[Congressional Record (Bound Edition), Volume 155 (2009), Part 2]
[Senate]
[Pages 2103-2105]
[From the U.S. Government Publishing Office, www.gpo.gov]




                EXECUTIVE COMPENSATION AND THE BAILOUTS

  Mr. WHITEHOUSE. Thank you, Mr. President. I have a different topic 
today. This speech is about a stove, a jet, and $40 billion.
  The stove belonged to Margarita Fuentes, and a local deputy sheriff 
in

[[Page 2104]]

Florida repossessed it for the finance company. The case went all the 
way to the Supreme Court, and became the famous case of Fuentes v. 
Shevin, which every first year law student has to read.
  The court held that you couldn't take away Ms. Fuentes' stove, not 
without giving her a hearing; that she had a constitutional right to a 
hearing. The court stated:

       [T]he constitutional right to be heard is a basic aspect of 
     the duty of government to follow a fair process of decision-
     making when it acts to deprive a person of his possessions.

  Important rule: The finance company may well have been right about 
the stove, but the sheriff still cannot take property without due 
process.
  That is the stove. Now the jet.
  Citigroup has received billions and billions in Federal funds--$45 
billion in preferred stock purchases alone--to prevent Citigroup from 
failing. What did they do? Bought a $50 million French-made luxury 
private jet.
  It took the new Secretary of the Treasury to personally talk them out 
of it, with a helpful push from our colleague, Senator Levin. And 
that's not all. Here's how Maureen Dowd reports they spent the money on 
executive office furnishings at Merrill Lynch, just bought by 
Citigroup:

       . . . big-ticket items included curtains for $28,000, a 
     pair of chairs for $87,000, fabric for a ``Roman Shade'' for 
     $11,000, Regency chairs for $24,000, six wall sconces for 
     $2,700, a $13,000 chandelier in the private dining room and 
     six dining chairs for $37,000, a ``custom coffee table'' for 
     $16,000, an antique commode ``on legs'' for $35,000, and a 
     $1,400 ``parchment waste can.''

  A lot of executive compensation goes to the same executives who led 
their companies into this mess, while reaping vast sums.
  For example, Wells Fargo, which received $25 billion in bailout 
money, is planning layoffs but is keeping its CEO and chairman who were 
paid $12.5 million and nearly $23 million in 2007, respectively.
  JP Morgan received $25 billion in bailout money, but is keeping its 
CEO who was paid $28 million in 2007.
  Capital One bought and closed GreenPoint mortgage--1,900 layoffs, 
1,900 families where someone lost a job--received about $3.5 billion in 
bailout money, and is keeping its CEO who was paid more than $73 
million in 2007.
  And this week's New York Times reports that despite ``crippling 
losses, multimillion dollar bailouts and the passing of some of the 
most important names in the business,'' an estimated $18.4 billion in 
bonuses were paid out to Wall Street employees in 2008--the sixth 
highest total in history--in what was most certainly not the sixth best 
year in Wall Street's history.
  In other words, firms on the brink of extinction that were saved only 
by the U.S. taxpayer still saw fit to reward people who created the 
mess with over $18 billion for their performance this past year. 
President Obama rightly called this shameful.
  So that jet is symbolic of a Wall Street culture of unrestrained 
self-indulgence that now, because of the bailouts, begins to happen at 
public expense and shows no signs of abating.
  And now we come to the $40 billion.
  According to an analysis by the Wall Street Journal, the executive-
deferred compensation obligations of bailed out Wall Street firms 
amount to more than $40 billion. As shown on this chart: Banks Owe 
Billions To Executives. Financial giants getting injections of Federal 
cash owed their executives more than $40 billion for past years' pay 
and pensions as of the end of 2007, a Wall Street Journal analysis 
shows.
  By the way, this whole executive-deferred compensation scheme is 
nothing but a big tax dodge to begin with.
  Banks participating in the bailout program carried these obligations 
on their books, and the cash from our bailout is being used to pay 
them, or will be used to pay them. Mr. President, $40 billion in 
taxpayer dollars will end up in the pockets of the very executives who 
tanked those firms.
  How much is $40 billion? Here is how it breaks down State by State 
based on population.
  If you are the Governor of California, you can look forward to $4.780 
billion as your State's share of that $40 billion bailout.
  If you are, as the wonderful new Presiding Officer is, from Colorado, 
you can look forward to $636 million as your State's share of deferred 
executive compensation for Wall Street.
  If you are from Missouri, as is the distinguished Senator in the 
Chamber, you are looking at $768 million as Missouri taxpayers' share 
of the $40 billion bailout.
  Generally, when a company goes into bankruptcy, the executives who 
are owed the $40 billion in deferred compensation would have become 
general unsecured creditors and have to wait in line with other such 
general unsecured creditors.
  Experts report that in most cases this means losing all deferred 
compensation or recovering pennies on the dollar. Executives at Lehman 
Brothers, which was allowed to go into bankruptcy, will probably lose 
out on their deferred compensation.
  By contrast, nothing has been done to address the deferred 
compensation obligations of Citigroup, Goldman Sachs, Bank of America, 
JP Morgan, and other banks that have been given a lifeline.
  As shown on this chart, you will see the estimated debt to executives 
at Goldman Sachs is actually bigger than the capital injection. It is 
an astonishing sum of money.
  I should throw in my own home State of Rhode Island. We are a small 
State. Here is our share of it: $140 million. That is our entire budget 
for our two 4-year State colleges for a year--the entire State budget 
for them; $140 million out of Rhode Island to pay for $40 billion in 
tax-dodged, deferred executive compensation.
  As people who are on the floor will recall, that is more than the 
entire program we spent so many hours fighting about for the U.S. auto 
industry. Remember that. That was sort of $18 billion to $35 billion. 
This is $40 billion, and nobody is even talking about it. And we fought 
for days about whether to support our own domestic auto industry.
  Well, I think the jet shows that the Wall Street culture of lavish 
self-indulgence is not likely to change. But something very important 
has changed, and that is the taxpayers are now starting to pay for it, 
and they are not going to stand for it for long.
  If something is going to change, we in Congress have to change it; we 
need to do it now, and we need to do it in a way that sticks. That's 
where Ms. Fuentes' stove comes in.

