Tag Archives: TARP

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Bailed Out Execs Now Have a Salary Cap

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Now that we all have universal health care (wait? It doesn’t really kick in for four more years? Oh), the White House has given us another piece of progress from the “probably should have happened a long time ago” file.

Yes, now that only a handful companies are still benefitting greatly from public assistance, the administration has agreed to cap the pay for the top 25 executives of the five companies “still receiving extraordinary aid” via bailout. And really, it’s more like three companies since it comes down to only AIG, GM and its financing company GMAC, and Chrysler and its financing company Chrysler Financial.

Feinberg’s announcement was the administration’s latest effort to deal with public outrage over bonus payments provided to executives at companies receiving billions of dollars in taxpayer support.

Detailing the 2010 pay rules, Feinberg said cash salaries would be capped at $500,000 for 82 percent of the top 25 executives at the five firms. These executives would have to receive any further compensation in stock. Feinberg is seeking to link the executives’ decisions more closely to the success of their companies.

In addition, “pay czar” Kenneth Feinberg is also mandating that 419 companies that benefitted from bailout money before February 17, 2009, give detailed information on any salaries in excess of $500,000 paid to executives in late 2008 and early 2009. What exactly Feinberg plans to do with this information eludes me, but companies have 30 days to comply.

Under the law, Feinberg cannot require executives to return any compensation such as 2008 bonuses that he deems excessive. But Feinberg said he would review the compensation paid during that period to see if any of it could be deemed “inconsistent with the public interest.”

I think many interested members of the public could tell Kenneth their thoughts on that topic immediately, but it’s nice to know that he will have some more detailed info into the matter next month.

greedy executive businessman

Before the cap, he would have been carrying three bags.

Did the Bailouts Create More Risk?

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bank

Some feel the government’s response to the financial crisis may hurt the U.S. economy in the long run. At least that’s what an independent watchdog at the Treasury Department warned.

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The problem is that the issues that spawned the financial crisis have not been addressed — it has been more than 15 months since the beginning of the downward spiral, and though promises of reform have been made, there has been nothing instituted that will help prevent another crisis from happening in the future. Neil Barofsky, the special inspector general for the troubled asset relief program (TARP) said:

“Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

Since the $700 billion bailout by Congress, those financial institutions in the spotlight have grown even larger and have failed to scale back enormous executive pay. Some, including Barofsky, feel that because banks were bailed out in the past, they may take on even more risk, knowing the government will once again come to their rescue.

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Barofsky also had some words concerning the government’s role in propping up the housing market:

“The government has stepped in where the private players have gone away. If we take government resources and replace that market without addressing the serious (underlying) concerns, there really is a risk of” artificially pushing up home prices in the coming years. The report warned that these supports mean the government “has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor.

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Many housing experts are worried that once the cash infusion from the government runs out, the housing market will taken an even harder hit than it already has. And though the financial aid the Obama administration has offered has helped the housing and financial markets tremendously, a correction of underlying problems is seriously needed, though it doesn’t look as though reform will take place any time soon.

Life Insurers Receive Bailout

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shutterstock_stimulate-economyIt was announced today that the following life insurers will receive bailout funds from the Troubled Asset Relief Program (TARP):

  • Allstate                                                                   
  • Ameriprise Financial                                     
  • Hartford Financial Services Group Inc.
  • Lincoln National Corp.
  • Prinicpal Financial
  • Prudential Financial

According to Treasury Department spokesman Andrew Williams, those life insurers met the requirements for the Capital Purchase Program because of their bank holding company status.

Investors have been increasingly worried about the health of life insurers, which have been hit hard by worries about capital requirements and growing losses. A number of insurers that are also bank holding companies or thrifts have been eligible for funds from TARP since last fall. Last year, the Office of Thrift Supervision approved applications from Hartford and Lincoln to become bank holding companies, because of their planned bank purchases.

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The bailout money is badly needed as insurers have seen their cash eroded by declining market value of securities they hold.

A number of insurers could use the money because they’ve suffered losses in the financial markets.

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The companies invest the premiums they collect and use the proceeds to pay out claims.

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Investment losses have led ratings firms to downgrade some insurance companies, making it more difficult for the insurance companies to borrow money and attract capital.

Also, because numerous companies provide retirement annuities, which gaurantee payments to retirees, a cash infusion is needed to hold the public’s confidence in these companies and the market in general.

The insurance sector got a boost this morning when news of the planned bailout sent shares skyrocketing for the insurance companies involved, but, unfortunately, not for the market as a whole.