Judge To BoA: "I'm Glad You Think $91,000 Is Not A Lot Of Money"
Recently, the SEC settled with Bank of America over charges that the company mislead its investors about the $3.6 billion in bonuses paid by Merrill as the brokerage was being taken over. U.S. District Judge Jed Rakoff, however, isn't buying it. He's refusing to approve the settlement until it can be shown that the $33 million Bank of America agreed to pay is adequate. That's nice, but he best part is that the judge is being hilariously sarcastic during the hearings.
For example, when Bank of America's lawyer (who at one point during the hearing exclaimed: "My God! Bonuses on Wall Street? It is not a matter of surprise,") explained that the majority of the $3.6 billion was shared among 39,000 employees who received an average of $91,000 each, the judge replied:
"I'm glad you think that $91,000 is not a lot of money," the judge said. "I wish the average American was making $91,000."
When Bank of America argued that it hadn't used bailout money specifically to pay bonuses, the judge was similarly unimpressed:
"Money is money, the last time I checked," Judge Rakoff responded.
Judge Attacks Merrill Pre-Merger Bonuses [NYT]
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It's nice to know that for every $54 million pants judge, we have ones with common sense!
The average pay of $91k? I want to see what the median pay is, I bet it's much less than 91,000.
@Jevia: My boss bought me a $20 dinner last week and I was thrilled. If only he had sprung for the $91,000 tasting menu. Sigh.
Haha, this is great. I love it when people claim not to have paid for something with specific money they received even though they clearly adjusted their budget creatively to allow it to be treated as general revenue. This case is like Auditing 101.
I love this judge! Can we start a fan club?
I love the judge's first comment, but I just can't agree with the second.
Governments and non-profits have to account for the type and nature of the money that they use. Ever wonder why that "Note" line is on the check? If you give money to, say, Goodwill and make a note that the donation is to be used for, say, weapons procurement, then legally they can only use that money for weapons procurement. Now, they'd probably reject the donation, but the point remains.
The government is required to do the same thing. Taxes levied for specific purposes (gas taxes) MUST be used for that purpose. Now, governments can get around it by paying salaries of those who oversee the program (Highways, rail, etc), but its still that purpose.
Why all that? Well, if the company got 1 billion in bailouts, if they can account for that money and show that none was used for bonuses (say, all bonuses were paid out of a different set of accounts), then the judge is dead wrong.
Now, here's where it gets sticky. Say they had $100. They were going to spend $75 on bonuses. That leaves them $25 left. But the government decides to give them $25 to help them out. They can use that "bailout" to pay their other expenses (the $25) and then pay $100 in bonuses. Still, technically, they did not use the bailout money to pay bonuses. Ain't accounting and the law grand?
And, before you rip companies for this practice, state and local do the EXACT SAME THING with government grants as well.
That's some nice populist drivel, but try and keep things in perspective here. If the primary investigation is about 3.6 billion dollars, then 91,000 ISN'T a lot of money.
It's like how when you were a kid five dollars was a lot of money, but now if you have a full time job, it's not.
@B: They won't say that because then BoA won't be able to get the "prime" talent because they will think all the bonuses are less than 91k.
A few years ago a Texas bankruptcy judge, Leif M. Clark quoted Billy Madison when denying a motion:
There was another judge that used a lot of sarcasm in his opinions but I can't think of his name. I think he was impeached over another matter a few months ago.
I don't think that's fair of the judge to say without keeping the money in context. If I'm working at McDonalds and get a $91,000 bonus then yes that is a lot. If I'm working on Wall Street, then maybe not so much. If I'm a pro-athlete, it's called a rounding error.
Many of these bonuses are also contractual obligations. We're all so quick to jump on credit companies for raising our interest rates and demand they adhere to prior agreements. Yet if it's a bonus we as a society say it's ok to change an agreement. If we don't like how the system is run, put pressure to change it the next time around. You can't change the rules as you go along.
@smartmuffin: I'm glad you're so desperate to be contrary that you're okay with ignoring everything. The lawyer's argument was that 3.6 billion is "just" $91,000 per person in a 36,000 person company.
Guess what - $1,000,000,000,000 is "just" $3,333 per person when you have a population of three hundred million, so who cares about a trillion dollars here or there? The lawyer tried to disguise a massive number by splitting it in an arbitrary and ultimately meaningless way (do you really think every person got a uniform $91,000?) and, unlike the judge, you're dumb enough to buy it. Congratulations.
@Tux the Penguin: You're right. I guess the real question is that if BofA went bankrupt and was forced to liquidate all its assets, could it get away with giving out $36 billion in bonuses?
