A Bailout for the Rich
November 05, 2008
Scanning the financial news online, here is what I discovered
about two of the companies that benefit from the $700 billion
bailout. First, after getting $10 billion from our government
(from us) Morgan Stanley is handing out $6.44 billion in bonuses.
That’s after their profits fell 41%.
Goldman Sachs is getting $10 billion from the bailout plan and
paying out $6.85 billion in bonuses. Yes you read that right.
Despite a 47% drop in profits and a 53% drop in share price,
the bonuses are going out. That averages out to over $200,000
per employee, although I suspect the ones at the top get a much
bigger share than that.
Warren Buffet recently invested $5 billion in Goldman Sachs,
by the way. He got preferred stock as well as warrants to purchase
common stock in the future (these are a kind of option). His
preferred shares pay a 10% dividend while he waits to make a
killing on the warrants some time in the future. Now that’s
a deal.
Twenty days later Treasury Secretary Hank Paulson comes along
and hands over 10 billion of our money to Goldman Sachs. Does
he get the deal Buffet got? Not even close. In fact, not even
half! We get less than a seventh of the number of warrants and
receive just a 5% dividend on the shares. Based on this, we shouldn’t
be surprised if we overpay by double or more for all the other
bailout “investments.” That suggests that 350 billion
(or more) of the bailout money will be thrown away.
Average Americans are being tapped for hundreds of billions
of dollars to keep those bonuses going. We are in the midst of
another massive redistribution of wealth from the poor and middle
class to some of the wealthiest people in America.
Speaking of wealthy, Paulson, whose net worth is estimated
at $700 million, was the chief executive of Goldman Sachs until
two years ago. He made $37 million in 2005, presumably doing
some of the things that lead the company to need this bailout.
Talk about the fox guarding the hen house!
Oh, and by the way, in Paulson’s first major speech as
Treasury Secretary in August of 2006, what did he name as one
of the most important issues to be addressed? The widening gap
between the richest and poorest Americans. No, I didn’t
make that up or pull it from an Obama speech.
The Christian Science Monitor of August 3, 2006, said of the
speech, “Paulson’s comments were not merely a blunt
acknowledgment of the problem but also a call for solutions –
a sign that the income inequality may rise higher on the US policy
agenda in the years ahead.” Yes, well it has risen higher
on the agenda, hasn’t it? But apparently the agenda calls
for using the power of government to make the rich/poor gap even
bigger.
If conservatives wonder why we just elected such a liberal
president, they might consider this and many other examples of
the rich getting richer at the expense of the poor and middle
class – examples which I’ll be covering over the coming
weeks. It is true that both McCain and Obama voted for this bailout,
which was sold as necessary to save the entire world. But I think
most people rightly suspect that the redistribution of wealth
will more likely be from rich to poor under Obama – rather
than the other way around – and many like that idea better
than what they have been seeing for years.
I don’t like the idea of taking money from any group
of people just to give to another, but on the other hand, if
it is going to be in one direction or the other, I think perhaps
“spreading the wealth” from rich to poor is the lesser
of evils.
One last note: Some may think that it’s extreme to call
this “redistribution of wealth from the poor to the rich,”
because they claim that the poor don’t pay taxes. But we
all pay various taxes, and those workers who do not pay federal
income tax pay social security taxes. Social security taxes don’t
constitute a retirement plan, given that the money has never
set aside, and paying them is not optional. It is as real a tax
as any other.
Note: This is part of a series. You can find all of
the pages listed and linked to here:
The Redistribution
of Wealth to the Wealthy
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