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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Biden aide defends big bank profits, bonuses

By Alec MacGillis
Jared Bernstein, Vice President Biden's chief economic adviser and the most liberal member of the White House economic team, on Wednesday night defended the enormous profits and bonuses being generated at Goldman Sachs and other big banks that have repaid federal bailout funds and will not be required to submit to compensation limits.

Bernstein has a distinctly different pedigree than the Wall Street veterans who dominate the administration’s economic team – a jazz bassist, he came to the White House via the left-leaning Economic Policy Institute. He is the staff director for the White House’s Middle Class Task Force. But during a question-and-answer session following a 25-minute speech at American University, he gave a fairly unflinching defense of the banks that have garnered such populist ire.

Senior international economics major Carolina Peguero asked him, "How do you feel about firms such as Goldman Sachs and JP Morgan Chase who took advantage of the bailout...and are reporting huge profits, ridiculous multibillion profits with money that taxpayers" provided?

"Well, mixed feelings," Bernstein said, before launching into a defense of Goldman and JP Morgan's big winnings. The firms, he said, were among those who had paid back their loans from TARP. "Once you've paid back the TARP you're a private sector firm out there and you can set compensation wherever you see fit," he said.

But he tried to make Peguero feel better by arguing that her question alone was sign of a welcome heightened sensitivity about high executive pay. "I would argue we are in the midst of a period wherein compensation norms in financial markets are very much under scrutiny, under the microscope," he said. "Even the fact that you are asking me that question suggests that assessment is correct."

Several policies being proposed by the administration, he said, could help moderate executive pay in the future, he said, including bigger say for shareholders and more independence for executive compensation committees. But he concluded with another defense of the firms. "I wouldn't cite any company out there and say ‘you're good, you're bad.’ I would point out that coming out from under the TARP is positive in terms of paying us back," he said.

This answer did not satisfy AU psychology professor Stanley Weiss, who asked Bernstein moments later why Goldman should be able to keep its profits after it had been aided not only by the TARP loans but also by the taxpayer bailout of AIG, which held billions in insurance contracts with Goldman. Goldman and others are “very much indebted to the taxpayers and owe this country any profits they have," Weiss said.

Bernstein stuck by his defense of the firm, saying the answer instead was to look forward to preventing the need for future bailouts. "There's definitely some truth in there, but where that takes you is to financial regulation reform," he said. "The point of financial regulation, which we're deeply involved in now, is to avoid getting back to that place again...In Japan they say since we can't stop earthquakes, we can build houses that can withstand earthquakes. Maybe we can't prevent 100-year floods from happening every 100 years but we need the ability for resolution authority, for the government to take a firm like that offline without a taxpayer funded bailout."

Weiss said afterward that he “did not think much” of Bernstein's answer, especially since some White House advisers, notably Larry Summers, had previously been deeply involved in deregulating the financial industry.

Peguero was also left cool by the Goldman defense. “It did not give me peace of mind,” she said. “There should be some kind of repercussions.”

By Washington Post Editor  |  October 29, 2009; 7:40 AM ET
Categories:  Obama  | Tags: AIG, Goldman Sachs, bailout, big banks, bonuses, executive compensation  
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Comments

Be interesting to see which Wall Street or bank lobby firm he goes to work with. But then there is a reason why there is a reason why so many banks, credit card and other such groups have located in Delaware. Hummmmmmmm!

Posted by: KBlit | October 29, 2009 8:33 AM | Report abuse

I wouldn't conclude Biden's economic advisor was DEFENDING bonuses and profits for TARP recipients based on what was written here.

Looking backwards (as we all do so clearly), the bailout maybe should have been a government takeover of these institutions, instead. In that scenario, an "orderly bankruptcy", all contracts, including comp agreements, would have been null and void - at the discretion of the new (government) management.

Once "too big to fail" occurred WITHOUT a bankruptcy, our fate as taxpayers was sealed - their management go to call the shots.

It isn't clear to me, in hindsight, that our regulatory agencies had either the knowledge or the personnel to actually run these institutions in a bankruptcy. Chances are, we may very well have suffered the collapse of the world banking system, while taking the "more correct" approach.

