Bailed Out Bankers Behaving Like Welfare Queens

There is an urgent warning for Republicans in the weekend’s two big financial stories.

On Sunday, the New York Times reported that the Obama administration is considering much tighter regulation of hedge funds and rating agencies.

Such a story jangles Republican nerves – and calls us out to fight.

But then there’s this:

This morning, the Financial Times reported that Merrill Lynch’s new owner, Bank of America, signed off on $4 billion worth of executive compensation in a quarter in which Merrill suffered a $15 billion loss. Worse: BA seems to have tilted the bonus formula so that more was paid in cash, less in stock.

BA has been of course a huge recipient of federal bailout funds.

And so these decisions open the door for President Obama and the Democrats to accuse the banks of wasting taxpayer dollars. It does not help that former Merrill CEO John Thain happened to redecorate his office at this time for $1.2 million, a sum that reportedly included $87,000 for a single rug.

Rush Limbaugh defended Thain in a weekend interview with National Review’s Byron York.

Obama was angry that Merrill Lynch used $1.2 million of TARP money to remodel an executive suite. Excuse me, but didn't Merrill have to hire a decorator and contractor? Didn't they have to buy the new furnishings? What's the difference in that and Merrill loaning that money to a decorator, contractor and goods supplier to remodel Warren Buffet's office? Either way, stimulus in the private sector occurs. Are we really at the point where the bad PR of Merrill getting a redecorated office in the process is reason to smear them? How much money will the Obamas spend redecorating the White House residence?

Rush’s ear for hypocrisy is acute enough here. But the conclusion he is drawing is just suicidal. The end-of-year bonusing behavior on Wall Street is dumbfounding. Ronald Reagan used to tell a story about a welfare queen who collected food stamps while driving a Cadillac. What are we to call people who collect tens of billions from the taxpayer – and then redirect $4 billion to themselves?

The taxpayer bailout of banks has been remarkably generous. The money has been provided at below-market rates (Rush was right that Warren Buffett charges a lot more for his help than the Treasury does). More important : even though the banks are bankrupt, the Treasury has not reduced the value of their shares to zero, as it did with Fannie Mae and Freddie Mac. Those Wall Street players who hold hundreds of millions of dollars in Merrill stock or BA or Citigroup may be less rich than they were last year. But thanks to the generosity of the taxpayer, they have not been wiped out either – which they otherwise would have been.

Is it really too much to ask that they refrain from bonusing themselves until the taxpayer has been paid back?

The utter lack of restraint on Wall Street last month – the sheer jaw-dropping stupidity of this last reach for the last dollar – almost forces Washington to react. If Wall Streeters are too stupid or too greedy to quit gorging themselves while Washington is on the rampage, why should Republicans put their necks on the line to defend them from the consequences?

Our Republican priority should be to resist regulation that threatens to stifle innovation and dynamism on the markets. But let’s show a little of the self-protective common sense so depressingly lacking on Wall Street. Those who cannot control themselves will be controlled by others. It’s a rule of life. Our priority should be to defend open markets and to end the government role in banking as rapidly as possible. That’s going to be a tough enough challenge without also being called upon to protect bankers too greedy to be smart.