Kris Morgan 2/8/2018
When President Bush and his administration bailed out banks in light of the 2007 housing collapse, the crony nature of banking was at the forefront of all our minds. The New York Times even ran a headline in 2009: “Bankers Reaped Lavish Bonuses During Bailouts.” According to the article, nine of the biggest recipients of bailouts paid about 5,000 people $1mil each in bonuses. So not only does bailing out losers undermine the market’s goal of weeding out those who fail to meet economic demand efficiently, the moral hazard involved is shocking.
CNN posted a special report listing all the banks bailed out as a result of the aforementioned 2007 crash. The list is endless, but the top three were Wells Fargo, JP Morgan Chase & Co., and Citigroup. Each received $25bn to hold them over. Without further adieu, here is a profile of the top three banks’ CEO during the time.
John Stumpf – Wells Fargo CEO in 2008
In 2008, as Wells Fargo received a $25bn bailout, Stumpf was paid $13.8mil in his first year as CEO. The bank posted a $2.66bn dollar profit in the same year. While Stumpf has had an extensive banking career, Janet Yellen’s final act as Chairman of the Fed in 2016 was to slam Wells Fargo with $185mil fine in light of the fake accounts scandal. Stumpf retired as a result. From Fiscal Year (FY) 2000 to present, Wells Fargo has received $530,481,584 in subsidies (government granted money without demand for repayment).
Jamie Dimon – JP Morgan Chase & Co. in 2008
JP Morgan Chase & Co. received $25bn to remain afloat in 2008. Jamie Dimon was paid $19.7mil that same year (to his credit, in 2007 he made $34mil). What is troubling is the bank received a bailout, but according to Dimon’s bio, in 2008 “he steered the business clear of most of the wreckage and maintained its profitability, while also scooping up ailing Bear Stearns for $2 per share…” However, in 2013 it became apparent JP Morgan misrepresented mortgage securities it was selling prior to 2008 and was forced to pay $13bn in a settlement with regulators. JP Morgan has received $1,577,130,318 in subsidies since FY 2000.
Vikram Pandit – Citigroup in 2008
Like JP Morgan Chase & Co. and Wells Fargo, Citigroup received a $25bn bailout in 2008. Pandit reported a measly $1mil salary to Congress for 2008, however, the Huffington Post reported he made almost $11mil and simply neglected to “mention his sign-on and retention awards, as well as stock and option awards.” Per the story, he originally made closer to $40mil but lost big when the stock price tumbled to under $1 per share. From FY 2000 to present, Citigroup has received $564,762,028 in subsidies.
No proper work on cronyism in the financial sector can even be started without mentioning the two people most in charge: Former Chairman of the Fed Ben Bernanke and Former Treasury Secretary Hank Paulson.
Federal Reserve Chairman Ben Bernanke in 2008
Ben Bernanke began his career in academia. After graduating Summa-Cum-Laude in Economics from Harvard in 1975, he earned a PHD from MIT in 1979. Following that, he taught at Stanford, NYU, MIT, and Princeton. He was appointed to the Federal Reserve Board of Governors in 2002 and Chairman in 2005. Bernanke worked closely with President Bush and Hank Paulson to draft the Emergency Economic Stabilization Act, more commonly known as the 2008 bailout.
Hank Paulson – Treasury Secretary in 2008
Henry Paulson earned a Bachelor’s in English from Dartmouth and an MBA from Harvard before going to work at the Pentagon as staff assistant to the assistant secretary of defense under President Nixon. Just after serving as Domestic Council assistant to President Nixon, he made his way to Goldman Sachs. In 1982 he made partner, in 1988 he made managing partner, and from 1990 – 1994 he operated as President and COO. In 1999 he replaced Jon Corzine as Chairman and CEO, as Corzine worked his way into politics, becoming Governor of New Jersey. In 2006 he was named Treasury Secretary by President Bush.
The 2007 housing crash and subsequent 2008 bank bailouts were a trying time for everyone. Perhaps every person on this list acted admirably, and in spite of that, the media found a way of viewing their actions with a touch of fraud. Even if we believe that unlikely story, do we still want the federal government determining who stays afloat and who drowns every time we enter the bust phase of the cycle? Do we want banks, with a revolving door between the private sector and high levels of government, operating under the impression they will just get bailed out? What is to stop them from approving high-risk high-reward loans to people in desperation?
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