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

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

And Dodd is getting the hammer put on him in Conn. I think people everywhere are outraged:

http://www.nytimes.com/2009/03/20/nyregion/20dodd.html?ref=nyregion

http://blogs.wsj.com/law/2009/03/18/would-an-aig-bonus-tax-pass-constitutional-muster-a-tribe-calls-yes/

I guess the dems "blame everything on the Republicans" theme is starting to wear a little think.

Complete jackasses on both sides of the aisle.

thanks Malthus -- key here is sufficiently broad law - so far not too broad.

"I do think Congress (and the Executive Branch) could avoid serious Bill of Attainder problems by passing a sufficiently broad law … rather than targeting a closed class of named executives even though the prohibition against Bills of Attainder, unlike that against Ex Post Facto laws, potentially reaches civil as well as criminal penalties."

and there's this --

In SBC v. FCC, Judge Jolly laid out a three-pronged test for punishment: “(1) whether the challenged statute falls within the historical meaning of legislative punishment, (2) whether the statute, ‘viewed in terms of the type and severity of the burdens imposed, reasonably can be said to further nonpunitive legislative purposes’; and (3) whether the legislative record ‘evinces a congressional intent to punish

So we'll see since they have all but publicly admitted that they're trying to punish.

Here is an excerpt on an article that can the bonus pass muster:

http://www.nytimes.com/2009/03/20/business/20bailout.html?pagewanted=2

But experts on constitutional and tax law said it was likely the House bill could pass muster. Numerous court rulings have upheld retroactive tax provisions, particularly over short periods. The House bill applies back only to Jan. 1, 2009. The measure is also strengthened by the fact that it does not apply to just one company or group of individuals, and does not take aim only at past bonuses but also bonuses to be paid in the future, experts said.

Yeah. I have no idea whether Tribe is right or wrong but the fact that he said it will probably give Congress all the faith they need to go ahead. Any lawsuits from it will be page 7 news next year.

and, RE prices in this town are going to react to it anyway.... so even if it gets "fixed", the damage will have been done.

malthus - they may not be "competitive" but I'm sure there are at least one or two desks or divisions that post respectable profits. They will get snapped up no matter what. 250k is a very low bar, and catches a lot of bank employees - not just the big IB guys: the commercial banking businesses, which do not post as many eye-popping profits (and bonuses) at both of those banks are also profitable, and in some divisions, are very profitable. Smaller banks/foreign banks may not take all of them, but they will definitely skim off the top producers, leaving BofA and Citi with next to nothing, effectively ruining their franchises. Selling these divisions doesn't solve the underlying problem of producer flight. Goldman's assets are its people - it does not have a huge lending business and it does not "need" to keep $5B at the expense of almost everyone VP and higher (full disclosure: I don't know whether giving $5B back would jeopardize its required cap ratios, but given recent news, it seems unlikely they wouldn't be able to find $$ elsewhere to plug the hole). I definitely agree that not everyone from these american banks will find a place at a non-tarp institution, but enough of them will to keep >$250k in total comp.

booyakasha: To be frank, I think it is a pretty stupid response by the House but I do think it will have some positive unintended consequences. If there are profitable units within these banks, they will be sold to groups that can better utilize them, rather than leave them to subsidize unprofitable operations for the next 5 years. This is the kind of restructuring that should have started already but has not because the Fed is always there offering what are in essence no-covenant low interest loans. The management of Citi and BofA have already ruined those franchises. The sooner we accept it, the sooner we move on and get the economy moving. Right now, we are doing something similar to what we criticized Japan for doing in the 90s -- propping up dead banks that will weigh down the economy for years to come. Goldman will be fine. Better than fine. They will be one of the winners in this because they did not go out and buy wamu, countrywide, or one of the other fading companies when the knives were still falling.

In short, my prediction is that Congress is actually going to unintentionally force the kind of market based response that places like Citi don't want to accept.

This is def. where we agree, that dinosaurs like BofA and Citi will be driven to extinction of sorts by this bill (if it passes into law), but in addition to this positive consequence, the terribly ugly consequences of the whole mess will be that there are no suitable american banks left, save JPM, and massive unemployment, especially in the US, will follow. This is a pretty foreseeable consequence (or at least a plausible one) which is probably enough for the senate to nix/neuter this bill.

