Force people who made money from sub-prime mess to pay for it

I’m pretty sure many people (financial services execs, traders, brokers, etc) made hundreds of billions of dollars, collectively, out of this whole securitization-of-sub-prime-mortgages fiasco.

Instead of making the average US taxpayer - who had nothing to do with this and did not profit one cent from this hair-brained scheme - pay for it, how about we get the idiots who put the system in place, abused it, and made billions from it before it collapsed pay for it?

There are several potential problems with this

  1. Practical: How would we identify all the individuals/companies, and exactly how much money they made from sub-prime mortgages?

  2. Legal: There most likely is no legal framework for the government to do such a thing

  3. Ethical: Even if the practical and legal issues were resolved, would this be ethical?

I’m no economist or financial guy, so I’m not sure how insurmountable part 1 (the practical aspect) is.

Also, I’m no lawyer, so I’m not sure how insurmountable part 2 (the legal aspect) is.

But, if 1 and 2 are taken care of, then, ethically, I am totally OK with the people who caused this and profited from it paying for getting us out of this hole.

I proposed something like a 60-70% tax on all politicians with a R or D next to there names in another thread. Retired? We will take it outta your pension. I could go with that tax on all the CEO’s/yes men of all the bailed out companies as well. Since they where all in bed with one another anyway, they should all pay to support this waste of our money.

The CEOs of those companies we’re now bailing out made some obscene bonuses. Perhaps they need to return them before any more talk of a bail out.

I’ve felt for a long time that no corporation should be allowed to go into bankruptcy without the CEO being reduced to a certain low financial level first. The idea of corporation as separate human entity is horsefeathers - it was a lovely idea at first, but it has been perverted beyond recognition. Of course, the problem here is CEO bail-out. Some guy is CEO for a month when the company goes under. So it would have to be pro-rated.

This is a lovely idea in theory, but in practice, it’s unworkable.

Lots of people invested in mortgage-backed investments; for a long time, it was a license to print money. However, some of the people who made those investments represented institutional investors like insurance companies and pension plans whose dealings directly affect and benefit thee and me. It’s probably safe to say that institutional investors made more from these investments than individuals did, but the truth is that we may never know if that’s a true statement. So with that in mind, do you think it’s fair to hold anyone who had a claim paid or received a pension check accountable for the sub-prime crisis?


Are you sure about this? I thought I saw an article that said the AIG guys weren’t getting a dime. I was under the assumption that the golden parachutes had been shredded (melted?). So I’m gonna ask “Cite?” without the dubious smiley.

Good point: A few years ago I held a few thousand dollars worth of Freddie Mac bonds. They paid me a few hundred dollars worth of interest. Does the OP want me to pay this back as part of his scheme?


Here’s a wildly counterintutive thought for the Board.

How about giving them MORE money, or putting them in positions of power?

I’m not talking about the CEOs of Lehman or Merrill or anything like that. I’m talking about the guys at Goldman, and the hedge funds, and the analysts who advise the hedge funds and the short sellers who saw this train wreck coming. Just like the folks who saw the Enron collapse coming when Enron was up around $70 a share.

And got rich when the collapse happened, even though ‘the crowd’ was still running headlong the other way. Because they had the sack between the legs to make big bets with their own money when ‘the crowd’ was doing something else.

Those guys seem pretty damn prescient and smart now. Don’t they? Why don’t we reward them?

Or put them in the chairs currently occupied by Barney Frank and Chris Dodd, who as best as I can tell, are STILL trying to pump more volume through the government lending entities.

Just a thought.

Wait…what? How is there a thought buried in there?

Yes he is saying give the people who made money shorting the companies more money to fix the mess. Not speaking for him but my take is those that predicted the mess made money those that took the ride lost money. So who knows more about what is happening than those who knew this day was coming.

I’d be content to stick it to the CEO/Executives/Board of Directors. Seems to me if they can expect massive salaries/bonuses then it is appropriate they are held directly responsible for driving the company into the ground.

Martin Sullivan, the previous CEO of AIG, left on June 15 with a $68 million severance package. He got that for getting the company to two quarterly losses that totaled $13 billion.

His successor, Robert Willumstad, worked as CEO at AIG for 3 months before getting sacked over the current debacle and he walked with $7 millionfor those three months of work.

James Cayne (former CEO of Bear Stearns), by virtue of a cleverly written compensation package that paid him for the previous year’s performance, walked away with $38 million (and later sold his stock in Bear Stearns for $65+ million although that was way down from the high where it was once valued at over a billion dollars).

