Obama Calls Bonuses ‘Shameful’ as Dodd Vows to Reclaim Money

Jan. 29 (Bloomberg) -- President Barack Obama fed a swelling populist revolt against Wall Street bonuses, calling it “shameful” that banks doled out $18.4 billion as taxpayers bail out companies and the U.S. remains mired in a recession.

The bonuses are “the height of irresponsibility,” Obama said today before meeting Treasury Secretary Timothy Geithner and Vice President Joe Biden at the White House. Firms need to “show some restraint and show some discipline,” Obama said.

The president joined politicians such as Senator Christopher Dodd, who today called for using “every possible legal means to get the money back.” The bonus pool for 2008 by New York City financial companies was the sixth-largest ever amid record losses in the securities industry, State Comptroller Thomas DiNapoli said in a report yesterday.

Banks and financial firms have fired 265,000 people since the collapse of the subprime mortgage market triggered the worst financial crisis since the Great Depression. Bear Stearns Cos. and Lehman Brothers Holdings Inc. collapsed, while Merrill Lynch & Co. was taken over by Bank of America Corp. and Goldman Sachs Group. and Morgan Stanley converted into bank holding companies. The Treasury Department program has injected about $200 billion into banks across the country from the Troubled Asset Relief Program.

‘Political Posturing’

Dodd, a Connecticut Democrat who heads the Senate Banking Committee, vowed at a press conference at the Capitol to go beyond condemnation and seek a return of bonuses.

“I’m going to be urging -- in fact not urging, demanding -- that the Treasury Department figures out some way to get the money back,” Dodd said. “This is unacceptable.”

The senator said he will force executives whose companies received taxpayer aid to testify before his committee to explain their bonuses.

Former Salomon Brothers Inc. Chairman John Gutfreund dismissed Dodd’s comments, calling it “political posturing” in an interview with Bloomberg Television. “They are not going to repay all their bonuses,” said Gutfreund, 79.

Treasury has the authority under legislation that created the TARP to issue regulations that “claw back” excessive executive compensation, said Larry Hamermesh, a corporate law professor at Widener University in Wilmington, Delaware.

Cuomo Targets Thain

“It was pretty clear from TARP I that the secretary of the Treasury was supposed to establish a provision for executive clawback,” Hamermesh said in a phone interview. “How the secretary has implemented that isn’t clear.”

The Treasury could require companies that request additional funds to repay excessive bonuses as a condition of the further financing, Hamermesh said.

“If they come around to ask again, they could say we’re going to deny it unless they cough up the bonuses,” he said.

New York Attorney General Andrew Cuomo said on Jan. 27 that he subpoenaed former Merrill Lynch Chief Executive Officer John Thain for information about bonuses Merrill paid just before its acquisition by Bank of America. Thain said that he had kept the Charlotte, North Carolina-based bank informed about the brokerage’s finances and compensation.

Treasury agreed this month to provide $20 billion in capital and $118 billion in asset guarantees to Bank of America to help it absorb losses at New York-based Merrill.

Job Losses

Employment in New York City’s securities industry fell to 168,600 in December 2008 from 187,800 in October 2007, a decline of 19,200 jobs, or 10.2 percent, DiNapoli’s report found.

The state will have lost as many as 225,000 jobs and $6.5 billion in securities industry-related tax revenue by Oct. 31, DiNapoli has said. Positions eliminated in the financial industry alone may total 38,000 by then, he said.

Vice President Biden said in an interview on CNBC today that he would “like to throw these guys in the brig” for taking excessive bonuses.

“They are thinking of the same old thing that got us here: Greed,” Biden said. “They are thinking: Take care of me.”

Dodd said the Obama administration may soon request the second half of the TARP funds to bolster the U.S. housing market. He said that will be difficult to get through Congress if the new administration doesn’t restrain Wall Street’s spending.

“You’re never going to get any support for the continued tough decisions we have to make if this kind of behavior continues,” Dodd said. “We can’t be underwriting to the tune of billions of dollars, whether it was used directly or indirectly. This infuriates the American people.”

Dodd also said today that he may seek a 90-day moratorium on home foreclosures as part of the economic stimulus bill.

To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Julianna Goldman in Washington at goldman6@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net