Should bonuses be paid to employees of companies which almost went bankrupt but didn’t because the company took bailout money from the government? Most bankers say yes, yet to the general public, this seems to be absolutely inexcusable. I decided to look into this topic further to satisfy my curiosity.
The large banking businesses are in many ways at blame for the current recession. They lobbied for, and got, the relaxation of rules limiting how much debt they could have. By going into greater debt, they could increase their profits. However, this also greatly increases their risks. When the economy began to decline, these companies suddenly were not able to pay back their debts, which made a huge impact upon the economy. This trickled down throughout the entire economy, which relies upon loans and investments to keep working. The government had to step in and passed a “bailout” for these large companies in order to keep the economy from getting worse, but the damage was already done (Labaton).
The general public is angry at the banking industry because of the damage they did to the economy, which affected the entire country. The public also feels that these companies are in a debt to the public because the government had to bail them out with taxpayer money. Therefore, the public expects the banking industry to be humbled, and being extremely frugal right now. Yet, these companies are gearing up to pay out large bonuses to their employees. The companies seem to be returning to the very same ways which brought about this recession (Kaiser). As Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University says, “It is setting us up for another fall,” (Eder). In this situation, it is not hard to...
... middle of paper ...
...sh-bonus-in-2009/>.
Gomstyn, Alice, and Lauren Pearle. "Could Be Worse: AIG Double Bonus Jeopardy." ABC News/Money. 17 Mar. 2009. ABC News. 25 Jan. 2010. .
Holson, Laura M. “Ready to Spend, but Not to Boast.” The New York Times. 24 Jan. 2010: ST1.
Kaiser, Emily. “Americans want limits on bailed-out banks’ pay.” Reuters. 21 Jan. 2010. Reuters. 25 Jan. 2010. .
Labaton, Stephen. “Agency’s ’04 Rule Let Banks Pile Up New Debt.” The New York Times. 2 Oct. 2008. The New York Times. 25 Jan. 2010. .
Leonidis, Alexis, and Collins, Margaret. “Executive Bonuses: Empty Clawbacks?” BusinessWeek. 14 Jan. 2010. Bloomberg. 25 Jan. 2010. .
Seidman, L. W. (1986) Lessons of the Eighties: What does the evidence show? Retrieved July 25, 2010 from http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
The 2008 crash in the U.S. Housing market associated with subprime mortgage and Merry Lynch losses, Bank of America accepted a $20 billion government bailout with the intention of stabilizing the financial marjets (Gupta & Herman, 2012). Band of America later repaid that amount with interests. In 2010, according to Forbes, Bank of America was the world’s third largest company after JP Morgan Chase and General Electric. In 201, however, Bank of America began conducting personnel reductions of an estimated 36,000 people, contributing to intended savings of $5 billion per year by 2014 (Bank of America Ending 30K more jobs, 2011). As for ownership, Bank of America is a publicly traded company listed under BAC in the New York Stock Exchange (NYSE)
The United States lending industry’s main focus has become accentuating profits; therefore, they have made it impossible to live without a credit card in today’s economy and to avoid being taken advantage of by the banks. James Scurlock, director and producer of the film, “Maxed Out”, devotes his movie to informing the audience of the credit card system and its many flaws and gives examples of people who are majorly affected by the pressure the lenders apply. Throughout the movie, numerous statistics, and expert testimonies are presented, as well as comparisons and appeals to emotion. Through the use of this support Scurlock, is able to convey his overall message and propose numerous minor arguments that clarify his argument and make it more credible.
The emergency rescue of the Royal Bank of Scotland in 2008 has cost the UK government thus the British taxpayer a huge amount of money. Many people are upset about the high bonuses the RBS management board have received, both because of the outrageously high amount and because the performance of the bank on the long-term was not good at all. According to the agency theory managers do not always act in the interest of the shareholder, but often act in the interest of themselves. The downfall of RBS could have been prevented if managers were not paid out a bonus based on their performance of one year, but rather a combination of a bonus based on their performance of multiple years and a bonus ...
