Free condos, get your free condos: 90% tax rate on employee bonuses at TARP firms overwhelmingly passes the House.

there's going to be a MASSIVE supply of condos dropped on the market.

you know how many bankers are tied up in mortgages and will be FORCED TO LIQUIDATE?

high to fly, deep to falllllllllllllllll.

Goldman Sachs
Bank of America/Merrill Lynch
JPMorgan Chase
Citigroup
Wells Fargo (plenty of NY residents through Wachovia)
Morgan Stanley

The flood comes if it affects compensation levels in the whole industry.

I'd feel pretty good competitively if I'm Deutsche Bank, UBS, and Credit Suisse.

yeah and most of the guys working at DB, UBS, CS, tend to be renters..alot of the workforce (at least DB) is foreign and simply here for the $$$ flows then out.

Manhattan real estate brokers might as well immediately slash price level 20% on this news.

Anyway people in those industries use an analysis/decision-making tool called "risk management" so that the loans they take on are manageable, so they'll be scooby-doo-alright.

Will you people just shut up already how you think this bill is going to cause prices to plummet? In case you live under a rock, most people on Wall St. are not even getting bonuses so this tax will have no impact on them. Plus, some companies, including Goldman Sachs, have returned their TARP money so they are free to give out all the bonuses they want without being subject to any special taxes.

alot of people in finance are personally leveraged. alot of guys on wall street bought real estate based on bonus expectations.........

alanhart-

tool on "risk management", yeah and that's why the financials are practically insolvent according to baselII.

Goldman never returned tarp but wanted to. They also received money through AIG which the bill stipulates is part of the bailout. BTW - so did DB, UBS etc.

Can these companies just work around by raising base salaries? or does this 250k limit apply to base salary with no bonus also?

Why wouldn't the company just raise base salaries for intended execs to work around this new tax law?

If Goldman got money from AIG, then they can argue that they did not get bailout money since it did not come directly from the government.

Anyone who thinks we're returning to the Halcyon Days of Wall Street anytime soon is seriously mistaken.

Thus, property prices will fall in line with disposable incomes.

Ergo, CRASH.

Where's spunky?

Stevejhx, if that is the case, the City will not be as livable. Just for your cheap apartment purchase you want everything go to hell????

Goldman has TARP money directly too. $10 billion - they were one of the 9 ordered to take it by Paulson.

Raising base salaries - how much do you want to raise them? The culture of the business is variable pay - it will take a while to work this out.

HimWhoKnows -- sorry, I forgot the winky-face.

God I hope that NYC10022 worked at a TARP firm before he got laid off and has to pay back all his bonuses.. please God please......

how can one raise base salaries when there's billions in losses on the balance sheet?

bunch of idiots on this board. it's almost embarrassing. additionally as incomes decline,
so will price level of apartments.

NY un-livable? perhaps, but there will always be tourist attraction to Central Park, museums, etc,
unless of course we exit those holdings to Asians who hold our surplus.

cescent they cant raise salaries either. Face it bankers are not going to make anymore money than accountants

no NY quality of life is about to soar to new heights! All the a hole bankers who thought too much of themselves and brought no value to the city will be gone. They will return to their home towns broke with their tails betweentheir legs.

The city will prosper in art, music and culture once again!

"yeah and most of the guys working at DB, UBS, CS, tend to be renters"

Yeah, uh, not so much. Talk about a ridiculous off-the-cuff statement with absolutely ZERO basis in fact or reality.

The money from AIG to GS shouldn't be considered TARP money. I think there is no way this passes the Senate. Does anyone know if the Senate bill needs 2/3 or is it just 51%?

perfitz, most people who work in art and music are broke. They are not going to buy luxury condos.

never going to happen - just politics as usual

"Just for your cheap apartment purchase you want everything go to hell????"

Nonsense. The city was livable - and affordable - 10 years ago before all this property price inflation.

was the city livable when prices declined in the 70s?

> "yeah and most of the guys working at DB, UBS, CS, tend to be renters"

>> Yeah, uh, not so much. Talk about a ridiculous off-the-cuff statement with absolutely ZERO basis in fact or reality.

