Smash and Grab Job

Kevin Drum is uneasy about the terms that Emperor Paulson used to nationalize the banks - particularly, how quickly the bank CEOs accepted them.

A final deal between regulators was hashed out in Mr. Paulson's office Sunday afternoon....The top bankers were then told to show up for a meeting Monday at 3 p.m., but were given few details. Expecting an uproar over the plan, government officials secretly planned to break off the first meeting, giving CEOs time to vent, talk to their boards, clear their heads, and reconvene at 6:30 p.m.

In Mr. Paulson's call with Morgan Stanley's Mr. Mack, the CEO asked the Treasury secretary the reason for the meeting, according to people familiar with the matter. Mr. Paulson responded, according to a person familiar with the matter: "Come on down, we'll tell everyone at the same time," adding, "I think you'll be pleased."

....U.S. officials argued the plan represented a good deal for the banks: The government would be buying preferred shares, and thus wouldn't dilute their common shareholders. And the banks would pay a relatively modest 5% in annual dividend payments.

The meeting ended at about 4 p.m. By 6:30 p.m., all of the [term sheets] had been turned in and signed by the CEOs. No second meeting was held.

Of course not, because the banks got everything they wanted - no-strings money, no voting shares for the government in return, no regulations on their activities, and no meaningful restrictions on executive compensation. Here we have a bipartisan chorus against golden parachutes and extensive CEO pay, and yet the provisions in the bill are toothless:

"Restrictions on executive compensation will ensure that taxpayer money is not wasted enriching the same people whose poor decision-making created this crisis," Sen. Charles E. Schumer (D-N.Y.) wrote to Treasury Secretary Henry M. Paulson Jr. yesterday. "It is imperative that these restrictions, including limitations on the incentives for executives to take excessive risks and the elimination of golden parachutes, should apply to any capital injection program."

Exempting the banks in the program is "not in the spirit of the thing," said Rep. Spencer Bachus, (R-Ala.), ranking member of the Financial Services Committee.

Dean Baker has more on these new "welfare queens" running the banks. Injecting the money directly into the banks makes it cheaper and potentially more effective, but at the same time, this feels more and more like a theft. Especially because the neo-Hooverites are ready to step in and forbid such gifts to the mere mortals not on Wall Street.