Busch: Our Talk Show Host President

Last night on the Jay Leno show, we had the first US President ever making an appearance on a late night comedy show. Jay Leno did his best to be a serious interviewer and asked questions about AIG and the economy. "If AIG had been allowed to go into bankruptcy, it would've brought the whole financial system down......We're going to do everything we can to get those bonuses back."

In this vein, the US House of Representatives passed a bill last night that would impose a 90% tax on bonuses granted to employees who earn more that $250,000 at companies that received more than $5 billion in TARP funds. The bill passed by a wide majority of 328-93 and would be retroactive to December 31st, 2008. Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, PNC Financial Services Group Inc. and U.S. Bancorp have each received more than $5 billion under the TARP program according to the WSJ.


Here's the breakdown of the TARP injections from the US Treasury Department. The total for the eight is around $117 billion and the total for the entire distribution is over $300 billion. According to the NY State Comptroller, Wall Street firms paid out $18.4 billion in bonuses in NYC. Let's simplify this and assume that the top 8 banks paid out this money. This would mean that 10% of the $177 was paid as bonus.

By passing the bonus claw back, Congress has expressed the population's anger towards the financial industry. However, finger pointing is the latest game in DC and those extend to Senator Dodd, US Treasury Secretary Geithner, and US Federal Reserve Chairman Ben Bernanke via Nancy Pelosi.

However, Congress now has created a financial house divided upon itself by passing the bill. Banks will now do everything they can to pay back the TARP injections as fast as they can to get out from under the eye of a government running by populist degree. What else will Congress do to banks that took TARP when job layoffs continue and the economy continues to weaken? This is the question every bank CEO is asking especially with Congress writing legislation to allow the federal government to take over large financial institutions and unwind their businesses.

The true tragedy is that Congress is acting against it's ultimate goal of getting the economy to improve. If all the banks pay back the TARP money quickly, then won't they have to delever and debt restructure to do this? Which means that the original intent of the capital injection will be abandoned. Banks will now lend less than they would have if they kept the money. Is this want Congress wanted? Is this a good thing for the financial sector? Won't their stock prices come under pressure again?

Too bad Jay Leno didn't ask these questions last night.


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Andrew Busch
Andrew Busch

Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him here. </</p>