We could go on…

Point is it is you and I paying those guys for their train wreck.

Sadly these guys were rewarded for manufacturing huge profits that were ultimately unsustainable. Rather than be rewarded they should be held accountable.

I would say some law that cancels all compensation packages of the executives of these companies when they file for bankruptcy…retroactive for a year (they have to pay their previous year’s compensation back). All their stock should be frozen and they should become the very last in line to get paid off once a bankruptcy settlement is arranged (and they should immediately have to step down as CEO/Executive-whatever to have no say in the bankruptcy). I don’t care if they have preferred stock or what. All creditors and investors are lined up before them and they get the same raw deal every other stock holder has to deal with.

Yes, they probably did. What do you suppose ‘they’ did with all that money? Put it in a mattress? And who do you suppose ‘they’ is here? It’s you and me (assuming you have investments). I’ve lost…well, a lot of money in the last 2 months. But…I MADE a lot of money in the last 6 years, far more than I lost. Should I (and everyone else who profited) have to also give that money back? Well…your wish is granted! See, the government is bailing them out…and that means you and me and even that wealthy money bags is contributing to the bail out.


Couple of things. First off, the US taxpayer DID have quite a bit to do with it, and who also profited by it in several ways (if they were invested for one, if they bought a house they couldn’t afford but got it anyway as another…in the short term at least).

Secondly, what are you proposing here exactly? Let’s say that each of the CEO’s of each company in question who made their nefarious ill-gotten gains is a billionaire (:dubious:) and that they actually still HAVE those billions after the melt-down. How many CEOs are we talking here? 10? 20? Let’s say 20, just for grins (I have no idea) and that each has a billion in assets. Ok…so, you seize it all (never mind that it’s not piles of gold and jewels like Scrooge McDuck’s store house…and never mind that you CAN’T just seize their entire fortunes). So, now we have something like $20 billion in seized assets (gold and jewels and other Scrooge McDuck type booty). This won’t even be a dent on the BAILOUT…let alone what this is going to cost in the long run (I’ve seen figures of hundreds of billions of dollars…maybe close to a trillion).

Even if you COULD do it (and leaving aside that you can’t, or that if you tried you’d basically have folks with those funds fleeing the country with their capital so fast your head would spin and taking said capital to some more friendly clime…oh yeah, and putting all the OTHER rich on notice that you have started down this particular slippery slope so maybe the time is good to seek greener pastures themselves).

The problem with these kinds of schemes is that they make a flawed assumption…that the rich HAVE to stay here and keep their capital here as well. Ok, there are other flawed assumptions too…but that’s one of the big ones.

No way you could and it would be silly to try. A LOT of people made a lot of money from this situation in the last decade or so…including the US government in the form of taxes. Even just going after the big fish, if you could figure out how to do it wouldn’t be worth it, especially since a lot of those big fish lost a lot of money as well.

The only one’s who have made a lot of money recently on all this are the folks who sold short…you going to go after them? On what grounds (assuming they didn’t do anything illegal…which remains to be seen in some of these cases IMHO)?

Yep…there is no legal framework for such a mega-grab. However, even if you COULD do it you’d be making a mistake…probably a fatal one for the US and our economy. Such a grab would cost the US much more than whatever you managed to squeeze out of the big fish before they fled or sheltered their capital somewhere else.

It’s ethical if you are either a communist or a thug with a gun. It’s highly unethical if you are the US government. That said, I don’t really care if it’s ethical or not. What concerns me is it’s a stupid thing to try and do. Sort of like putting the gun to the head of our economy and pulling the trigger.


First of all, the money the CEOs and other top execs made is a pittance compared to the amount lost in the current disaster, so even driving them into poverty, while an enjoyable thought, isn’t going to help. The Times Business Section yesterday did have a gallery, with CEOs and their stock values (for their companies) before and after the meltdown.

These guys aren’t the only ones to have driven their companies into the ground, though CEOs in other industries haven’t taken the economy with them. I see two problems. The first is that exit packages are very large even if the firing of the exec is for poor performance. Boards seem happy to pay excessive hush money. Maybe making these packages highly taxed would help. The second and bigger problem is that bonuses are paid for good performance for a year, even if that result is a house of cards, which collapses the next year. Deferred bonuses based on long term results might help a lot.