True, the US-based employees of the European banks are probably no larger percent foreign nationals than those of Goldman Sachs, Morgan Stanley, etc.

alpine - i do and I am not. Also who cares if they are broke? The"rich" wall streeters were the worst company ever. Money has nothing to do with who you enjoy to be around.

alpine292: "Will you people just shut up already how you think this bill is going to cause prices to plummet?"

You can keep deeping your fingers into your ears to avoid hearing the news, but, at some point, you'll hit brain (maybe).

oh my lord... I did not see this coming.

I think you can add another 10% decline to all the "where will it bottom" discussions on Manhattan RE.

"was the city livable when prices declined in the 70s?"

The 70's had nothing to do with the 90's. The population is now rising, in case you didn't know.

And the 70s weren't the end of the biggest bubble in RE history.

I don't think we're going back to the 70s. But just going back to 1995 means a humongous crash in RE.

Waverly wrote: "The money from AIG to GS shouldn't be considered TARP money."

I'm not so sure about that, Waverly. Isn't counterparty risk part of the deal when you trade private-label derivatives? Isn't managing that risk part of the business? I know it's hard for us to imagine mighty GS bungling something so basic, but the way it looks to me - and I'm no CDS expert - the AIG bailout was really a bailout of the firms on the other side of those trades.

GS has handled the PR aspects better (it helps to have friends in high places), but a bailout is a bailout. And if GS hadn't been so exposed, Treasury might have been able to let AIG fail.

You know who really should be angry about this - Albany.

If bonuses that put income above 250k are going to be taxed at 90% by the Feds, then obviously companies don't bother to pay them. That means a huge part of NYC's 250k income population will disappear over the short-term- isn't this where they planned to raise state taxes?

Back to the drawing board, Mr. Paterson.

"Can these companies just work around by raising base salaries? or does this 250k limit apply to base salary with no bonus also?"

the $250k limit applies to adjusted gross income. So there is no separation between base and bonus, just your total cash comp. The only "outs" for the street are 1) increasing stock-based or cash-based deferred compensation awards and 2) linking salaries to revenue generated in the form of "commissions", which are explicitly excluded from this calculation.

Crescent, absolutely. NYC/NYS gets double screwed. Less income, and then our state/city budgets are absolutely screwed. Obama will need to bail us out sure. But we'll definitely need services.

I'm figuring the impact of this change will be noticeable even THIS WEEKEND at open houses.

Special K, I read the Rangel bill this morning - not sure if what passed changed during the day - but the language applied to bonus payments, not base.

They used the term "disqualified bonus payment" as meaning any retention payment, incentive payment, or other bonus which is in addition to any amount payable to such individual for service performed by such individual at a regular hourly, daily, weekly, monthly, or similar periodic rate.

10022, it's going to be amusing walking into an open house and asking the broker what they think of the bonus impact on apartment demand (and ability to get mortgages!)

What if I put out some cookies, will that help? If all this doom and gloom is true, then I guess I am glad I walked on the two places we bid on.

The latest article I read said $250k compensation, base plus bonus...

here is a link to the bill, not sure you need a wsj subscription to get it:

http://online.wsj.com/public/resources/documents/tarpbonusesbill20090318.pdf

(1) IN GENERAL.—The term ‘‘TARP bonus’’
means, with respect to any individual for any taxable
year, the lesser of—
(A) the aggregate disqualified bonus pay13
ments received from covered TARP recipients
during such taxable year, or
(B) the excess of—
(i) the adjusted gross income of the
taxpayer for such taxable year, over
(ii) $250,000 ($125,000 in the case of
a married individual filing a separate return.

I guess the square footage calculations don't matter because nobody is buying any.

"no NY quality of life is about to soar to new heights! All the a hole bankers who thought too much of themselves and brought no value to the city will be gone. They will return to their home towns broke with their tails betweentheir legs."

Well, yes, bankers will be screwed, absolutely. But arts has already lost a ton of funding, and now it will lose more. NYC and NYS will need a bailout of their own, because their income will TANK. Wall street was THIRTY PERCENT of their revenues, and most of it will now be gone... so the state adds an extra 20% shortfall, at least (not to mention the industry that was supported by wall street).

Yes, less bankers, great. But here come the service cutbacks and the crime and the budget crisis.

Great thing those assembly democrats spent every penny we had last year! (FIFTY PERCENT budget increase in 5 years, several times the rate of inflation!) Well done, Shelly!

