"Because that's where the money is."
- Famed Bank Robber Willie Sutton,
responding to a reporter who asked him why he robbed banks.
The NY Times has an editorial that supports what I've been saying about our troubled and ethically-challenged financial institutions for months now. In "Payback Time" the Times makes it clear that all the talk surrounding their decision to return bailout money may be as misleading as it is potentially destructive to our economic recovery. Why?
The health of the banks is overstated in other ways, too. Last year’s direct infusions of capital are only one of many government props currently supporting the banks, like favorable loans from the Federal Reserve, debt guarantees and incentive payments to modify bad mortgages. Indeed, one of the reasons the banks are so hot to repay the initial bailout funds is that other supports — which don’t come with pay restrictions — are available.Put another way, we've done nothing to alter the underlying structural problems in the banking system. Yet, we're allowing the banksters to pay us back because they've found it easier to rely on the other supports and guarantees (from the Federal Reserve) that don't come with restrictions or congressional oversight (which is largely toothless anyways).
Clearly, the way the banks see it, last year’s bailouts meant unwanted public scrutiny and salary restraints, so paying the money back frees them from those burdens. That bodes ill for regulatory reform. The compensation they seek to protect was based in large part on the risky practices that brought the system to the point of collapse. It stands to reason then that if colossal pay and bonuses continue, so will recklessness.
This is akin to wealthy parents taking away their kid's car after they wrecked it, but then allowing them to drive the extra Mercedes. Pay raises and bonuses, I'm sure, will follow. The Times' editorial also reported that, as an added insult, "Goldman Sachs employees toasted their freedom at a cafe near Wall Street."
It's a good time to be a bankster in America.