Quite a set

At a reception shortly after he became chief executive officer of American International Group Inc., Robert Benmosche told a group of AIG executives that a part of his anatomy was bigger than the government's. His five-month tenure at the insurer is putting his swagger to the test.

That's the Benmosche I remember meeting at Metlife when he first joined: arrogant, as in having or showing feelings of unwarranted importance out of overbearing pride.

Overbearing fits, too.

Mr. Benmosche, more than any other leader of a bailed-out American company, has styled himself as a bulwark against government intrusion into the corner office. Although he sees his main mission as repaying roughly $87 billion in taxpayer money pumped into AIG, he doesn't want the government to tell him how to do his job.

He didn't want anyone telling him anything.

"Look, if you want me to come in here and just blow up the company, which is what you're doing, I'm not taking the job," Mr. Benmosche recalls telling government officials in New York and Washington when he was being screened.

Mr. Benmosche told government officials that he thought plans to quickly sell off assets to repay U.S. money were misguided. If you sell from weakness, you won't get good prices, he told them.

Good point. Selling from weakness is not good.

On his first day on the job, Mr. Benmosche met with senior managers at AIG's lower Manhattan headquarters. He exhorted them to come together to solve the company's problems, and said he didn't want to hear "whining and a lot of crying" about AIG's woes.

Also a good point.

He used the F-word liberally, prompting some executives to quietly tally up the number of times he used it, according to a person familiar with the situation. "I was aggressive in my language, but I was trying to set a tone that life will be different and some things are not negotiable," Mr. Benmosche says.

Who is this person who is always familiar with the situation? At any rate, he obviously used it for effect. And it isn't as if the executives had not heard, or used, it before.

In the ensuing weeks, Mr. Benmosche traveled around the nation meeting hundreds of AIG employees. In August, at a reception prior to a dinner with 20 or so executives at an AIG life-insurance unit in Houston, Mr. Benmosche said "my b -- are bigger than the government's," apparently to make the point that he wasn't easily intimidated, say two people familiar with the matter.

Sounds like him.

Mr. Benmosche says he doesn't recall saying such a thing. "If I said it, I would apologize, as it was not appropriate," he says, adding that sometimes "you have to be a little bit provocative if you're going to get people to believe in you and know you're not afraid."

There are different ways to express resolve and be provocative, and not all involve comparing the size of one's balls to the government's, or anyone else's. That sort of crude measure is a macho gesture that says more than the measurer realizes.

No one who is around Benmosche for a short while would presume him to be afraid of much anything, without his genitals being served up for assessment.

In late August, Mr. Benmosche made a previously scheduled trip to his vacation home and vineyard in Croatia. He showed off the sprawling property to several journalists, complaining at the same time about the demonization of AIG employees on Capitol Hill.

Around that time the name of AIG kept popping up as the financial crisis threatened to spiral out of control.

Around that time, some of the comments he made at employee meetings trickled out. Bloomberg News reported that he had said regulators were to blame for AIG's problems and that New York Attorney General Andrew Cuomo, who had demanded the names of AIG employees who received retention bonuses, should not be in office.

Blame the regulators; an old shill game. But Benmosche's political analysis was a brand new one.

James Millstein, the Treasury's point person on the AIG bailout, worried that the comments would undermine the company by reigniting populist anger. He called Mr. Benmosche in Croatia. "Bob, what are you doing?" Mr. Millstein asked.

"I got a bit into it and said a bunch of stupid things," Mr. Benmosche replied, saying he didn't realize the comments would become public. AIG issued a statement saying Mr. Benmosche regretted his remarks about Mr. Cuomo, who didn't end up releasing the names.

Ah, yes, the old Washington excuse, which Alex Rodriguez used so effectively: I was young, I was stupid, and I apologize. C'mon. An executive who got to Benmosche levels is not naive enough to believe pointed comments of one kind or another would not be leaked.

Dana Milbank wrote a book about the proliferation of apologies, Homo Politicus: the strange and barbaric tribes of the Beltway that simply fits perfectly. I took note of reading it, and of how it fit, beginning i March of 2008, and then through the political campaign.

Eyes didn't have it

Lewis and Mack are easily identifiable, as is Geithner; Fuld not so, not in this picture. Perhaps it is Fuld's mouth that makes him easily recognizable, though the eyes fit in his infamous scowl. His arrogance and chutzpah come through readily in this article.