"The latest article I read said $250k compensation, base plus bonus"

That is right. Its based on AGI. The term in the bill is "Tarp bonus" but what they really mean is just total compensation.

Morgan and Goldman will pay back $5B and it won't affect them. If it gets signed into law. Much ado about nothing.

malthus, the way its written, if they had any TARP funds in 09, it applies to the entire tax year.

Senate version just out:

Senators Propose 70% Tax on Bonuses for TARP Workers (Correct)

By Ryan J. Donmoyer
March 19 (Bloomberg) -- U.S. senators proposed a 70 percent
tax on employee bonuses paid by companies that received more
than $100 million in taxpayer aid, hours after the House adopted
a 90 percent levy on a smaller number of employees.
The Senate proposal would apply to a larger number of
employees who work for companies that received benefits under
the Troubled Asset Relief Program, even as it imposes a lower
excise tax rate. Introducing the measure were Democrats Max
Baucus of Montana and Ron Wyden of Oregon and Republicans
Charles Grassley of Iowa and Olympia Snowe of Maine.
The Senate bill would tax retention and performance bonuses
paid to foreign workers of U.S. companies and restrict the
amount of income that can be deferred from tax to $1 million.
“I’ve said before that paying excessive bonuses to the
same group of folks that helped get us into this crisis is
simply unacceptable,” Baucus said in a statement. “Millions of
dollars, and Congress needs to do the same.”

--With reporting by Christopher Stern, Brian Faler, Nicholas
Johnston, Dawn Kopecki and Alison Vekshin in Washington, and
Christine Harper in New York. Editors: Laurie Asseo, Mike
Tackett.

"If it gets signed into law. Much ado about nothing."

They have more than enough votes to override a veto.

Rest assured there is a popular uprising against what has happened (in NYC, mostly) over the past 8 years, which has bankrupted the financial system while enriching the likes of Stan O'Neal and John Thain.

Never again.

No, I think you're wrong special_k, it applies if you have total income above 250k, but the tax itself is only on the bonus.

They use the $250k AGI language so they don't tax the part of the bonus that raises total income to 250,000, but then they tax everything above that.

Wow, this is really happening. Whatever the specific details end at... WOW.

I did not see this coming, and this is going to be a HUGE game changer immediately. I would not be surprised if medians dropped another 10% in Manhattan this weekend.

Holy moses.

NYC as we know it is done. Not saying its "dying" or "going bankrupt" or anything like that. We'll survive, and some things will actually look much better soon.

But, WOW, is this going to be a different place!

I admit I did not read the bill, but this is from Bloomberg's summary of the House Bill: "The tax would apply to bonus payments made after Dec. 31, 2008, and it would cease when the U.S. government’s investment in the company fell below $5 billion."

crescent, the "Tarp Bonus" refers to anything over $250k and that amount is taxed at 90% federal. The tax is not just on the bonus with a $250k AGI trigger, its on the entire amount over $250k. So there is no loophole with increasing base to compensate.

malthus, i posted the link to the actual bill above.

If anything is passed worded this way
(ii) $250,000 ($125,000 in the case of
a married individual filing a separate return.

A huge percentage of married people with working spouses would walk out the door tomorrow. If the spouse earns 250k they'd only be working for their 401k contributions, everything else the government would take. This will then trickle down to firing nannies and cleaning ladies, lower enrollment in daycare and afterschool programs, etc.

If you don't work in finance you'd be impacted by these people looking for work in other industries.

Hopefully they'll see how truly awful this would be.

As a renter I would like nothing more than condo prices to fall to more reasonable levels. This law will have no effect. Base salaries will be raised and no bonuses given. You make 500K per year plus 500K bonus? Your base salary just went to $1mil.

The quantitative easing however poses a much bigger risk. The government is just going to flood the market with dollars and we will have rising interest rates and inflation. Yes mortgage rates dropped but they will surely rise and steeply. This might put in a temporary floor on housing prices but will lead to an even bigger drop next year.

Special K: Thanks. Check out line 19 on page 4. You repay it and you are free from it. Have not seen the Senate bill.

Malthus, it's unclear to me, but you may be right. Once they pay back TARP to have under $5bn, they may no longer be subject to the tax. Though it's unclear how they would account for that as bonuses acrrue as an expense all year and get paid out at the end. Either way, the final bill with both house and senate approval may be different and explicitly adjust some of these issues.