       The constitutional right to be heard is a basic aspect of 
     the duty of government to follow a fair process of decision-
     making when it acts to deprive a person of his possessions.

  That is the case of Ms. Fuentes' stove.
  If it takes due process before poor Ms. Fuentes can have her stove 
taken away, then it takes due process before certain adjustments can be 
made to the obscene and grotesque executive compensation paid for by 
bailouts.
  It takes some due process before anything can be done about this $40 
billion in executive-deferred compensation.
  Without a due process forum, we have unilaterally disarmed the powers 
of Government that can make those adjustments. That is a choice we make 
to unilaterally disarm the powers of Government that could do something 
about the $40 billion.
  I submit if we don't make some reasonable adjustments, that failure 
will so damage public credibility and faith in the entire exercise; in 
addition to being profoundly unfair, in fact, that it will eliminate or 
diminish our ability to manage the crisis. People will not want to hear 
any longer from us.
  The ordinary due process forum for troubled companies, bankruptcy 
court, is not the best forum for this, for the very reasons that 
corporations need rescue: they serve a public utility for us in the 
economy. But the fact that they provide that vital public utility 
function is no reason to say these other things cannot also be 
adjusted. That does not mean they should not have to change their ways.
  As I said, the only way to change their ways, it appears, is to make 
them change. So, I will shortly be filing legislation to create a 
Temporary Economic Recovery Oversight Court, a

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forum that could provide due process, short of a full bankruptcy 
filing, and empower Government to take reasonable steps to restrain the 
lavish self-indulgences to which these masters of the universe have 
become accustomed. I am also exploring other ways of addressing this 
critical issue.
  But I encourage colleagues of mine who are interested in this issue 
to talk to me about how we can make this right. There are technical 
issues. If anybody is interested, please contact me. I think this is a 
bipartisan issue. I do not think a Republican is any happier about $40 
billion in deferred executive compensation coming out of the public 
fisc than a Democrat, and if we do not take action, the swelling river 
of the righteous and proper anger of the American people will rise up, 
and overswell its banks. I have lived through difficult economic 
situations in Rhode Island, where public anger overswelled its banks. 
It is not a good place to be.
  The people's confidence in their Government's ability to treat them 
fairly will be justifiably compromised, and we will have lost their 
confidence, the old-fashioned way: We will have earned it.
  The poet William Blake spoke of times when we should not let our 
sword sleep in our hand. American Government gives us a vital sword, 
one that can trim away the lavish excesses of the lotus years, and 
treat all Americans fairly, not create a favored taxpayer-supported 
Wall Street class that is treated differently than workers in Michigan 
and elsewhere. I submit we must not let that sword sleep in our hands.
  I thank the Presiding Officer and yield the floor.
  The PRESIDING OFFICER. The Senator from Missouri.
  (The remarks of Mrs. McCaskill pertaining to the introduction of S. 
360 are printed in today's Record under ``Statements on Introduced 
Bills and Joint Resolutions.'')
  Mrs. McCASKILL. Mr. President, I yield the floor and I suggest the 
absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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