In the summer of 2008, two months before Lehman Brothers filed for bankruptcy, Richard S. Fuld Jr., the firm's chairman, was continuing his desperate efforts to find a lifeline. They had begun in March, shortly after the demise of Bear Stearns, when Mr. Fuld called the legendary investor Warren E. Buffett seeking a capital infusion, to no avail. Lehman had raised money elsewhere, but that didn't help for long, and its condition again was worsening.

This article is adapted from "Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System — And Themselves." The book, being published Tuesday by Viking, reveals how officials in Washington, worried about the impact of Lehman's possible failure on the financial system, for months helped orchestrate efforts by Mr. Fuld to seek a solution for the firm and stave off its collapse. The conversations recounted are based on hundreds of hours of interviews with dozens of participants, many of whom agreed to speak on the condition that they not be identified as sources.

I've selected a few paragraphs that display Fuld's chutzpah and ego. In the summer of 2008 Lehman Brothers was teetering, buffeted by the market and the general ensuing panic. Fuld started to consider makin gthe firm a bank holding company, so to get Fed funding. Baxter is Tom Baxter, Geithner's general counsel.

Mr. Baxter, who had cut short a trip to Martha’s Vineyard to participate, walked through some of the requirements, which would transform Lehman’s aggressive culture, minimizing risk and making it a more staid institution, in league with traditional banks.

Regardless of the technical issues, Mr. Geithner said, “I’m a little worried you could be seen as acting in desperation,” and the signal that Lehman would send to the markets with such a move.

A talk with Mack of Morgan Stanley did not result in any action. The logical choice seemed to be Bank of America. Fuld's lawyer, Rudgin Cohen (chairman of Sullivan & Cromwell), called Greg Curl, BofA's top deal maker.

Mr. Curl, though intrigued to be getting a call on a Saturday night, was noncommittal; he could tell they must be desperate. “Hmm ... let me talk to the boss,” he said. “I’ll call you right back.” (The boss was Ken Lewis, the silver-haired chief executive of Bank of America.)

A half-hour later, Mr. Curl called back to say he’d hear them out, and Mr. Cohen set up a three-way call with Mr. Fuld.

“We can be your investment banking arm,” Mr. Fuld explained, the idea being for Bank of America to take a minority position in Lehman and for the two to merge their investment banking groups. He invited Mr. Curl to meet in person.

So he's asking for his firm to be rescued, and offers BofA a minority position.

Mr. Fuld walked him though his proposal. He wanted to sell a stake of up to one-third of Lehman to Bank of America and merge their investment banking operations under the Lehman umbrella.

33% of Lehman for BofA to rescue Lehman.

Mr. Curl was dumbfounded, though he characteristically gave no sign of what he was thinking. Far from the plea for help he had been expecting, the pitch he was hearing struck him as a reverse takeover: Bank of America would be paying Mr. Fuld to run its investment banking franchise for it.

A perfect example of Fuld's temerity. Curl demurred, saying he'd need to consult with his boss, Lewis.

Even before meeting with Mr. Curl, Mr. Fuld had been ringing Mr. Paulson about Bank of America, trying to get Mr. Paulson to make a call on behalf of Lehman. “I think it’s a hard sell, but I think the only way you’re going to do it is go to him directly,” Mr. Paulson had told him. “I’m not going to call Ken Lewis and tell him to buy Lehman Brothers.”

This is interesting in itself, in the context of BofA eventually buying Merrill Lynch.

Later, in New York, a secret meeting between Fuld and Lewis was arranged.

Mr. Fuld explained that he would want at least $25 a share from Bank of America to buy Lehman; Lehman’s shares had closed that day at $18.32. Mr. Lewis thought the number was far too high and couldn’t see the strategic rationale. Unless he could buy the firm for next to nothing, the deal wasn’t worth it. But he held his tongue.

His firm is about to implode, and Fuld asks for a premium over the merket price. Lewis turned him down.

Mr. Fuld was beside himself. He called Mr. Paulson to relay the bad news. The only possible suitor left was a group of Korean banks, who had expressed an interest in a separate deal. Mr. Fuld pressed Mr. Paulson to call them on his behalf — a request that Mr. Paulson resisted.