"Wow, this is really happening. Whatever the specific details end at... WOW."
10022, i agree, its stunning. Though the devil is always in the details. If there are enough loop holes and work arounds, then this may only be a short term hit in 2009 and not much else.

I read it differently, special k - The tax is on the bonus only (the first sentence of the bill) and distinguishes 'bonus' from any periodic payment (Section 1 (b) (2)).

If your base is over 250k or if you have a spouse with other income that takes your non-bonus income to above 250k, the language then takes the "lesser" of the bonus or total income above 250k, which would obviously be the bonus only.

one big question on this... is this for 2009 payments? or can this cover 2008 as well?

Questions for those of you who've read the House and Senate versions--do they catch the bonuses payments made to Merill employees in December 2008, or was Merrill not a TARP recipient and they get to slip through, even though it ended up hurting BofA? How will they deal with bonus payments made in restricted stock or deferred cash payments?

Only applies to bonuses paid after Dec. 31, 2008 (House version).

nyc10022, this covers any payments made after 12/31/08. So with the exception of Merrill (they are TARP but got paid on 12/31 - yes, they should all be thanking Thain yet again), I think virtually all the other $5bn TARP banks paid 2008 bonuses in 1Q09. So yes, it is specifically designed to claw back bonuses for 2008 that they have already received. i shudder to think if some of these people spent that money already.

crescent, i guess we read it differently.

Stevejhx--this doesn't punish John Thain and Stan O'Neal; they're home scot-free, but if I were them, I'd do some heavy duty fund-raising for both Democrats and Republicand

I used to say you couldn't write a worse script for NYC real estate. I was wrong.

princetonbabe, Merrill's bonuses are a separate issue. Andrew Cuomo is looking at those as a possible NYS violation. AIG is a federal case.

only paid out bonused in 2009 - too bad.
I am willing to bet that there will be a second wave to make sure that by April 15 this year ANY TARP related bonus will be taxed out.

Why only 90% and not 100%
Local and State Tax will take care of the rest LOL

PS Maybe NYS or NYC should have come up with that idea first, now they will get only the peanuts
PSS Is that 90% tax deductible from my NY/NYC taxable income???

hey, you know what? if the federal government hadn't stepped in to prop up functionally insolvent firms then not only would your bonus have been 0, your salary would have been 0 as well. so even at 90% tax on the bonus you are way ahead.

happy, i think the nationwide support for this is nothing short of a tidal wave. i don't work at one of these places so i guess it's easy for me to say, but i'm in your camp - without tarp, they would all be jobless and the industry would be decimated. and again, we're not talking about a cap at $50k, $250k is a lot by most standards and hopefully these folks made good money in the bull years.

West81st - I may not have communicated my thought well. I actually agree with your statement, but I think they will make the case (successfully) that it should not be considered TARP money.

What about the slippery slope of where do you draw the line on TARP money?

happy, their stock would also be worth 0 ($100 per GS share is such a gift)

House version - Applies to bonuses paid after 12/31/08 for tax years after that date.
Stock or deferred cash - does not make distinction between cash or any other kind of payment, so would default to when it is recognized as income - typically when it vests or is paid.

Senate version - Applies to bonuses earned or paid starting and after 1/09. 35% employer tax, 35% additional employee tax, 28-35% usual federal tax- so effective rate is over 100%.

good point. so stock at 0, salary at 0, bonus at 0, and these people are complaining that their bosses can't use taxpayer dollars to pay them huge bonuses? it's just hilarious.

Special_K: I hadn't thought about the timing of last year's bonuses coming in January of this year. Still, if I read it correctly, this would force the banks to repay the TARP money prior to year-end or their employees will suffer. I expect you will see that, along with a lot of asset sales and sales of divisions of companies over the next 9 months.

"Senate version - Applies to bonuses earned or paid starting and after 1/09. 35% employer tax, 35% additional employee tax, 28-35% usual federal tax- so effective rate is over 100%."

