Chase to Kane: Spend Money You Don't Have

In the midst of a financial crisis, Americans have been following common-sense rules that should have been followed for the past few decades.  These include balancing checkbooks, reducing debt and credit purchases, and essentially not spending money they do not have.  While the means to which we reached this end (failing financial institutions, skyrocketing unemployment, "The Great Recession") are far from ideal, if any good comes out of this whole ordeal, it is the rise of fiscal responsibility beginning at the grassroots level.

But herein lies the problem.  Financial institutions like large banks don't make as much money when they have smart, fiscally responsible consumers.  In 2009 banks stood to make over $38 billion in overdraft fees; fees that they raised during the recession to rake in more money.  The overdraft situation got so out of hand that Congress stepped in to regulate the way banks go about charging customers for spending money they do not have.

Bloomie Touts Self Responsibility (Except for Bankers)

Reading about a certain MTA lawsuit recently really grinded my gears (to borrow a Peter Griffin phrase). It seems that some guy named Dustin Dibble thought that getting blitzed, falling onto the subway tracks, and getting hit by a train was not only someone else's fault, but worthy of a hefty lawsuit against the cash-strapped MTA. Now, don't get me wrong, the MTA is a highly mismanaged, dysfunctional, frustrating organization, but some things are out of their control, and drunk passengers is one of them. Dibble and his lawyer Andrew Smiley won big in court, as a jury awarded them over $2.3 million - money which will be paid ultimately by taxpayers and those who use public transportation in New York. As the MTA has all but cemented their plan to raise fares, this major setback will not help. And as our society becomes more litigous and people look to blame others for (mostly) their own shortcomings (like getting drunk and falling on the subway tracks), the MTA has paid more and more.

But this is not all. Bloomberg - looking at a chance to capitilize on some populism as anyone with a brain sees how this lawsuit is bull - came out saying that people need to be responsible for themselves. Read that sentence again, because self-responsibility is becoming a foreign concept. In any event, Bloomberg took the common-sense route in saying that Dibble's actions were stupid and the MTA (and, through the transitive property, the people of New York) should not have to pay for his mistakes. Dibble's argument in court was that the driver of the subway could have stopped in time (the driver of the car said that he thought Dibble was a large piece of trash on the tracks - take that as you wish). If the subway car had enough time to stop, wouldn't Dibble, a former college basketball player, have time to jump back up onto the platform?

So back to Bloomie: he looks like a populist, sticking up for subway riders who may have to shoulder the burden of one drunk guy's mistake (the case is on appeal now). But in reality, Bloomberg just a day before proposed something equally wasteful and stupid that cost more than 20 times Dibble's lawsuit. Bloomberg wants to use $45 million of taxpayer money to "to retrain investment bankers, traders and others who have lost jobs on Wall Street, as well as provide seed capital and office space for new businesses those laid-off bankers might create." That's right, you and me are going to help pay for college-educated former bankers to be retrained to join another employer in New York somewhere. I can think of a multitude of people to help before the well-off bankers with college degrees who helped run our economy into the ground, but apparently Bloomeberg can't. I guess that 30 Rock was not too far off in their portrayal of bankers?

But seriously, how much sympathy is there out there for these folks? They decide to go into a business that is inherently risky because with great risk comes great reward. They get paid almost 6 figures straight out of college to play with other people's money. Unfortunately for those who recently got onto the banking bandwagon, the risk came back to bite the firm in the ass and they had to be let go. It's bad enough that the federal government is bailing out every company facing hard times, but now the city of New York has to use more taxpayer dollars to target these bankers because they're so "special" and "talented". If they're so talented, why do their need to be retrained to do something? These people have college degrees, some have MBAs, so what about the poor people of the city? What about those who could not afford to go to college but want training to get a better job? I could be cynical and say that Bloomberg feels a special affinity for these people because he was one of them and it's their business that his Bloomberg L.P. has relied on (and will continue to rely on) through the years, but why speculate? Maybe he really thinks that those making 6 figures with advanced degrees who go into a job knowing they could be laid off at any moment but the money's too good to care about job security are the worst off in New York.

