Congress paves way with 90% tax on unfair bonuses in bailout banks

By Theo Blackwell

Perhaps it’s the wrong time to suggest that we learn something about financial regulation from the United States.

Maybe so, but it’s worth pointing out that rather angry lawmakers in the U.S. Congress have taken the extraordinary step of promoting retroactive legislation to claw back 90% of the bonuses from banks and financial institutions bailed out by the American taxpayer.

The move follows the equally breathtaking move by AIG and other institutions kept afloat by the taxpayer of paying hundreds of millions in end-of-year bonuses to their employees. In AIG’s case they paid 165 million dollars out in extras, despite being saved by a 85 billion dollar cash injection from the state in September to stop it folding.

According to the New York Times “the legislation would apply to bonuses paid to executives at companies holding at 5 least billion dollars in bailout money and would essentially wipe out the phenomenal paydays that have been a tradition on Wall Street, at least until the firms reduce the amount they owe taxpayers to less than 5 billion dollars.”

The provision applies to traders earning in excess of 250,000 dollars a year (approx £150,000). The paper estimates that high earning employees at 11 institutions – including Goldman Sachs, Bank of America, Citigroup, Wells Fargo and JPMorgan Chase – would face restrictions immediately.

Lets look at that in detail. It’s not unbridled communism, but saying that those who are very well off already, in the top 1 or 2% pay bracket, should not get bonuses if they work in banks the public had to bail out. What’s more, they can start getting their bonuses again if their bank is successful enough to reduce their public debt to a reasonable level.

The Bill, in some form, is likely to receive the blessing of President Obama, who addressed the issue on Jay Leno last night.

What’s interesting is that its is not just an issue for the left – nearly half of House Republicans joined Democrats in supporting the Bill, which was approved by a 328-to-93 vote. Despite Cameron’s warm words, I wager my tiny final salary pension scheme (see below) that no such Tory support would be found here.

With all of the action over the Atlantic, it makes you think about such a measure for ‘bailout banks’ in this country.

Well, you’d think the mainstream press would be interested in following the measure, given the public anger over Fred-the Shred.

Instead – if you can believe it – there has been a noticeable assault by the Right, not against fat cat bonuses from bailout banks, but on the public sector.

‘Fat cat’ public sector pensions have been under attack, even for lowly councillors such as myself (really, just how far is that final salary pension on a couple of years service at £13,000 per year going to go?), as have salaries.

The Times complains that the public sector is shielded, backed up by the blowhards at the Taxpayers’ Alliance. The Telegraph blasts against a ‘bonanza for jobs‘

Forget Fred-the Shred, says rightwinger Daniel Hannan, its really public sector pensions which will bring us down – forgetting conveniently that private sector pensions are worth because of pension holidays allowed by the Tories; and pensions in general are one third lighter because of the activities of the investment banks themselves.

So perhaps its time for the spotlight to be directed where the U.S Congress is rightly focusing it.

While the bonus culture here doesn’t fully compare to the massive annual payouts in Wall Street, it is nevertheless the case that the City was of the view that bonuses were still acceptable even when they were in receipt of public money – RBS being the leading case in point.

So, time to learn some lessons in financial management from the U.S.?