The Least They Can Do

The 6 largest (Too Big to Fail) Investment Banks have set aside $114 billion in the first 9 months and are on track to award a total of more than $140 billion this year in employee bonuses.

All of these banks have and are continuing to receive subsidies from the government and the taxpayer. Their actions already have cost the average American dearly. Far worse will be the future costs. Costs that will seep through a variety of channels. Higher bank fees and interest charges, higher income taxes, a devalued dollar, higher food and energy costs and greater inflation.

These circumstances beg the following questions:

How much would banks have set aside for bonuses if they were required to use mark to market accounting rule and as a result revealed their true losses?

In other words, how much of what is going to be paid out in bonuses would have been and should be retained as capital to protect against known – but undisclosed – losses?

Who will be put at risk if there is a double dip recession and any of the TBTF banks needs but is unable to raise additional capital? (rhetorical question)

The TBTF banks need to restrict this year's employee bonuses to stock options not redeemable for 3 or 4 years. The $140 billion in cash saved should be used either to cover undisclosed losses or to expand credit and grow the economy. All of the TBTF banks need to agree (or be required) to use similar stock option approaches to lessen employee defections. They need to do this for the good of the Country and for the goodwill of their industry.

Cash bonuses at this point in the fragile recovery of our economy are not wise. They are too risky for the banks and too risky for the economy. Preserving this capital reduces any future need to raise capital. Capital that would be far more costly if it had to be raised out of necessity at a time of weakness.

Stock options would demonstrate that the bankers are in the game for the long haul along with the rest of us. This would show America that the investment banks are part of the team, that they are working to make the economy stronger, that they are not just the greedy, selfish (fill in the blank'ers) that they have been portrayed as by the media.

Banks should volunteer to do this, but if they cannot, will not or need political cover, then the Federal Treasury should mandate it. If Hank Paulson could force a shotgun wedding between Bank of American and Merrill, surely Tim Geithner can get these banks to agree to similar stock option bonus terms.

Perhaps a better analogy: If Hank Paulson could get these same banks to agree to accept TARP money so as to not single out those in greatest need, then Tim Geithner can get them to agree to the same rules on stock option based bonuses so as not to single out those at greatest risk of future taxpayer bailouts. Geithner can argue that retaining this cash is necessary to accelerate the repayment of TARP funds and reduce the federal deficit and that requiring everyone to take the same approach is necessary for employee stability.

This is the minimum the banks should agree to do given the billions of dollars of taxpayer subsidies they all have received in one form or another. Crap at $140 billion in stock option awards, they can even create a large new market trading in future employee stock option awards. (sarcasm)