I’ll try to find time to respond to all your points later on. For now, consider the following example:

Some people build a factory near a town. For many years the factory makes hundreds of millions of dollars for the executives and other principal players of the factory. Other people make some money from it too: the workers, the restaurants where the workers go to have lunch, etc. But the bulk of the money is made by the executive and other principal players of the factory.

One day, something goes terribly wrong, and the factory goes into a downward spiral. Specialists warn the town that if they don’t intervene and spend $70 million to buy some equipment to halt the problem, the factory could blow up and destroy the town.

Now, should all the town’s citizens pay equally?

Why shouldn’t the people who made hundreds of millions of dollars from the factory pay to prevent it from destroying the town?

On the issue of people who made a little money, and whether they should pay, it could be done several ways. But, even if we insist they all pay, it should be proportional. That is, if the CEO made $50 million and some town denizen made $5,000 indirectly from the factory, then, if the CEO pays $1 million towards fixing the problem the town denizen should pay $100 towards fixing it.

There is no reason that the CEO (who was a direct actor in making the factory do what it did, and also benefited greatly from it) and the average town denizen (who was an indirect recipient of some factory profits, and who benefited negligibly in comparison) should have to pay the same amount of money to stop the factory from destroying the town.

So…the workers (and peasants? ;)) get jobs that enable them to buy houses, cars and iPods and such. Which injects money into the community, as well as taxes. Got it.

The fat cats make hundreds of millions (for a factory? Ok, maybe they are producing gold plated iPods)…on which they are taxed by both the federal and state governments. To be sure, if you rake in $100 million and ‘only’ get to take home half (or so), that’s still a hefty chunk of change…but it’s a fairly hefty chunk for the government as well. And this doesn’t count the taxes on the factory or other spin off expenses (jobs for logistics and transport companies, possibly tariffs for some one…oh, and presumably a product that people want at a decent price).

Ok…got all that.

How many jobs are we talking here that would be effected? How much revenue is being generated FOR the state/town by having this factory there? If the factory goes tits up what will happen to the town? Is this a for want of a shoe situation here (i.e. if the factory goes down does the town go down as well)?

Well, obviously they can’t all pay equally…nor would they. Presumably if the town was going to foot the bill it would be through tax revenue somehow…and since the guy working at the Scruba Duba car wash pays less taxes than Mr. Big Wig Executive CEO at Golden iPod(ltd) they are going to pay different amounts for the bail out. Whether you bail out the factory in your theoretical is going to depend on a lot of factors, but the biggest one is going to be what impact on the town it would be if the factory was closed down and all those jobs you tossed off in your first line were lost. After all, the owners of the factory are only going to be liable for so much of the problem in the end…they can always file for bankruptcy after all and most of their personal fortunes (probably much diminished) would still be there. They can always walk away and use what capital they have in a new venture…say, go to another town and start again.

Why should they? In the end, why WOULD they? Why wouldn’t they cut their loses, file for bankruptcy and walk away? Thing is, this factory employs people from the town. Part of the tax revenue that paid for that new High School football field came from that factory. The new lights on main street came from it to. This doesn’t even get into whatever the company donated to enhance community appeal either…we are just talking taxes. The new Walmart that employs a bunch of people (and also provides revenue to the community)? It caters to those workers (and peasants), who’s jobs and livelihood are generated by this factory. Same with the Sonic…and the Taco Bell. And a lot of the other support type businesses in the community.

So…how important is this factory? If it’s not important then my guess is the city counsel or whatever will let it die. If it IS important…well, then it’s important, no?

If the CEO made $50 million he’s ALREADY paid more than the $1 million in taxes previously. You realize this, yes? So, what you are asking for is for them to pay more (and this leaves aside whether or not said CEO still HAS that 50 million today).

Look, both that CEO AND that little guy are ALREADY going to be paying more for this…as well as everyone else. Why should everyone pay? Because everyone benefited from this situation for the last decade or so. We received our cut in the form of taxes. We received our cut in the form of jobs in myriad industries…and all the taxes from THOSE people, as well as all the services and such that they then spent on little things like food and housing and cars and iPods and porn and what-have-you. What you seem to be implying is that it was cool when we all benefited (in however a minor way seemingly), but now that things are tits up that only those who directly benefited should hold the bag and pay the bill. When you get things working again, call us back because we need that money flowing in again…

It doesn’t work that way. Simply put if you try to do it people are going to cut their losses and take their chances in bankruptcy. Most of them will be able to save something of their personal fortunes…at least until the entire system comes crashing down and we go back to being hunters and gatherers. At that point the rest of us will have to think ‘Hm…maybe we DID have a bigger stake in keeping the ship afloat than we figured?’.