Then Fuld asks the Treasury Secretary to arrange a blind date. The Koreans turned him down, and Lehman is gone, bankrupt.

Chutzpah? Defined.
A Wall Street Journal story details

The company has lost $27 billion in the last 15 months, has received $45 billion in cash from the Federal government, which is also guaranteeing $305 billion of the bad debt the company itself bought in its greed to make outsized profits, while neglecting to properly assess the risks involved in that strategy, and it is chafing under governmental oversight? The executives should be glad they still have jobs. And aren't in court as defendants for corporate malfeasance.

One person close to the company compared the government's role to the sword of Damocles, an ever-present evil hanging over their heads.

• FEBRUARY 25, 2009

Citigroup Chafes Under U.S. Overseers

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By MONICA LANGLEY and DAVID ENRICH

In a recent phone call with a senior government official, Citigroup Inc. Chief Executive Vikram Pandit revealed who's on top in the new world of American finance.

"Don't give up on us," Mr. Pandit said, pleading with the official not to push out top management. "Give us a chance to execute."

Mr. Pandit is on the verge of ceding yet more control to the government. Citigroup is in talks with federal officials about the U.S. taking greater ownership of the bank by converting its 7.8% stake of preferred shares to as much as 40% of Citigroup's common stock. Doing so would give the wobbling bank a desperately needed boost to its capital, but less control of its destiny.

Citigroup's request could also heighten political pressure to break up the financial titan, whose 1998 creation helped to dismantle the Depression-era law separating the banking and brokerage industries. For taxpayers, Citigroup's quest carries peril, because holders of common shares have the last claim to repayment in the event of a corporate liquidation.

Interviews with more than 30 banking-industry executives, regulators, government officials and others show that the U.S.-Citigroup relationship, one of the most important products of the American financial-system bailout, is off to a very rocky start.

Citigroup executives are attempting to strike a seemingly impossible balance: Run the business in a way that will please their new federal masters, but also help the bank rebound from $28 billion in losses over the past five quarters.

Former federal officials have dubbed Citigroup the "Death Star," comparing the bank's threat to the financial system with the planet-destroying super weapon in the "Star Wars" movies. Privately, in the words of one official, they regard the banking giant as "unmanageable."

Complicating the issue is the government's back-and-forth between bouts of micromanaging the banking giant and periods of ignoring it. In trying to be neither an active nor a passive investor, the U.S. is directing the business without a firm strategy or particular expertise.

Government Micromanagement of Citigroup

4:06

WSJ's David Enrich discusses the latest on Citigroup, which is in talks with federal officials about the U.S. taking greater ownership of the bank. Plus, he tells colleague Dennis Berman how Citigroup is chafing under government leadership, and sometimes, its lack of leadership.

Government and the Citi

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Vikram Pandit, CEO of Citigroup, testifies on the TARP funds before the House Financial Services Committee at the US Capitol in Washington, DC.

Central to the confusion: There's no one individual or entity in charge of the federal oversight of Citigroup.

That's because banks like Citigroup are regulated by a patchwork of agencies including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The Treasury Department also has oversight because it's the one that is injecting government capital into the banks. And members of Congress, who initially approved all that money, have their own stake in how things play out. All these interested parties have been handing Citigroup a jumble of sometimes conflicting orders, advice and critiques.

Officials with the Fed, for instance, informed Citigroup executives they have "observer rights" that entitle them to participate in the bank's board meetings. Though the government hasn't joined in so far, the fact that it might has led some Citigroup executives to complain privately that the U.S. now has "unlimited power" over the bank. One person close to the company compared the government's role to the sword of Damocles, an ever-present evil hanging over their heads.

A Citigroup spokeswoman said: "It has always been the case that when regulators ask to make a presentation to our board, we accommodate them."

On Tuesday, Mr. Pandit was in Washington for meetings with federal regulators and other officials, as questions loomed about his future and that of the company's board. Citigroup bankers sought to calm nervous clients this week. Some are worried about losing business during the uncertainty.

The federal government's new role in American finance has been staggering. In the past six months, the U.S. has injected nearly $200 billion into 419 banking institutions; guaranteed at least $420 billion in potential losses at multiple banks; directed several financial firms to merge; and has outlined plans to buy hundreds of billions of dollars in bad mortgages and other bad assets from banks. The U.S. also has agreed to prop up the commercial-paper market by buying more than $1 trillion of companies' short-term debt.

