SALON

Wednesday, Feb 11, 2009 4:30 PM UTC

Capitalism on trial, continued

Was taxpayer money used for bonuses or dividends? CEOs agree: "We would never, ever do such a thing!"

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Topics: Globalization, How the World Works, Barney Frank, D-Mass., Wall Street, Bank Reform,

Who do they think they are fooling? Nearly every CEO of the eight financial institutions summoned for a morning of self-flaggellation at the House Financial Services Committee hearing Wednesday morning, from Lloyd Blankfein of Goldman Sachs to Vikram Pandit of Citigroup, asserted that TARP funds had not been used for executive compensation, bonuses, or dividends to shareholders.

But cash is by definition fungible. Nothing fundamentally distinguishes TARP funds from other sources of bank capital. The infusion of TARP capital — $10 billion for Goldman Sachs, $45 billion for Citigroup — bolstered the overall bottom line of these institutions, and theoretically gave them more breathing room. Any dividend payouts or bonuses paid out drew down from a common pool of capital that had been supplemented by TARP.

Which is why, of course, the general public was outraged upon learning that Citigroup was planning to buy a new jet after sucking down so many billions of TARP funds. To say that TARP funds weren’t specifically used to buy that jet, but were somehow placed on the other side of a firewall where they were used only for lending activity or as reserves against losses is extraordinarily disingenuous.

Vikram Pandit made a reference to the quashed jet purchase — “We did not adjust quickly enough to this new world.”  That new world being the one in which if your company is being kept afloat with government money, maybe you should change your lifestyle.

Judging by their attempts to claim that TARP money did not subsidize their normal, some would say excessive, compensation levels, the executives of these companies still haven’t completed their adjustments.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

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