House Reacts to Outrage on Wall Street

In an effort to turn the ailing economy around, the federal government has stuck its head way too far into the business of the private sector. But the private sector, notably the banks and mortgage buyers and more recently the auto makers, have been only too happy to accept government aid in the form of bailouts.

What the banks failed to realize, however, is that along with the financial aid comes closer scrutiny of their business. And when it comes to doling out public money — taxpayer money — that’s the way it should be.

So no one should be too surprised about the outrage that greeted the news last week that the nation’s largest banks have given huge bonuses to their executives and employees — bonuses that came from public money intended to bail them out of their failed loans and other practices.

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Rep. Melvin Watt, D-N.C., accurately expressed the sentiment of most folks when he said, “This is not the government taking over the corporate sector. It is a statement by the American people that it is time for us to straighten up the ship.”

It is a ship that has been running off course, among the multi-million dollar salaries that have abounded on Wall Street for way too long. The big bonuses only encourage the bond traders and other high rollers to take risks that could only exacerbate the banking industry’s already tenuous position in the struggling economy.

Although, as The Associated Press has reported, the bill doesn’t give President Obama exactly what he wanted, it advances the first piece of his broader proposal to increase oversight of financial institutions. The Senate is expected to take up the measure when it returns in September from its summer recess.

Rep. Barney Frank, D-Mass, and chairman of the House Financial Services Committee, said the legislation would ensure that bankers and traders who take big risks and lose on them don’t continue to get rewarded anyway. Without that restraint, he said, “the company loses money and the economy may suffer, but the decision makers do not.”

So how much money was being spread around by the largest banks to their employees in the form of bonuses?

New York Attorney General Andrew Cuomo reported that large, bailed-out banks, including Bank of America Corp., Merrill Lynch & Co., JP Morgan Chase & Co. and Goldman Sachs Group Inc. had awarded about 4,800 million-dollar-plus bonuses.

At JP Morgan Chase &Co., where the biggest bonus pool was paid out, $8.7 billion was distributed, a sum far larger than the $5.6 billion the bank reported in earnings for 2008.

It gets worse. At Citigroup, which is now one-third owned by the government after accepting $45 billion in federal money, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo said.

The banks should be free to pay whatever bonuses they want to pay to their employees, but not with the federal money they accepted to bail them out of what began as the mortgage-lending crisis. That bailout money was designed to help the banks get back on their feet — not to enrich their executives and other employees. Congress was right to step in and call their hand on the excessive bonus payouts. The Senate should follow the same path when it returns from its vacation.