Overhaul of Bailout

Besides the Citigroup move, the government's latest to-do list includes an overhaul of its $150 billion bailout of American International Group Inc. Starting this week, banking regulators will conduct "stress tests" to gauge the health of the nation's top 20 banks. And in the coming weeks, the government plans to orchestrate a restructuring of the nation's auto industry, after loaning a total of $17.4 billion to General Motors Corp. and Chrysler LLC, both of which are now seeking billions more.

Citigroup's bid for yet more help is sure to complicate a partnership already strained by miscommunications and missteps. Since the government shored up the embattled bank with fresh capital over the past few months, it has issued some broad directives: ordering Citigroup to sell assets to raise money and curtail risky investments, urging a reshuffle of its board, and warning that if it needs more taxpayer money, management may be booted.

But even as the government has ensured Citigroup's survival for now, bank executives say they have been left to read tea leaves about how to implement federal directives.

U.S. officials say Citigroup's problems are wide-ranging, presenting issues for various governmental agencies -- all of which are also engaged in handling problems involving other banks and the economy. Some officials say they have given Citigroup executives broad outlines of what they'd like the company to do. They say thus far it's not been the government's position to give Citigroup a specific playbook about how to put directives in place. The current talks for federal assistance, however, could result in more direct orders on how Citigroup should proceed.

Regarding the government's relationship with Citigroup, a company spokeswoman said in a statement: "We maintain constant and open communication with all of our regulators."

In recent weeks, Citigroup executives have reached out to various government officials for guidance -- with little to show for their effort. Last week, Mr. Pandit met with Lawrence Summers, the government's chief economic adviser, in the White House's West Wing. Mr. Summers made clear that he wouldn't discuss Citigroup specifically, and Mr. Pandit emerged from the meeting with no better idea of where the Obama administration stands in managing ties with the big bank.

Amid the anxiety, Edward Kelly, a senior investment banker and one of Mr. Pandit's closest confidants, used his personal misfortune to ease tension within Citigroup. After a trying visit to Washington to brief regulators, Mr. Kelly returned to his Baltimore home tired -- and soon woke up to a screeching smoke alarm. Finding flames in his home office and working to halt the fire from spreading, Mr. Kelly burned his right hand and arm so badly that doctors kept him home for several days to prevent infection.

In a flurry of phone calls while he was home recuperating, Mr. Kelly joked to colleagues that he was putting out fires at both his home and his company.

Spotty Communications

Communications from government officials, meanwhile, have been spotty. Friday afternoon, after the bank's shares had closed the week at an 18-year low of $1.95, top executives reached out to the Office of the Comptroller of the Currency and the New York Fed. They wanted to discuss Citigroup's proposal to substantially enlarge the government's ownership stake. The conversations were constructive, but they couldn't progress much until they heard from Treasury, the government arm that had invested in Citigroup's preferred stock and therefore would need to bless converting that stake into common shares.

Through the weekend, Citigroup didn't hear from Treasury officials. Then on Sunday evening, Mr. Pandit's phone rang. It was Treasury Secretary Timothy Geithner, calling with a message: "I think we just need to do something." Mr. Geithner was short on specifics, but said he was ready to entertain Citigroup's idea of converting a big chunk of the government's preferred stock into common shares.

The government's ongoing pressure to slim down the company has forced Citigroup executives to consider a range of unwanted options. They agreed in January to spin off the Smith Barney brokerage unit into a joint venture with Morgan Stanley after insisting for years that they wouldn't part with the business. The bank has also split itself into two parts, with the goal of selling additional assets and businesses.

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Citigroup investment banker Edward Kelly

Executives are now wrestling with the possibility of shedding the company's lucrative Banamex consumer-banking unit in Mexico, even as Citigroup officially insists that is unlikely to happen. Following his meeting with Mr. Summers last week, Mr. Pandit flew to Mexico City, trying to calm Banamex employees who were convinced that the U.S. government would force Citigroup to sell the business.

Citigroup's every move is now under the public microscope. In late January, as news was about to break about Citigroup's plans to buy a $42 million corporate jet, Mr. Pandit huddled with Citigroup executives in the firm's Manhattan headquarters. Mr. Pandit suggested the company simply cancel the order to minimize the bad publicity.