Agreed. But in the Senate version, an employee would get about 20% of income at the top buckets. 70% federal, 10% state/local. but the huge loophole of issuing deferred comp will be limited (though at a much higher $1mm level). under the house version, i think you could award $2mm to someone, $250k cash and $1,750mm in deferred stock or cash. not so in senate version. though i'm not sure if that $1mm deferred limit is a cumulative limit or just a limit for each year you have deferred issued.

"Still, if I read it correctly, this would force the banks to repay the TARP money prior to year-end or their employees will suffer."

Again, it's unclear but the way I read it is that if any payments are made while you have over $5bn in TARP, then it's subject to this tax. So for the 1Q09 payments made across the street, they would ALL be subject to this. Remember malthus, the whole objective here is to clawback the bonuses paid recently to employees of AIG for their 2008 comp.

I'm not sure that is the sole goal. I think there is also a desire to speed up repayment of Tarp funds, which this would effectively accomplish. Even if it is only to get the AIG funds back, the exclusion is unnecessary because AIG will never be able to repay it. Others will.

I don't want to beat a dead horse on the interpretation but entities receiving money are "covered tarp recipients" and they are not considered such under the exception for "any period" during which they have paid down the outstanding amount to below 5M. I would say that period is referring to a tax period and that would be the period when the salaries/bonuses were paid.

and then this

Goldman got its bailout. Now some of its bankers, those aristocrats of Wall Street, apparently need a bit of a bailout too.

http://www.nytimes.com/2009/03/17/business/17wall.html

wait, so they won't be buying condos form the irish carpenters?

I have very little sympathy for the knuckleheads at AIG, but what's sad for the vast majority of employees of that firm as well as the rest of the murderer's row (BOFA, CITI, etc.) is that there are plenty of very hard working, risk averse employees at these firms who did their jobs, did their jobs well and deserve fair compensation.

But they've all collectively been taken over a cliff by a relatively small group of employees (the derivatives folks) who were probably making considerably more money than a lot of comparable level employees.

Oh well.

Quick question... What percentage of workers in the finance field work for one of these companies that took TARP money? Most of the people I know got their start at one of these investment banks but moved onto PE shops and hedge funds that received 0 TARP money. Granted, some of them are now unemployed so this won't effect them anyway, but does anyone have a good guess what proportion of people this directly effects?

The uncertainty is enough to freeze the upper-middle and high-end real estate markets short-term. The possibility this affects compensation financial-industry-wide in 2009 and 2010 will make buyers (Wall St. ones or not) reticent and mortgage banks will take an even longer look at qualifying Wall St. people.

Agree that uncertainty is not good for any market, but I think that this particular market is already effectively frozen. I actually believe that this will unfreeze the market because it will cause sellers to realize that despite bits of economic good news here and there, the ship be sinkin. If this results in a more rapid lowering of prices an actual market could reappear that much more quickly.

My friend works for Credit Suisse and had to take a 9% pay cut

Send your Credit Suisse friend my way. Even with a 9% pay cut, I am sure she can still afford my apartment and she'll be able to walk to work, if she works on 23rd street. Of course, your 9% comment begs the question, 9% of what? 9% of grossly overpaid is still overpaid.

It is the people who took a 100% pay cut that are in trouble, of course.

Sorry she doesn't make a lot she's works on a team as their assistant so she only makes 70,000 a year. Well now she only makes 63,700

now1225,
I take back my comments. I'm sorry to hear that. If they hit everyone with the same 10% cut, it doesn't seem fair to the people on the lower end of the scale.

The last year and a half have been really bad for me and my friends. My one friend works at one of the larger law firms in NYC and last Weds, Thurs, and Fri they laid off over 200 people. My best friend’s fiancée has been laid off three times in a little over a year. He keeps finding a job then the company has massive layoffs two months later. My husband took a 100% pay cut a year and a half ago, he was out of work for 4 months and now he's a temp with no benefits for $26 a hour (that's half of what he use to make). My company is doing well but our parent companies and some of their subsidiaries are doing really badly they have laid off hundreds of people. The managers were told last week that even though our company is doing well we will need to lay off about 25% of the staff and those that stay will be looking at up to 20% pay cuts. The worse part is that it’s the no one knows till the 17. So I’m sitting with my work friends and I’m trying to hint that the sky is going to fall down on us very soon but legally I can’t say anything till it is officially announced.

