paid a terrible price – persistent and widespread unemployment, millions of foreclosures, and household wealth and retirement savings wiped away. Yet, little, if anything, has changed on Wall Street and the biggest banks have suffered no real political, economic, or legal consequences for the damage they caused our nation.
Following up on my post of Monday, September 9, 2013, here is the second post about 5 critical must do’s to prevent another crisis and to remake our financial system and economy to serve all Americans, not just powerful financial interests. Also, below you will find another short summary of daily events leading up to the financial meltdown of 2008, drawn from the timeline on the website of the Financial Crisis Inquiry Commission.
Must Do #4 – To Reform Compensation, Shareholders Unite!
The crash of 2008 was in no small part driven by Wall Street’s outsized executive compensation packages that rewarded the quick deal, the short term gain without regard to long term consequences. Pay practices encouraged the big bet – where the payoff on the upside could be huge and the downside limited. The landscape was littered with enormous, egregious payouts for failure. Martin Sullivan, CEO of AIG, was paid $107 million over 3 years as he piloted AIG to a massive $180 billion taxpayer bailout. Robert Rubin pulled down more than $115 million during his tenure at Citigroup as that company teetered near collapse. Stanley O’Neal received $91 million in 2006 and a severance package of $161 million in 2007 as Merrill Lynch careened toward disaster. And, the list goes on.
What’s really changed in 5 years? Not much.
The nation’s five biggest banks are on track this year to pay out $127 billion in compensation, including $23 billion in bonuses – the highest since the crisis (http://finance.fortune.cnn.com/2013/08/28/wall-street-bonuses-2/). Executive pay on Wall Street remains emblematic of the growing and unsustainable chasm in wealth and income (http://economix.blogs.nytimes.com/2013/09/10/the-rich-get-richer-through-the-recovery). Compensation packages remain asymmetric, rewarding the casino culture that brought down the house. And, unlike in the real economy where risk of failure brings risk of loss, clawback provisions are all too feeble.
Too many of the nation’s major institutional investors – who manage the life savings of working Americans and who are major shareholders in the big banks – have been silent and passive in the wake of the crisis. It’s time that they get off the sidelines and onto the playing field to demand change and to protect our nation’s families and economy.
Must Do #5 – A Federal Reserve Chair Who Will Protect the Public Interest, Not Wall Street (sent out 9/9/13)
5 Years Ago Today in the Financial Crisis
On Friday, September 12, 2008:
- After receiving a total of $8.6 billion in cash collateral from Lehman during the week, JP Morgan sweeps the funds out of the Lehman accounts on which it had a lien.
- The Federal Reserve and Treasury convene a Friday night meeting of 12 investment bank CEOs, pushing them to come up with a rescue plan for Lehman and telling them that the government would not bail out the troubled company. Treasury Secretary Henry Paulson remarks that a sudden and disorderly unwind of Lehman could have broad adverse effects on the capital markets.
- Bank of America CEO Ken Lewis tells Treasury Secretary Henry Paulson that his company would consider buying Lehman only if the government would provide assistance. Paulson rejects the proposal.
- The Dow Jones declined by 11 points (-0.10%) and the S&P rose by 2 points (+0.21%).