Lewis Kaden, a Citigroup vice chairman, resisted, arguing that the company needed to carefully word any public statement about the jet in order to avoid a fee from the plane's manufacturer. An internal debate ensued over how best to handle the matter, and the lack of a resolution transformed it into a politically potent multiday news story.

Federal officials were apoplectic. President Barack Obama branded Citigroup's plans to buy the plane "outrageous." Treasury officials phoned Citigroup executives and pressured them to scrap the order, which they did.

The tongue-lashing didn't stop there. Mr. Pandit received an earful from Rep. Nydia Velazquez (D., N.Y.). At a meeting in her Manhattan office, Rep. Velazquez scolded Mr. Pandit for not canceling the jet order sooner and suggested that he fire the Citigroup public-relations team for "bungling" the situation. Rep. Velazquez couldn't be reached for comment.

Sen. Charles Schumer (D., N.Y.) also met with Mr. Pandit after the plane debacle. "The dynamics are changing," he told Mr. Pandit. "Brace yourself for more accountability and stricter oversight. No more big executive pay, no more frills."

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Treasury Secretary Timothy Geithner

The scrutiny has Citigroup executives second-guessing everything, right down to the fresh-baked cookies offered at a recent corporate retreat in Armonk, N.Y. Seated in plush chairs around a three-story stone fireplace, some attendees wondered aloud if the cookies themselves might be portrayed as a frivolous use of taxpayer money.

In the wake of the airplane flap, federal regulators have begun demanding more detailed information from Citigroup about corporate expenses and individual departments' operating budgets. The government is specifically requesting information about expenses for any lavish parties or other corporate events.

The detailed nature of such requests startled some Citigroup executives, who weren't expecting to fork over such granular information. The company has responded by preemptively canceling several events, including a private-investor conference in Miami slated for April, where hotel rooms for hundreds of people were already reserved. A few groups of Citigroup bankers had planned to take top clients on ski trips in the Rocky Mountains; those plans were shelved. At the Inter-American Development Bank's annual conference, scheduled for March in Colombia, Citigroup won't be hosting its normal after-hours parties.

Citigroup officials are learning the hard way to play politics. Anticipating the political storm he would incite by flying to the nation's capital by private plane, Mr. Pandit now hops on commercial shuttle flights for the frequent trips to Washington. Other executives travel by Amtrak train.

Amid pressure to shake up its board, Citigroup initially suggested it would begin making director changes at the April shareholder meeting. The Fed rejected that, pushing lead director Richard Parsons to act sooner. The Fed has also frowned upon some potential nominees that Citigroup has informally pitched to the agency, saying Washington would prefer "tough-minded independent thinkers."

Though the company has lined up director candidates that it wants the Fed to approve, the candidates haven't agreed to the posts, waiting to see what happens to Citigroup's management, operations and future.

Citigroup's guessing game also extended to congressional hearings held earlier this month. Legislators pounded Mr. Pandit and other bank executives for putting their institutions in jeopardy. As Mr. Pandit prepared for the hearings, some Citigroup executives urged him to make two concessions: apologizing for the corporate-jet fiasco and agreeing not to get paid until Citigroup returns to profitability. Others argued that such conciliatory gestures would validate unfair criticisms of the company. Mr. Pandit ultimately made both concessions at the hearing.

Thawing Markets

Meantime, Citigroup has to stop the financial bleeding. Mr. Pandit last month told senior executives that the first quarter is essentially do-or-die: Citigroup needs to turn a profit to persuade the government and investors that it's viable.

Last week, Citigroup officials privately told regulators it had a profitable January. Credit and stock markets thawed that month, benefiting banks across the industry. "We've got to prove that our core business can make money," Mr. Pandit recently told top aides.

With the economy in a tailspin, some executives privately voiced skepticism that Mr. Pandit's goal of a profitable first quarter would be attainable. The Fed recently barred Citigroup from making acquisitions and reinforced restrictions on the bank's use of capital.

In a recent meeting with investment bankers, Citigroup's investment-banking chief, John Havens, was pushing his deputies to further streamline operations in order to reduce costs. One executive asked whether the changes needed to be made quickly. The question "is typical Citi," Mr. Havens replied, suggesting that decisions at the company take too long, according to a person at the meeting. "That's why Geithner is so intolerant with us these days," Mr. Havens told the bankers.