So while Bloomberg seems to support self responsibility and facing the consequences for one's actions in the Dustin Dibble case, when it comes to bankers being laid off from an inherently risky private sector job the government will be there to make sure they don't - GASP - leave New York. Because then we might have to divsersify the way the state makes money and not rely on Wall Street for it. But seriously, if you want the government to help these people out, let them go on the welfare rolls, let them get food stamps and live in public housing, because if you're poor in New York and have trouble finding work - and happen not to be recently laid off from a troubled bank - that's what you have to do because there is no special program for you. Peace.

Photos - Bloomberg (Time Magazine), NBC interns on 30 Rock after being laid off from the financial sector (Gothamist)

Banks On Their Knees Asking for Money, How Could We Say No?

Today was the day many people have been waiting for: when the CEOs of the big banks who would have failed without emergency government handouts would have to answer to Congress. Now Congress has never had a fully developed vertebrae (see: Clarence Thomas), but with the popular mood seeming to be against the bankers who ruined their billion dollar companies, some in Congress asked some moderately hard questions. The banks represented included Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, Bank of New York Mellon and State Street.

One of the main sticking points with the public is executive compensation, namely bonuses. Now a sensible person would think that a bonus would only be given out when the company has a good year and there is extra money to be spread around, but not with the banks. No; for even when the executives helped run these companies straight into corporate ICU and the government ventilator was barely keeping them alive, bonuses were apparently merited. There was actually a pretty classic line in today's hearings from John J. Mack of Morgan Stanley who told Congress, "We love what we do. If you gave us no bonus, we would still be here." That's easy to say when you've made $55.91 million at Morgan Stanley (while being there only three years). Mack should be getting nothing, especially given his admitted propensity for risky investment. But it turns out that when he screwed up, he was really paying with house money because we the taxpayer were there to bail him out.

Another laugh comes from the sentiment, "Oh, we're not using TARP money for bonuses, that's money we already had." So wait, if you already had money why wasn't it being used to help the company as a whole and not some high-level executive who most likely contributed to the problem? It's like Larry David's friend Simon in Curb Your Enthusiasm who gets a $10,000 loan from Larry only to throw a party that costs $10,000. Sure, the money he used for the party was not the physical money Larry gave to him, but without it he would have had to use the party money to stay afloat.

Barney Frank asked a pointed question during his discussion of executive bonuses: "Why do you need to be bribed to have your interests aligned with the company?" Obviously it is a rhetorical question, but one worth answering. None of these CEOs have the company's best interest in mind. Why would they care how the company does if they know that they're too big to fail? They get to fly their private jets, make tens of millions of dollars, and live in ritzy suburbs. Sure, their companies are failing, but do you really think these guys are going to downsize their personal lives? The money will still come in, and they will still live in their McMansion and drive their luxury foreign cars (though to be fair, their companies might have to use NetJets instead of owning a private plane - how embarrassing!). They can afford not to care.

Another tactic used by the banks at the hearings: blame others. When pushed on why they were not lending a lot of money when that was what the TARP money was for, Jamie Dimon (CEO of JPMorgan Chase) said that it was from a scaling down of lenders like money market funds and hedge funds. The irony of the fact that his bank is partially responsible for the decimation of peoples' money market funds it completely lost on Mr. Dimon as he laments the fact that money market funds are not as active as they used to be.

Representative Paul E. Kanjorski said it best when he told the banks, "When you took taxpayer money, you moved into a fishbowl. Now, everyone is rightly watching your every move from every side." Obviously this is something the banks are not used to, for when they gave money out (by buying sub-prime mortgages) they did not keep tabs on who they were lending to or how they would pay them back; the money was coming from somewhere (though those who did their homework knew it would not last long). This boosted profits and lulled the shareholders and other regulators into complacency. Now when I was in school and I did not do my homework and got a bad grade on a test because of it, the teacher did not offer to give me free points to save my grade; I was responsible for myself. But these banks did not do their homework and they did not just fail the test, they failed the semester and brought everyone down with them, but it's ok because Professor Government is going to give them free points, because they're too important to fail. Peace.

Photos - The financial world brain trust (New York Times), John Mack (CNN Money), Jamie Dimon (CNN Money)