Say it sold everything and still owed billions to creditors. Could it come back and say "yeah, we have $36 billion but we can't pay you with that because it's earmarked for our executive's bonuses this year".
If not, then you could argue that it all comes from the same pot, right?
The average bonus over 39,000 employees was 91000. But I bet there a few people pushing that average up. Usually theres 10-100 guys getting multi-million dollar bonuses. Use the median
Ironically, the agreements we have with credit card companies allow them to change rates - it's not even that we want them to adhere to the contract, we want it to be a unilateral contract.
@Jevia: We'd be happy if my wife's employer would just give back the 10% that they cut everyone thing spring let alone that crazy "bonus" idea.
I took note of this last week. About time that we stop these piddling fines and prosecute these things as the criminal acts they are.
@Megalomania:Whats even more amusing.. is that I am willing to bet that a 35500 of those people got bonuses around $1000 if that.. and 500 of the top executives got millions....
@wvFrugan:
Basically, a $33 million settlement allows them to pay a little less than 1% of the original $3.6 billion.
So if I go out and rob a bank and steal $100,000, I only have to pay back $1,000? Really? This is the message the SEC is basically sending.
@Esquire99: Ah, ok. I believe state judges make a bit less. Still, nice to see a judge who realizes that sometimes a bonus is just a little too big.
@Megalomania: Using an average is suddenly "arbitrary and meaningless"? The lawyer was trying to play a public relations battle just the same as the people who are OUTRAGED about these bonuses are. This type of thing happens *constantly* in the realms of law and politics.
Are you really suggesting that the amount of people among whom this 3.6 billion was shared is a completely irrelevant statistic?
By throwing out crap like "money is money" this judge is just confirming the far right's worst fears. That this entire bailout was just an excuse to throw some arbitrary amount of money at the banks in exchange for being able to completely control their every action.
@henrygates: It does. In my business (and I would assume most), money is allocated- but when one account runs dry (and the need is great), all the accountants need to do is transfer money from one account to another.
@Jevia: Most people will argue that most of those people get paid through "bonuses" only. If that's the case, the government needs to redefine what a bonus is, because these companies were floundering left and right, and people still got their mega bonuses. A bonus is for extra, or good work, not pay imo.
Also wanted to point out I realize the data is skewed with some receiving millions while others got one or two thousand. My comment was more in response to the general sentiment that Wall Street compensation is outrageous and evil to begin with.
@smartmuffin: Yes. The amount of people it was "shared" with is completely irrelevant when you are only using it to calculate an arithmetic mean. The mean value is, if you were not already aware, by far one of the most misleading statistical measures because it is not robust with respect to outliers. You are saying that if the president got $3,599,961,001 and everyone else got $1 that would be acceptable.
It is a meaningless statistic and additionally, you are misinterpreting "money is money". The government could have paid in pennies and marked each one, and every marked penny could have been spent on things that we would want it to be - wise investments, well placed loans, etc, but if then 3.6 billion of other cash was freed up for these bonuses, then we still were gypped.
@smartmuffin: No, using an average is almost always meaningless. It allows you to hide very large or very small things among others. More than that, it allows people to hide a wide disparity between only a few very large amounts and many, many, many small amounts.
@Megalomania: This is actually pretty simple. What you have here are two sides engaged in a public relations battle. One side is tossing out big numbers to make the other side look bad, so the other side counters by tossing out small numbers to make themselves look less evil.
The only people we were "gypped" by are the elected officials who voted for/signed away all this bailout money in the first place. Start blaming the people who gave away all this money in the first place.
@B: I have to agree. I'll play devil's advocate...the average BoA guy or gal in NYC is getting probably a $91k bonus on top of a $90k salary. That's what, $100k after taxes? In NYC? That's like making $60k anywhere else in suburban America for probably a 70+ hour work week.
Which is why banks will simply make the term "bonus" disappear, raise base salaries, and include "incentive based comp". These people will still make the same amount at the end of the year.
Yeah, the couple of hundred people making ridonkulous money in this industry need to be addressed. But seriously, the several hundred thousand people who make $250k/yr (pre-tax) in one of the most expensive cities you can live in on the planet? Would you switch places with them? I didn't think so. I know I wouldn't.
There are so many more important issues this country needs to deal with.
@dfens42: not exactly. Bank of America still has to pay back every dime of the 3.6 billion in addition to the fine.