Now, gallows humor is setting in. This week, some employees noted that they always thought that working for Citigroup -- with its unwieldy bureaucracy and clashing fiefdoms -- was like working for the government anyway.

Murderer's Row?

The chief executives of banks that have received federal-government aid testified Wednesday before the House Financial Services Committee, including, from left: Lloyd Blankfein of Goldman Sachs, James Dimon of J.P. Morgan Chase, Robert Kelly of Bank of New York Mellon, Kenneth Lewis of Bank of America, Ronald Logue of State Street, John Mack of Morgan Stanley, Vikram Pandit of Citigroup and John Stumpf of Wells Fargo.








These guys got grilled, and deservedly so. And about time that bankers heard the wrath of the people.

Chief executives at eight banks and securities firms that have gotten $165 billion in federal aid were barraged by U.S. lawmakers, who showed little patience for a charm offensive aimed at defusing ire over pay and lending. During Wednesday's seven-hour hearing before the House Financial Services Committee, Rep. Maxine Waters (D., Calif.) referred to the CEOs, sitting in alphabetical order at a long table, as "captains of the universe."When Bank of America Corp. Chairman and CEO Kenneth Lewis responded, "corporals of the universe," Rep. Waters looked at him blankly. "Did you raise your credit-card rates?" she demanded.

I am not often impressed with Representative Waters, but she was spot on this time.

It was a typical moment in a hearing that underscored how big-bank CEOs have become lightning rods for the anger and misery fueled by falling home prices, rising unemployment and the deepening recession. From Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein to John Stumpf of Wells Fargo & Co., the eight executives endured relentless questions that included being forced to recite their salary, bonus and stock compensation in a hearing meant to assess the Troubled Asset Relief Program.

Bad, bad boys.

In 2006 and 2007, the eight executives got total compensation of $401 million, according to securities filings. The combined stock-market value of their companies has plunged 69% since the Dow Jones Industrial Average peaked in October 2007.

Wealthy bad boys.

Anticipating tough questions about pay and perks, James Dimon, chairman and chief executive of J.P. Morgan Chase & Co., took the Acela, Amtrak's high-speed train, and stayed overnight at Washington's Park Hyatt hotel. He bumped into Bank of New York Mellon Corp. CEO Robert Kelly at breakfast. Mr. Blankfein and John Mack, Morgan Stanley's chief executive, flew commercial flights, but Mr. Blankfein stayed at a Ritz-Carlton hotel. Mr. Pandit spent hours cramming for the hearing.

Well, at least they realized that taking a corporate jet would have been a bad move. A room in the Hyatt goes for $439 - $499 (an Ambassador suite goes for about $3,800). The Ritz Carlton advertises itself as a luxury hotel. Its rates start at $549. Guess Lloyd still doesn't think he's gotta slum it.

"You come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us: 'We're sorry. We won't do it again,' "said Rep. Michael Capuano (D., Mass.). "America doesn't trust you anymore."

Good line. Trust? You kiddin'?

Execs grabbed big bucks just before bailout

Guess who? What a bunch of idiots.

In all, Merrill doled out $3.6 billion in bonuses just days before Bank of America finalized its deal to buy the collapsing firm - with the help of $45 billion in taxpayer money.

Greed doesn't cover it. Arrogance.

Cuomo's investigators have been particularly interested in Merrill's rush to pay the perks in December, a month before the usual January bonus timetable.

This is more than arrogant; it borders on the illegal.

One beneficiary was Peter Kraus, a Thain hire who started at Merrill in mid-September and quit Dec. 18, the day Bank of America took over.

He was at the firm for 3 months?

He walked away with a $24.9 million bonus for those three months of work, which figures to about $249,000 a day. The day he quit, his wife closed on a $36 million luxury Park Ave. co-op, records show.

Yup, three months; it was in his contract.
Cuomo reveals 4 top Merrill Lynch execs grabbed big bucks just before government-financed takeover

by Greg B. Smith - Daily News - Wednesday, February 11th 2009, 4:00 AM

Four of the top executives at Merrill Lynch pocketed $121 million in bonuses just before taxpayers helped finance a takeover of the failing firm, the Daily News has learned.

The flush foursome each pocketed payments ranging from $18 million to $39 million, investigators from the state attorney general's office found.