I think it's scarier that the house proposed this nuclear weapon to kill a fly...

you think that a high tax on bonuses at companies being kept afloat by the US taxpayers is going to lead to massive unemployment and the destruction of all american banks? i don't know what you've been smoking but it must be strong. that's absurd.

happyrenter, you're sorta rude.

what I mean to say is that the law of unintended consequences holds true for this particular bill, written in this particular way: look at the banks that are affected by this bill. This is aimed at AIG, which is doomed anyway. What it will hit as collateral damage are the other tarp recipients that qualify: BofA, Citi, JPM, GS, MS,etc., while leaving other companies, like smaller banks, foreign banks untouched. 250k is a low bar - low enough for profitable businesses to be affected that had nothing to do with the mess, not just the high-flying IB businesses that everybody's anger is directed at. The companies that can afford to will pay back the Tarp to be under the $5B limit. Others will not be able to. even in those banks that are unable to return the TARP, there are profitable divisions and those individuals are not going to take a salary capped at 250. They will move elsewhere where they can be paid >250k. What happens to the banks that lost those divisions? their money losing divisions, or marginally profitable divisions are no longer subsidized by the profitable ones and they get axed. That is a LOT of people, with a great many of them in the US.
If you think that CS's commercial banking division, or credit management division, or trade finance division, or other off-the-radar division etc etc aren't looking for talent all the time, you'd probably be mistaken.

As long as there is a need for financial services in the US, banks will be there to provide them and they will need to hire local people regardless of where their management is based. I don't see massive unemployment at all. What will happen, is that some of the head offices may no longer be in NY or Charlotte and that will have some local effects. Don't get hung up on protectionist arguments for the need for US management. That management has screwed up and capitalism will lead to its replacement (if the government lets it). And anyway, there is no telling who the new owners might be -- could be Wells Fargo. Could be Canadian banks.

If the divisions are not making money and there is no scenario in which they will, they should be axed. That is what is happening right now in every other private industry in the world except autos. I'm sorry if I sound harsh. I've been unemployed and it sucks, but this is just making things worse.

booyakasha,

you may think i'm rude, that's fine, but i consider it rude to try to drum up hysteria in order to defend ridiculous bonus payments and functionally insolvent institutions being propped up by the federal government. there is absolutely no reason to believe that a short-term salary cap at what have become government-backed institutions will lead to their demise. it's not as if the foreign banks are vibrant and hiring like crazy; the vast majority of employees will be happy to have a job and will stick around for the year or two it takes for the tarp to be repaid. during the 1940s, 50s and 60s, All income above a certain level was taxed above 90% in certain years. did it lead to massive unemployment? the destruction of the american economy? not at all: in fact, the country went through its period of peak economic growth.

everyone needs to relax. if wall street pigs have to go without massive bonuses for one year i think the world will keep spinning on its axis.

I'm not saying there won't be new owners, and I personally could care less who they are (i have dual citizenship m'self, though I personally think and have observed that foreign banks like to take workers from their home countries) but it's the senate and congress who have to address the issue of protectionism...and respond to the angry/irrational hordes.

you might find this interesting on compensation:

http://www.msnbc.msn.com/id/29791834/page

i'm not drumming up hysteria, nor am I making the case that they *should* get their bonuses. I'm making the case that regardless, they probably will anyway.

you aren't making the case that they should? you are making the case that the effort to prevent it is doomed because it would destroy the us financial system. that's not a case that they should get their bonuses?

malthus, you're right that they should be axed, but this will cause a lot of people to get axed in a very short amount of time, even if only "temporarily". Fair or not, the rainmakers will make out ok; it is the support functions: operations, IT, administative roles that will bear the brunt of the layoffs - divisions that were never "intended" to generate revenue. Either way, it's a bad situation.

no, i'm not saying it would destroy the "us financial system" (that is, the financial system operating in the us). I am making the case that it will put US companies, who employ a disproportionate amount of domestic citizens at a big disadvantage, without doing exactly what it purports to try to do. It's too imprecise and the consequences are too big to do THIS way.

I am work for one of the big Tarp recipient banks (10 Bill) in Technology in the Wealth Management Group. If I don't get this bonus, my base salary (110K) will not be sufficient to pay my expenses for my mortgage on my house, cars, kids activities, etc. I normally use most of my bonus to fund my expenses the following year (I make about 300k, with most of that coming at the end of the year in bonus). Unfortunately, we in Technology aren't the lucky recepients of those millions of dollars that wall street trading folks seem to bag every year.

What this will do to me if this bill does pass is for me to immediately put my home on the market to sell, curtail all my kids activities and spending immediately.

Also, since I won't be able to afford my lifestyle anymore, I will be forced to spend the majority of my time working on finding a job or some alternate venture, either in the NY/NJ area or outside, or if it comes to that overseas (I am Asian).

I never did imagine it would come to this, but this scenario seems to very scary for me. My wife is obviously completely devastated and can't deal with this. This will mean a complete uprooting of my family from our life as we know it today.

Not expecting or asking for sympathy or empathy, but I thought you'd find it interesting to see howthe "recipients" of bonuses are being impacted.

Needless to say, I think our towns in Somerset county in NJ will be devastated. Most of the US Congressmen from NJ (including mine) voted for the bill. It will be ironic, since NJ and NY (which both tax me since I work in NYC) were counting on the added taxes from the "rich" 250k folks to help with budget shortfalls.