In October of 1929, the American economy took a huge hit from the stock market crash. Since so much people had invested their money and time in the banks, when the banks closed many had lost all of their money and were in the deep poverty. Because of this, one of my first actions of the New Deal was the Federal Deposit Insurance Corporation (FDIC). Every bank in the United States had to abide by this rule. This banking program I launched not only ensured the safety and protection of deposits made my users of banks, but had also restored America’s faith in banks, causing people to once again use banks which contributed in enriching the economy. Another legislation I was determined to get passed...
In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of Americans. The real blame for this crisis rests on the heads of the managers that attempted to play the financial system through securitization, and forced the American government to “bail out” their companies with taxpayer money. These managers, specifically the managers of AIG and Citigroup, should be subject to extreme pay caps for the length of time that the American taxpayer holds majority holdings in their companies, as a punitive punishment for causing the Great Recession.
Despite their protective and righteous purport, TBTF regime has become a significant public matter in question. Trials of effort to justify TBTF did not turn out so convincing partially because its definition has not yet been fixed. In other words, there is no set standard of “who” precisely is being bailed out and who is not, under “what” circumstances. Beyond the bound of possibility to avoid all insolvency losses of the bank, it is inevitable to make decisions to protect the chosen but not all depositors. This decision primarily relies ...
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
Banks exist to provide people with financial security. Banks accounts allow for people to store money for saving and investing purposes. People give their money to banks in hopes that the bank will take care of their money. However, history has shown as that banks cannot be completely trusted. For example, in the days of the Great Depression. During the years of President Roosevelt’s tenure, he attempted to make it easier for people to trust banks. Still, many years later, banks cannot be completely trusted. In 2008, the financial crisis was the worst since the Great Depression, and it stemmed primarily from banks’ abuse of people. Once again, there has been legislation to keep banks from abusing
The book The Banker’s New Clothes: What’s Wrong with Banking and What to Do About It was wriiten out of necessity after the worst economic downturn in the United States in more than eighty years. The massive breakdown of the United States housing market in 2006 and 2007 had overwhelming consequences on domestic and global economies and devastated the global banking systems. Between 2001 and 2006, many large financial institutions had accumulated large positions in the subprime mortgage market that gave out superb returns. Asset prices in this market inflated to unreasonable levels due to the quality of the loans being packaged and sold by commercial bankers and would soon create a major asset bubble in the markets. The bursting of the housing
When choosing to work in public or private sector companies there are many factors to consider? Do you want to work with a company that only considered the factors of its company or do you prefer to work for a company that have employee compensation? These factors are considerably important. Based on empirical studies one of the determining reason about private sector is that it compensation is based on the company cash profits and tax avoidance rather than value of the executive compensation. In my report I support my findings of several researchers: (Tafkov, 2009), (Reda & Schmidt, 2014), and (Clausen, 1999). Researcher findings from James Reda and David Schmidt based on severance considerations and the history of severance pay. The History of Severance Pay goes back to more than 60 years. According to James Reda and David Schmidt “it is very uncommon for CEOs to have agreements with their respective companies.” Second researcher is Paul Clausen the difference between executive compensation and a business value. A company value is based on the compensation of their business. Whenever compensation is high, the lower the profits and accumulated assets associated with the value of the company. In this report the literature review will further tell you the how private and public sector differences and the factor associated with each sector, the elements of executive compensation vs. value. The gap in the literature is why employee compensation differs from executive compensation, determining reasonable in executive compensation or business value, and the determinant of executive compensation in private firms. The methodology report will show how relative performance information (RPI) on feedback from employee performance when inc...
Mullard, M. (2012). The Credit Rating Agencies and Their Contribution to the Financial Crisis. The Political Quarterly, 83, 77-95
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
In terms of looking at how credit rating agencies affected the market as a whole, they played a role within the mortgage crisis as they gave way to a real estate credit bubble. The mortgage crisis seems to have b...
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...