Banking: "Heads I win, Tails you lose"

New York Attorney General Andrew Cuomo has just released his analysis of the compensation of the 9 largest banks participating in the Troubled Asset Relief Program, or the TARP, and the conclusions are rather shocking. (The above chart shows just how ridiculous bonus payments were in 2008 alone and comes from the AG's report, linked above)

Despite the executive claim that "employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak," their bonus structures can be summed up as "heads I win, tails you lose."

According to a Wall Street Journal review of the report:

The $32.6 billion in bonuses is one-third larger than California's budget deficit. Six of the nine banks paid out more in bonuses than they received in profit. One in every 270 employees at the banks received more than $1 million.

Although the report is full of financial information, I feel the most striking data can be seen in the following the chart I put together:

So, are we to believe that it is somehow a coincidence that a massive spike in compensation and benefits, as compared to net income, occurred at the same time as the largest government bailout this country has ever seen? Between 2007 and 2008, the average compensation as a percentage of net income at these banks increased by 47% while at the same time posting record losses totaling almost $100 billion. How have we not opened investigations into this unprecedented theft from the American taxpayer?

So while the White House is on the record as saying:

"The president continues to believe that the American people don't begrudge people making money for what they do as long as...we're not basically incentivizing wild risk-taking that somebody else picks up the tab for"

How is that not the situation we are currently in?

So for anyone who thinks a pay czar is too much socialism, I ask what are the other options? If the banking sector won't responsibly reform themselves from the inside, how is it NOT the proper role of government to step in and fix the problem?

Just to add insult to injury, at the same time that the banks are taking unprecedented amounts of "free" money from the government and Federal Reserve, they are also increasing their overdraft fees. If current trends continue, banks stand to collect a record $38.5 billion in overdraft fees alone, double what they brought in in 2000. In fact, 5 of the 10 largest banks have increased their overdraft fees within the last year, raising the median overdraft fee from $25 to $26, the first increase during a recession in 40 years. The largest banks (with over $50 billion in assets, i.e. Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo) charge even more, with a median fee of $35.

What makes this practice so destructive is that it disproportionally affects the poorest depositors and those with the lowest credit ratings. According to Moeb Services, 90% of overdraft revenues come from just 10% of the 130 million checking accounts in the US. After taking so much taxpayer money, how can we let the banks do this?