I would laugh out loud if I weren't so miserable.

Adios, all

A recurring theme in these discussions of the downturn is whether or not/in what manner/how soon/etc. NYC will return to the '70s.

I can't resist - take a look: http://www.mcny.org/exhibitions/current/photographs-of-the-South-Bronx.html

That's what NYC looked like after the '70s. I have no idea if we'll get there again, but be careful what you wish for.

Walkedaway: I sympathize with your plight. To add insult to injury, Rangel who is a NYC congressman pushed hard for the bill. We talked about this a great deal with friends (most of whom are in the finance industry) and I'm afraid that the overwhelming conclusion is that politically, most bonuses will have to be given back this year. No question. The populist outrage outside NYC metro area and even inside (though that is irrational because we've been so dependent on financial industry for taxes) is such that there is absolutely no sympathy that people have to make do with "only" 250k.

You might as well put your place on the market now, ahead of your neighbors.

Also, walkedaway: you mentioned that you are Asian. If you are not yet a U.S. citizen, you might look into leaving the country. It would be hard to come after you to chase the bonus $ if you are not here. Of course, you can't ever come back and you'd have to chance extradition for tax evasion.

Yeah, that was strange. Not sure if Rangel is smart enough to understand he is cutting off his own nose. The noise from the street was probably so great that he had no choice but to do something - not doing something would have been political harakiri. Same with my congressman, who's a republican in NJ.

No, I am a US citizen, so I wouldn't flee the country like you suggest, but look for opportunities all over the world since I suspect the rest of the USofA is in as bad a shape as this area. Besides, that would be criminal tax evasion and I am personally not cut out from that mold.

It will be interesting to see the response from the companies executive management - there must be utter panic and chaos up in the towers. If they do something, it will appear to be trying to evade this law. If they don't, they have a situation on their handa wherein every midlevel and senior exec is earning the same as the lowest analyst and that will not work. They will all be busy exploring other opportunities or worse, walk out the door since a 100k comp won't be of much interest to a guy who make 10mill all these years.

Shaping out to be a very interesting situation.

walkedaway, the bill that passed the House would only 90% tax the amount above of the bonus that put your family income above $250,000. Up to 250k, you would still pay regular income tax rates. In any case, it feels like any final version is going to get changed by the Senate or Obama.

i am not so sure of that. i think it said if household income is above 250k, your bonus will be taxed at 90 perc.

i'll go back and check the language of the bill.

I don't think there is that much panic & chaos. It would be futile & stupid for any CEO to make a statement now because there is no knowing what the final rules will be. They're probably working the politicians, talking to tax people, legal people. People high enough the food chain that can forgo this year's bonus for deferred income will do so. Some will leave, as they will be fed up with the b.s. - others who have even more deferred compensation (from previous years) will stick around. Banks that can pay back TARP to be under 5b will certainly do so. Banks that can't - well, they are screwed to say the least. They will bleed their very best people to the ones that can. There won't be a mass exodus, but there doesn't need to be. Banks that are in good shape will compare the people they have to the people that they want and fire - one out, one in is the rule. So if you work for a bank that hasn't taken TARP - beware! You could be replaced by your counterpart from another bank.

If you genuinely can't pay back your bonus because you've spent, I suspect they'll set up some kind of loan thing. That's if they value your services.

Yeah, I am sure there is tons of behind the scene lobbying going on. I don't think there is a lot of deferred comp from prev years to stick around for. For a lot of people, it is probably 2 to 3 years of deferred and that too is mostly worthless since most companies stock prices are in the toilet now.

Yeah, banks will try to repay the tarp money but that means their ratings will go down since this money was loaned at very, very favorable terms by the US Govt.

Interesting times...to the detractors, clearly, the street screwed up with unrestrained greed in the securitization desks (we on the wealth management side, IT, Ops, Legal, Compliance etc never did see the fruits of those fabulous giddy years, by the way) and the govt was asleep at the wheel.

walkedaway, the house version of the bill will only tax your bonus if your total compensation is above $250k. if you are married and file separately, that limit is reduced to $125k. So if your wife works, you will have to figure out whether it makes more sense to file together or separately. If she doesn't work, then you can file together and the most you would lose is $50k. I.e., $300 total comp less amount over $250k. That absolutely sucks no question, but I hardly think that losing that amount will force you to sell your house, etc.

we've been through this on another thread, walkedaway - the part of the bonus that is taxed at 90% is the lower of the whole bonus or the excess of total income over 250k. I just read the text again.

Revenge taxation of folks like walkedaway is not the answer . . .

http://money.cnn.com/2009/03/23/news/economy/breaking_views.breakingviews/index.htm

"All income above a certain level was taxed above 90% in certain years. "

Again, it was NOT all. There were massive tax loopholes that we do not have today.