No reason at all, no. And in fact they DON’T pay the same amount and never did. Those who benefited the most paid the most…those who benefited the least paid the least. But if the factory is vital to the survival of the town then they are all going to have to pay to keep it going…since in their own ways they all benefit from that factory continuing to be there and in operation.


Fine…but what about when that factory goes belly up and they ask me, in the next state and benefits in no way from the factory, to chip in to keep the factory open? You can tell me the factory is necessary to the broader economy so I do actually have a stake in keeping it open but why should I pay that CEO who led the factory to disaster get my money?

I have no investment in AIG, I am not insured by AIG, their CEO worked three months and walks with a $7 million severance and I am the one being asked to help pay him. The previous guy who is also responsible walked with $68 million.

Sorry, but count me as not cool with seeing the guys who built the house of cards essentially loot the company and leave me holding the bag.

You bring up a good point about the fact that those who made more have already paid more (in taxes).

Some questions remain

  • It’s not clear if the amount they have already paid is sufficient to make up for the mess they caused.

  • Many of these guys don’t pay that many taxes anyway. IIRC Warren Buffet once said that he paid less taxes than his secretary. Not sure how widespread this is in reality.

  • What about CEOs of other companies, who made millions and also paid a lot of taxes? If the CEOs of companies who did a good job of running their company (in a way that is not endangering the entire economy) are forced to pay (through taxes, as you mention) for fixing the fiasco, is this fair? Same for other rich people who made tons of money in a way that had nothing to do with the current fiasco. Why should they pay the same as the people who actively caused this?

Will someone explain to me why corporate America gives such huge severence packages? Is it just the golden rule in action - do as you would be done by?

There’s actually a quite simple way to make sure that those who benefited most from the current credit default swap market pay for it–I posted it in this thread as well.

From Senator Barney Frank:

There ya go–simple, elegant, fair.

There’s another good idea floating around there, the Home Owner’s Loan Corporation, based on a program used to good effect during the depression. How it works:

Again, simple, elegant and fits the consequences to the action. Homeowners who borrowed irresponsibly can elect to take this option but at a cost, although not an unreasonable one. Lenders who loaned irresponsibly still get paid, just not in a big upfront chunk derived from selling the mortgage bundles, but the old fashioned way by getting the interest paid monthly by the homeowner. Granted, it’s less interest than they originally wanted, but tough shit. They sold a bad product and it’s up to them to make good when their product does harm–just like lead based paint on toys. The taxpayers who footed the bill get a return on their investment, which is as it should be, and the responsible ones aren’t just bailing out the irresponsible for nothing. That’s like getting spanked because your brother did something wrong and it’s not fair.

Pure and simple, everybody who contributed to this mess needs to clean it the hell up. Those who benefited most need to pay the most for the cleanup–why is that such a hard concept for people to grasp?

This would be where a cost to benefits analysis would be needed. In your example it would be fairly easy…would the cost of paying out what was needed to keep the factory afloat be worth the potential benefit of future taxes, jobs, etc. Should be fairly straight forward.

In the case of what’s going on today the answer is…definitely. Because if enough blocks crumble in the wall the entire structure is coming down. We were (IMHO…and mind, I’m no economist) VERY close to the brink on Monday and if the government hadn’t stepped in then I’d probably be scouting bomb shelters in Idaho or some such and waiting for civilization to melt down completely. And we are not just talking about the long and happily anticipated downfall of the US here…if we had gone the rest of the world would have followed (or even preceded) us down the drain.

While I’m sure there are some exceptions by and large I think this is horseshit. I’ve never seen any data that The Rich™ don’t pay any taxes. The top 1% of tax payers pay something like 20% of the taxes, so SOMEONE has to be paying something…especially since that’s not really a lot of folks in that bracket.

What if they are? We, as a society, set the bar on taxation…and folks got’s to pay. After all, those CEO’s are paying for OTHER stuff that they probably don’t agree with…just like you and me are paying for that fucking war in Iraq, ehe? Besides, it’s in those other CEO’s best interest also to not have our economy melt down…hard to sell products when it’s a Mad Max world after all. There are other benefits to having things stabalize and then move back to some semblance of order (say, a decade or so from now) too of course.