AIG Bonus Dilemma – Part II

The hulabaloo over the AIG bonuses reached a climax today with the House voting to tax the bonus payments at 90%. I guess all the pomp and circumstance had a happy ending for those that were hanging on to this non-issue…

Unbelievably, Tim Geithner knew about these bonuses but remained mum throughout all the finger-pointing and grandstanding. According to the NY Times:

Interviews with senior Federal Reserve and Treasury officials, as well as members of Congress, leave little doubt that the bonus program was a disaster hiding in plain sight. Mr. Geithner is not the only one who appears not to have understood the populist fury the bonuses would set off.

So, the Fed and Treasury orchestrated the multiple AIG bailouts, knew about these bonuses and said nothing until it blew up in their faces? That’s pretty dishonest. Why is Geithner not in serious jeopardy of losing his job?

Take it away, Ron…

For more on the AIG bonuses, read here

Jan

24

John Thain, Liar Extraordinaire

Filed Under Economics | Leave a Comment

John Thain was in the news recently for being fired from Bank of America. He always intrigued me for a number of reasons.

He has been methodical in advancing his career and his reputation.
He has an enormous ego.
He knows exactly how to play the game of banking.

I remember reading about John Thain in 2003 when he was CFO of Goldman Sachs. I used to subscribe to the Financial Times and I would be enamored reading about him. After he made the move from Goldman to be Chairman of the NYSE, it was clear that he knew how to self-promote and advance himself. When he took the Merrill job, it seemed like the next logical step for him.

Like a lot of people who are very career driven, he obviously has a huge ego. Within months of taking over the CEO role at Merrill, he spent over $1 million refurbishing his office. Highlights include dropping over $1,000 for a wastepaper basket and an $87,000 rug.

It seems to me that when someone indulges in such a fashion, it becomes hard to take their “social responsibility” pleas very seriously.

Like I mentioned in a post late last year, John Thain has been a master of talking tough while scrambling frantically to do everything he could to keep Merrill solvent. Mish covered this point brilliantly last July.

All of this brings me to my final point: John Thain was successful because he knew how to play the game of banking and finance. He easily lied to CNBC, institutional and retail investors, and Bank of America, before he was finally removed. He effortlessly talked his book while raising capital to avoid a liquidity crisis. He succeed in one of the most difficult business environments in recent history by effectively deceiving the world about Merrill’s liquidity, solvency and risk management. This Friday it finally caught up to him.

John Thain is a very intelligent, ambitious man. It is a shame that in our current economic system, a man like him is part of the FIRE (finance, insurance, real estate) economy and not employing others in new life-improving technologies. As global deleveraging continues, I hope that many brilliant and savvy thinkers find their way back to productive jobs which help compound and increase the world’s wealth.

As people become more conscious of the fact that Merrill received TARP funds and had access to the discount window and could borrow at 2.5% while using enormous leverage, only then will they will start groping around for solutions. Rather than the usual scapegoat of “the rich”, hopefully citizens will realize that a debt-based economy, fractional reserve banking and government management of interest rates cannot possibly succeed in the long run. Only then will people be open to solutions not espoused by the investment banking beneficiaries.

UPDATE (1/26): John Thain read my blog and has capitulated!