How can you be almost broke and then pay out billions in bonuses?

What recession? Nine U.S. banks pay $32.6b bonus

New York (PTI): They survived the financial turmoil with taxpayers’ money, still nine leading U.S. banks shelled out more than $32 billion in bonus to their employees last year, with crisis-ridden Citigroup alone paying $5.3 billion.

Detailing the bonus payments made by the TARP-funded financial institutions in 2008, the latest report from the Office of the New York Attorney General has said that there "is no clear rhyme or reason to the way banks compensate and reward their employees."

The U.S. government had pumped in billions of dollars into the banks through the Troubled Asset Relief Program (TARP) to help them tide over the worst financial crisis in decades.

The nine banks together paid $32.6 billion in bonus while they received $175 billion worth funds from the U.S.

The ‘Bank Bonus Report’ by Attorney General Andrew M. Cuomo said that even though Citigroup and Merrill Lynch incurred massive losses in 2008, together they paid nearly $9 billion in bonus to the employees.

The Citigroup, led by Indian-origin Vikram Pandit, gave away bonus worth $5.3 billion while Merrill Lynch shelled out $3.6 billion.

 

Here's how!!!


Mark-To-Market Is Back — With A Vengeance!
Jul 31 2009, 1:15 pm by Daniel Indiviglio

Attention: This may be the single most important piece of news regarding the financial industry you will read this week. Maybe for the whole month. Maybe for the whole year. Okay I’ll stop being melodramatic and get right to it. The Financial Accounting Standards Board (FASB) is in the process of making banks very unhappy. In a complete reversal from their revised policy released in April, it is considering vastly tightening mark-to-market requirements to include virtually all securities on a bank’s balance sheet. Yes, it even wants the very, very illiquid stuff marked-to-market.

To understand a bit more about what how assets are valued, this entry I wrote a while back may help. Mark-to-market is an accounting concept requiring that banks mark the value of the assets on their balance sheets up or down depending on how their values change in the market. Right now, very illiquid assets do not have to be marked-to-market, so instead can be valued by the bank using internal assumptions.

Here’s a blurb from FASB’s July 15th board meeting:

The Board agreed to propose that all financial instruments will be presented on the balance sheet at fair value with changes in value recognized in net income or other comprehensive income with an optional exception for own debt in certain circumstances, which will be measured at amortized cost.

Why almost no one is reporting on this shocks me, because it’s a huge deal. FASB is suggesting that all financial instruments — the good, the bad and the ugly — must be valued on a bank’s balance sheet at their market value. Illiquid CDOs, property holdings, credit derivatives and anything else you can think of will all now be marked, mostly down, to what they would trade for in the market. Currently, banks can classify the most illiquid stuff on their balance sheet as "held for investment" or "held to maturity" and use whatever value they believe the assets are worth based on internal assumptions.

 

Let say if I give you a normal margin account, you blow up and come to me. Then, I change it to a margin account with no limit and 0% interest rate. Will you make money now?

http://www.motherjones.com/politics/2009/07/how-you-finance-goldman-sachs’-profits

Goldman Sachs was an investment bank. IE : Not much control on margin rate, but no discount window.

After March, they want the access of discount window + no control on margin rate. Essentially, a big giant margin account with no limit and 0% interest rate.

Now, think about what kind of trading opportunities you will have with 0% capital cost.

 

"How can you be almost broke and then pay out billions in bonuses?"

Because these institutions are afraid of losing the workers who helped them lose all the money in the first place?