By the way no one in my company has received a bonus in over a year and a half and we work in the financial world. (We’re not traders)

We will get through this. I just think we are in for a significant downturn. Unfortunately, this has happened before and now we are in this again. Everyone hang in there and enjoy the simple things that make you happy.

crescent22 - just checked with counsel and i believe that you are correct. this is basically a tax on bonus, not base. so there is an out for companies to pay a higher base. furthermore, in the senate version, the explicitly exclude not only base, but any type of equity awards (that vest at least 3 years later).

I agree there is an out on higher base salaries, but do you honestly think a firm wants to get undue attention for doing that. Main street is pissed right now and that is not going to help.

i agree, the last thing you want is to abuse "loopholes" at this point. still, i wouldn't put it past anyone on the street to do what they need to in order to be competitive.

i agree your right about that lol

This will never be implemented. There are huge legal issues and even if it passes the senate I think there will be lawsuits. They keep talknig about this only in terms of AIG but this affects a lot of people as noted in the article (ie combined income of $250) - especially those of us who work for financial firms that were forced to take TARP funds when not needed. So they'll return the money -thereby restricting the capital markets further. In addition, the people who exploited the markets already made their money so no big punishment for them

So I wouldn't bet on RE being affected by this - it'll either die in the Senate or be legally and constitutionally challenged and in a few months will be a distant memory as the new 'outrage du jour' takes over.

nyc10025,

care to share the 'huge legal issues' that you see here?

Agreed, ncy10025. I think the consequences of the bill would be disastrous for the competitiveness of large American banks - it would be a death knell for Citi and BofA who could not afford to return the TARP funds and who would have their highest paid workers flee to smaller shops who did not have to take TARP, and GS and MS would likely just return the money in order to keep their people and keep the payouts rolling. Meanwhile, foreign (non TARP) banks like Barlays, Deutsche, CS would just swoop in, take their pickings of top producers, and lay off those of their own workforces who can't produce as well. The last thing that the US govt is looking to do at this point is to hamper american companies' competitiveness against foreign ones because it is too politically unpalatable.

The measure will not die in the Senate. It will pass. Although it is unconscionable to anyone who lives in the Tri-State area, know definitively that there is enormous pressure from the remaining 47 states' senators' constituents to see this thing through. To vote against the measure is political suicide. No one gives a fuck about the banks - U.S. domiciled or not.

Happy Renter - to put it simply - you cannot retroactively pass a law to punish a specific group of people - so they would have to pass this applying to all people earning over $250K combined household income.

Patrick you need to see the bigger picture here taking the good down with the bad benefits no one. 1)The big money like the $52M bonus that the head of Goldman received last year they can't touch. 2) Those huge bonuses are essentially gone. 3) Only a few a the top of any organization get large bonuses (100K and up) the rest if you get one at all is around 10-15% of base. ($20-40K). 3) Foreign banks are excluded. The proverbial horse (ie huge bonuses) has left the barn - move on. We're all angry at AIG.

The only thing that can really be done is to put clauses in contracts on future TARP money.

why does everyone assume that all these small boutique banks or foreign banks will rush to hire all these people that will leave the big banks because they won't get their huge bonuses?

people are being laid off left and right, banks are getting nationalized in europe, etc.
i don't think any bank will be able to afford old style bonuses, much less to give them to everyone including the thousands that you all claim will leave the big banks...

when the sh* hits the fan as it has now, corporations buckle down and preserve assets (that's why the credit freeze), they are not going to give bonuses to everyone!

oh and all those hedge funds and private equity firms who greatly contributed to this mess, have very high salaries and huge bonuses - untouched.

ncy10025: The dean of US constitutional law has already come out and said this law would probably pass muster. That is probably enough for Congress. I agree with you that the able banks will return the money though.

bookyasha: Where did you get the idea that large American banks were competitive in the first place. They are not. This will make it clear. Look for big asset sales by Citi and BofA, which is really what should have happened already anyway. Deutsche, CS, Buffet, Goldman, et al would rather have their assets than their people.

Patrick_Bateman: Why do you assume this is unconsionable to anyone who lives in the tri-state area? Charlie Rangel spearheaded it.

Malthus do you have a link to the info on the constitutional law opinion.

> So they'll return the money -thereby restricting the capital markets further.

OR banks just cut their MAJOR expense to a fraction of what it was. Awesome for their capital position.