Former Treasury Secretary Paulson Reflects on TARP Bonuses Five Years after Crash

ABI Bankruptcy Brief | August 27, 2013

August 27, 2013

NEWS AND ANALYSIS

FORMER TREASURY SECRETARY PAULSON REFLECTS ON TARP, BONUSES FIVE YEARS AFTER CRASH

Five years after the financial crisis, Henry M. Paulson Jr., former Treasury secretary, assessing the success of a bailout program, said that the bonuses that the banks paid after the bailouts -- a record $140 billion in 2009 -- fueled public outrage over the program he worked so hard to persuade Congress to pass and the country to support, the New York Times DealBook blog reported yesterday. "My view has nothing to do with legality and everything to do with what was right, and everything to do with just a colossal lack of self-awareness as to how they were viewed by the American public," Paulson said. For Paulson, the bailout program, known as the Troubled Asset Relief Program (TARP), was his crowning achievement during a historic financial crisis in which the global economy nearly toppled. While TARP was terribly unpopular, most economists now credit it and the extraordinary measures taken by the Federal Reserve with helping to prevent another depression. Yet questions about the bailouts remain, including why Paulson and Congress did not seek tighter restrictions on pay. He maintains that it would have been impossible to persuade the majority of the banks to participate in the program if it had significant restrictions on pay, and that to him, the most important aspect of TARP's success in stabilizing the system was that the entire industry participated at the same time. When pressed about whether U.S. banks would have truly been in a position to reject the recapitalization plan had tighter restrictions been put in place, Paulson pointed to the speed at which the banks paid back the TARP funds. "Just look how fast so many of them tried to pay back the capital once it was stigmatized," he said. "How do you ever implement restrictions like that on pay and do it in a way" that included all the banks, and not just those that "desperately needed the capital or were getting ready to fail? I don't know." Read more.

ANALYSIS: DESPITE LOWER UNEMPLOYMENT RATE, OLDER WORKERS FACE TROUBLING TRENDS OF REDUCED PAY AND LONGER JOB SEARCHES

Though they have a lower unemployment rate than other age brackets, a substantial number of older workers who lost jobs -- even those lucky enough to be re-employed -- are facing difficult trends, the New York Times reported today. According to the Bureau of Labor Statistics, the unemployment rate for workers 55 to 64 (the category that best matches boomers, who range from 48 to 67) was 5.4 percent in July, compared with 7.4 percent for the general population. However, two-thirds of the Baby Boomer age group who found work again are making less than they did in their previous job. Most have found that their median salary loss is 18 percent compared with a 6.7 percent drop for 20- to 24-year-olds. The re-employment rate for 55- to 64-year-olds is 47 percent and 24 percent for those over 65, compared with 62 percent for 20- to 54-year-olds. And finding another job takes far longer: 46 weeks for boomers, compared with 20 weeks for 16- to 24-year-olds. Nor are those who believe age discrimination was a factor likely to have much luck in court. In 2009, just as the economy was hitting rock-bottom, the Supreme Court issued a ruling that toughened the standard for proving bias. Read more.

CREDIT CARD FIRMS COMPETING AGAIN WITH NO-INTEREST TRANSFERS

U.S. credit card companies, hungry for new customers as many Americans continue to shun debt, are pumping up a popular promotion that can be risky for both lenders and consumers, the Wall Street Journal reported today. The teasers, known as 0 percent balance transfers, have been used periodically since the late 1990s. The current offers, however, cover unusually lengthy periods and, in some cases, are being extended to a wider swath of potential customers than in the past, say industry executives and consultants. Those with spotty credit histories, however, still aren't eligible for the promotions. The offers are coming from the country's biggest credit-card issuers, including JPMorgan Chase & Co., Discover Financial Services Inc., and Citigroup Inc. Credit unions are also joining in: Navy Federal Credit Union is starting a promotion in September that offers all of its 4.5 million members, as well as new customers, an interest-free balance transfer for 12 months. Lenders are pushing the offers as they attempt to bulk up their loan portfolios, which shrank dramatically during the financial crisis while they were writing off bad loans and restricting credit. The strategy carries some risk for card issuers, which historically haven't done a good job of getting the customers who transfer balances to use the cards for new purchases. That leaves the bank with revenue only from the balance-transfer fee and stuck with the cost of maintaining an account. Some customers also pay off the full balance as the offer expires, or they jump to another lender that has a new offer. Read more. (Subscription required.)

LATEST ABI PODCAST: MAKING BANKRUPTCY WORK FOR A SMALL BUSINESS DEBTOR

The latest ABI Podcast features Fall 2013 ABI Resident Scholar Prof. Kara Bruce speaking with Prof. Anne Lawton of Michigan State University about her proposal to simplify the definition of a small business debtor in bankruptcy. Prof. Lawton's proposal was featured in an article in the Summer edition of the ABI Law Review. To listen to the podcast, please click here.

ABI'S LATEST E-BOOK, PROBLEMS IN THE CODE, NOW AVAILABLE FOR PURCHASE

Drawing on articles that originally appeared in the ABI Journal, as well as fresh new insights, Problems in the Code, the second in a digital series known as ABI Briefs, offers commentary from leading bankruptcy practitioners regarding areas of the Bankruptcy Code that, in their opinion, need reform. Edited by Howard Brod Brownstein, Problems in the Code includes sections on constitutional law, executory contracts, intellectual property, real estate and environmental issues, and confirmation and post-confirmation issues. A final chapter details the work of the ABI Commission to Study the Reform of Chapter 11. The new e-book is available for the low member price of $9.99!

RECORDING NOW AVAILABLE OF THE ABILIVE WEBINAR EXAMINING THE NEW U.S. TRUSTEE FEE GUIDELINES!

If you were not able to join last week's well-attended abiLIVE webinar examining the U.S. Trustee Fee Guidelines for chapter 11 cases filed on or after Nov. 1, a recording of the program is now available for downloading! A panel of experts, including Clifford J. White, the director of the U.S. Trustee Program, discussed some of the ways the new guidelines could change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. The 90-minute recording is available for the special ABI member price of $75 and can be purchased here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: TOYE V. O'DONNELL (IN RE O'DONNELL; 1ST CIR.)

Summarized by Michael Sugar of Lobel, Neue & Till LLP

The First Circuit upheld the bankruptcy court's determination that David O'Donnell's debt to Thomas Toye III was nondischargeable. The bankruptcy court had held that O'Donnell had failed to properly supervise a loan adviser's preparation of O'Donnell's personal financial statement that was submitted to Toye as part of O'Donnell's agreement to repay a loan made by Toye to an O'Donnell-controlled entity.

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: SEVENTH CIRCUIT SIDES WITH SIXTH CIRCUIT IN HOLDING THAT CONSENT DOES NOT CURE BANKRUPTCY COURTS' LACK OF FINAL CONSTITUTIONAL AUTHORITY

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how, in last week's case of Wellness International Network v. Sharif, the Seventh Circuit Court of Appeals weighed in on the circuit split regarding bankruptcy courts' authority to hear and determine "core" matters as to which they lack final constitutional authority.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

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