I think a lot of you are missing the point in all of this. The government LENT the banks money, why does the government have a right to determine what it's spent on? it was LENT with no strings attached. Even if what BoA is doing is wrong (which i agree it is) this really has little to do with the SEC, and I don't see how they have authority to fine BoA on this. The SEC controls the trading of investments. If anything the SEC should fine the Fed for basically forcing BoA to buy Merrill to the detriment of shareholders.
@craptastico: There are always strings when money is lent. Especially unwritten strings. Especially when the lender is the gov'ment. (Just my over-cautious way of considering any offer to lend me money...)
Tux,
Generally speaking, your comment is in the ball park. But in the everyday world, things just don't operate this cut and dry. The reality is that without taxpayer dollars, BOA wouldn't have had the additional capital on hand to pay all of their bills and keep reserves. It was the grant of taxpayer dollars that allowed the corporation the ability to pay these gargantuan bonuses. Without the taxpayer dollars, they wouldn't have had the money to pay the bonuses - which means that they would have had to either borrow the money or do something else ( maybe sell some assets ) to come up with the money for the bonuses. Also, because we don't know what their bonus scheme is, it very well could be the case that some of the bonuses were actually based on the additional revenue the corp. received from the bailout dollars.
The government does have a say because it is taxpayer dollars that BOA is using. BOA misled its investors about the nature of these bonuses - which means that they lied. This is straight up a violation of the law. You cannot lie to your investors. If you lie to your investors - you'll get dinged. Interestingly, it appears that no one is going to jail over this. The SEC has jurisdiction over this. It is akin to commiting fraud.
@craptastico:
Let's see, a car loan = bank holds the car title, mortgage = bank puts a lein on the property, etc. The banks borrowed the money & agreed to a lot of stuff, such as consumer lending, write downs, working with troubled homeowners, etc. - little of which is happening.
@pecan 3.14159265: so we have one judge with common sense?
that doesn't make me feel very optimistic. :/
All these bonuses are stupid.
These people are making alot of money, and then they want a bonus on top of that. It doesn't matter how good you are at your job.
There are millions of people who does hard work then these wall street people, and they don't get any bonuses.
That's why the economy is the way it is.
Why do they give at bonuses anyway? FOR DOING YOUR JOB. When you went on your job interview, you knew what your job duties consisted of, so why should they get a bonus for.
I can see a couple thousand, but 91 thousand is way too much.
@Tux the Penguin: What a load of crap. If they hadn't had the gov't funds, they wouldn't have paid the bonuses.
If the government paid little Jimmy down the street got $300 from his dad to keep his lemonade stand open, then later that week bought a new bike with the money that had been in his piggy bank, his dad would want to know what the fuck was up. If he had money for the bike, then he could have put it into the lemonade stand. Or gone out of business. Either way, no damn bike, accounting or no.
Money IS money.
So... your screen name is ironic, right? Like those enormous bikers who're called "tiny"?
Seriously, when you get owned this badly, stop digging.
Another good point. It's like getting a mortgage and the bank telling you what color to paint the house. Not to mention many banks had no choice but to accept goverment funds (who felt it was in the nation's best interest to secure these institutions)
@wvFrugan: but the government does hold warrants which basically equates to partial ownership of the company. my main point is that this is not an SEC issue. it's like if the EPA tried to fine you for embezzling money from your job. it's not really their place to enforce this. Giving the SEC BoA's money is taking money from the shareholders (largely the taxpayer now) and giving it to an agency whose incompetence is legendary (how may tipoffs did they receive about MAdoff? easily a dozen, and still they let it go). while there's justified rage against BoA, this isnt' the right way to address it
@wargames2007: Maybe, but I don't want you or anyone else determining whether I'm worth the bonus my company wants to pay me.
I can't speak for everywhere, but where I work, they don't just give bonuses for doing your job. That's called a salary or hourly wage. A bonus is something you get for exceeding goals or going beyond what is required for your job.
This strikes me as just another unintended consequence of government intervention into the market. We'd be free of discussing these bonuses if the government hadn't chosen winners and losers by bailing out failing banks. Some of those banks wouldn't even have failed if the government hadn't forced them to buy other banks instead of liquidating them.
This is similar to a scenario in a sitcom or something. If you loan money to a friend and don't specify what they can or can't use it on, don't get upset when they do something you don't approve of. The government did a poor, poor job of specifying what the banks could do with this money and now gets upset (and incites anger in the populace) because they don't like what the banks are doing with it.
Sounds like this needs to be set to music and put on Youtube.
$91,000 could be more than what the judge makes, and that was a "bonus" on top of whatever salary these employees already took home. I was jumping because my company gave me a $1,000 bonus, whoo hoo!