Now we need to break up the "too big to fail"s and re-establish rules for hedge funds and private equity firms including trading, capitalization levels and instruments of risk can't be allowed to leave the seller completely.

Good luck, taxpayers. These money guys are doing what they have the power to do and will not likely give it up willingly.

Posted by: rowens1 | October 29, 2009 9:17 AM | Report abuse

What a focking blind IDIOT! If these are truly the "Best and Brightest", WHY CAN'T THEY LEARN HOW TO INVEST ALL OUR 401KS AND RETIREMENT PROFITIBLY INSTEAD OF USING IT FOR HIGH RISK GAMBLING AND BEING BACKED BY OUR NEW CHANGE GOVERNMENT SUPPORTING THEIR HIGH RISK GAMBLING.

HOW ABOUT THEY START SHOWING A LITTLE RETURN ON ALL OUR 401K AND RETIREMENT INVESTMENTS IF THEY ARE SO GODDDDDAMMKMMM SMART!!

Posted by: Impeachbush99 | October 29, 2009 9:48 AM | Report abuse

Bernstein, to use an economic term, you're a sellout.

Fix the economy. End capitalism.

Posted by: anarcho-liberal-tarian | October 29, 2009 9:58 AM | Report abuse

Thanks for reporting that a jazz musician who is fat and happy now is fine with Big Banks making Big Bucks at the expense of the middle class. I'd rather see a report from an economist about how deregulation hurt us and a little more regulation might prevent the next melt down the people who didn't cause will be asked to pay for. There has been plenty of carrot for this industry. How about a little stick? Atlas shrugged indeed. It's going to be the people who work for a living who do the shrugging. What a warped world that they have to carry the wealthy on their backs.

Posted by: SarahBB | October 29, 2009 9:59 AM | Report abuse

Impeach Bush 99 you took the words right out of our mouths.

Posted by: eaglehawkaroundsince1937 | October 29, 2009 10:01 AM | Report abuse

..and why shouldn't the career politician Biden or any other career politician defend thier Wall Street benefactors and brother thieves , who have earned mountains of wealth by holding public offices...defend the bonus money these criminals are giving themselves, after all where do you think they got the wealth...worked for it or where geniuses at investing?....the bailouts of the Wall Street financails (who deliberately became banks to be eligible for federal funds, when in fact they are were then and are no not banks by any stretch of the imagination and have used the money to save thier offshore investments and not one cent for Main Street..let alone a car or mortgage loan which is what a real bank does)...I have had it with posting you all know what has and is happening...what I want to say here would be removed for the threats and obscenities...you know very well what is what and why and don't need to read or hear anymore of it from me or anyone else, you are experiencing it.

Posted by: 123Njord | October 29, 2009 10:47 AM | Report abuse

Let the watchwords of patriots , stand up citizens, veterans, workers and our families be, "Hail and Victory" after we have dealt with the the Wall Street and Washington vermin with justice and arms...enough has been enough damn it.

Posted by: 123Njord | October 29, 2009 10:54 AM | Report abuse

Devastating truth. The Obama Administration: The Finest Government Money Can Buy. *(A Wholly Owned Subsidiary of Government Sachs, Inc.).

When Anarchist-Libertarians, the entire Middle Class, and gun-toting Right Wingers agree that Obama is a total sellout to Bankers and Wealthy Donors, it's an incredibly bad omen for 2010.

Big Surprise: The Grandson of a Banker is beholden to Ivy League Robber Barons.

How's that "Task Force on the Middle Class" working out, Joe Biden?

Jobless Rates Up. Goldman Sachs Up.

The Rich Get Richer under Democratic DeRegulation and Country Club Republican Pilfering.

Vomit. Vomit. What a total sellout.

Posted by: georgieporgie2 | October 29, 2009 11:25 AM | Report abuse

I call for everyone to note that the notions defended by Mr Bernstein and others like him, on the Republican side, are a distortion of capitalism. The theory which worked perfectly until recent decades, calls for a balance between labor and capital accomplished through correct regulation. This is not what happens today in America when high management positions earn more than thousands of lower placed employees, channeling the limited cash in the economy to a concentration in the hands of a few that goes beyond reasonable limits.
Profit is not unlimited in capitalism. It is dependent and limited by market possibilities (demand) and time. In today's America, time has been reduced to quarters and market possibilities to excesive and many times hidden charges. This is how banks and other financial institutions are making money to improve quarterly benefits. Deceiving customers to inflate results and obtain enormous bonuses.
These and many other examples of lack of balance derive from poor, minimal or even nonexistent regulation by the government. In capitalism, the government is a referee that sets and enforces rules to create fairness for all and therefore solidify the economy. It is communism, the feared monster by republicans, the only economic theory that rests on human responsibility where everyone will produce according to his possibilities and consume according to his needs. That is what Mr. Greenspan erronously defended, "a communist principle applied to capitalism". No wonder the debacle that we are now going through. To allow bankers to auto regulate is leaving an open field for abuse against consumers, shareholder's money and taxes owed to the states and federal governments.
America and economists would do right to go back to basics and redo what has been done wrong in the country's economic structure. It is not easy because many powerful interest groups have grown stronger from these practices. Even the Republican party has wrongly evolved into this distortion of capitalism and now defend what is the seed of communism: auto regulation.

Posted by: mauriciott | October 29, 2009 11:36 AM | Report abuse

I believe that before ANY executive receives a bonus of ANY AMOUNT, the taxpayer should be repaid. Whether the corporation/bank has alread repaid it's loan or not, they still owe the taxpayers who bailed them out.

Posted by: OHREALLYNOW | October 29, 2009 11:48 AM | Report abuse

Let the private sector compensate talent as they deem necessary. The TARP program was an investment vehicle to purchase preferred stock on behalf of the U.S. Treasury. The Treasury even made a profit of 23 percent off of Goldman Sachs. Why are the authors of these posts so bitter?

The TARP program was a success, at least initially last year, in that it kept the credit markets frothy. It was an imperfect government program, but that froth ultimately benefitted taxpayers.

Of course, with the compensation limits arbitrarily imposed by the Treasury on the top seven firms receiving investments, we'll now see a flight of good talent from these businesses, which will dampen any chance the Treasury has to recover these investments.

Remember that the U.K.-based traders that caused the collapse of AIG for the most part left in 2008. Punishing the staff brought in the turn the company around and unwind these investments won't help our nation's investment.

Honestly, it's like arguing with a wall with some advocates of reform. Facts are far more clear when jealousy and bitterness are set aside.

Posted by: Jeff_in_DC | October 29, 2009 11:49 AM | Report abuse

Artificial Growth. The Govt and Liberalism does not stimulate real growth. Only the market can. Cash for Clunkers and First Time Home Buyer Govt programs are now shown to be excessive in cost per car/house. Much more than the advertised credits applied. This quarters numbers are a direct result of those two programs. It cannot be sustained. Govt intervention only perpetuates the problem. It is Liberal Smoke and Mirrors. Liberals are not fans of the Free Market. They are invested in a Bloated Intrusive Govt. They worship Govt Intervention. That is why they are always so wrong.

Posted by: FraudObama | October 29, 2009 12:47 PM | Report abuse

Of course Biden and his minions would defend the program. He is part of the system and he knows where his dough comes from. The main purpose of of papers like the Washington Post is to print stores and cover facts in a way that prop up this corrupt system, and try to tear down those who may criticize it.

Posted by: kevin1231 | October 29, 2009 2:03 PM | Report abuse

There should be no surprise at this.

The President yesterday came out in support of the proposed bill of the Secretary of the Treasury.

This bill would prevent future bailouts of firms like AIG. This supposedly will blunt the public anger at the bailouts of 2008.

No one appears to mention that the Secretary of the Treasury was the key architect of the plan to bailout of AIG when he was at the Federal Reserve Bank and that this bill would have prevented his actions to bailout AIG.

It appears that the President fully supports legislation to prevent actions of individuals such as the Secretary of The Treasury.

To show serious concern at reform, in the terms of this President, are we to expect shortly that the Secretary of the Treasury will even propose a bill that will prevent the Secretary of the Treasury from doing anything?

Given the President, his administration, and the current Secretary of the Treasury this might be effective.

It appears that the President is taking seriously the recommendations of The Colbert Report.

The President has certainly brought change to Washington.

Posted by: bsallamack | October 29, 2009 2:39 PM | Report abuse

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