Attorney General Andrew Cuomo for the past month has been examining the highly suspicious timing of the last-minute Merrill handouts.

In all, Merrill doled out $3.6 billion in bonuses just days before Bank of America finalized its deal to buy the collapsing firm - with the help of $45 billion in taxpayer money.

Cuomo presented his initial findings Tuesday to Rep. Barney Frank (D-Mass.), whose House Financial Services Committee holds hearings Wednesday in Washington on how banks are spending bailout funds.

"One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding," Cuomo wrote to Frank.

Cuomo's investigators have been particularly interested in Merrill's rush to pay the perks in December, a month before the usual January bonus timetable.

Cuomo called the decision to accelerate the bonuses "a surprising fit of corporate irresponsibility" that "richly rewarded their failed executives."

Cuomo has subpoenaed former Merrill Chief Executive Officer John Thain and Bank of America's chief administrative officer, Steele Alphin, about the bonuses.

When Cuomo first asked Merrill about its bonus plans back in October, Merrill claimed it hadn't finalized the total size of its bonus pool.

Soon after, it was revealed that Thain was angling for a $40 million bonus. When that embarrassing fact went public, Thain backed off.

Four of his top deputies faced no such change of fortune, however, pocketing a total of $121 million as Merrill evaporated.

One beneficiary was Peter Kraus, a Thain hire who started at Merrill in mid-September and quit Dec. 18, the day Bank of America took over.

He walked away with a $24.9 million bonus for those three months of work, which figures to about $249,000 a day. The day he quit, his wife closed on a $36 million luxury Park Ave. co-op, records show.

Kraus declined to answer questions, although a source familiar with the matter said the amount was guaranteed in his Merrill contract.

Cuomo's investigators want to know why Merrill thought such a guarantee was appropriate given the firm's collapse - and why Merrill didn't try to void it.

The bonuses were handed out just before Merrill announced a record $15 billion loss for the fourth quarter,which brought the year's total losses to nearly $27 billion.

How the firm will try to justify handing out bonuses with such a lousy record remains to be seen.

Bank of America spokesman Scott Silvestri said Merrill Lynch was an independent company when Merrill's compensation committee approved the bonuses.

Silvestri added that many of the Merrill bonuses were contractually guaranteed.

Bank of America's top eight executives took no incentive compensation for 2008. The next tier saw their bonuses cut 80%.

Executive bonuses have become a flash point for resentment as the economy continues to stumble and taxpayers find themselves footing the bill for Wall Street's failures.

Two weeks ago, President Obama called the $18 billion in bonuses Wall Street had just awarded itself "shameful."

Dowd scores again

President Obama had interviews with five TV anchors.

He told the anchors that the man who helped make him president, Tom Daschle, had made “a serious mistake” by not paying taxes on a car and driver. (It should have been a harbinger of doom when Daschle began sporting those determined-to-be-hip round red glasses.)

Funky glasses.

Mr. Obama’s errors on the helter-skelter stimulus package were also self-induced. He should put down those Lincoln books and order “Dave” from Netflix. When Kevin Kline becomes an accidental president, he summons his personal accountant, Murray Blum, to the White House to cut millions in silly programs out of the federal budget so he can give money to the homeless.

“Who does these books?” Blum says with disgust, red-penciling an ad campaign to boost consumers’ confidence in cars they’d already bought. “If I ran my office this way, I’d be out of business.”

Mr. Obama should have taken a red pencil to the $819 billion stimulus bill and slashed all the provisions that looked like caricatures of Democratic drunken-sailor spending.

In an economic stimulus package bunches of nonsense werre tacked on, making easy targets for the Republicans.

As Senator Kit Bond, a Republican, put it, there were so many good targets that he felt “like a mosquito in a nudist colony.”

Case in point.

He was especially worried about the provision requiring the steel and iron for infrastructure construction to be American-made, and by the time the chastened president talked to Chris Wallace on Fox Tuesday, he agreed that “we can’t send a protectionist message.”

Favors returned, obviously.

Mr. Obama protested to Brian Williams that the programs denounced as “wasteful” by Republicans “amount to less than 1 percent of the entire package.” All the more reason to cut them and create a lean, clean bill tailored to creating jobs.

Precisely.

The Democratic president has been spending so much time trying — and failing — to win over Republicans that he may not have noticed the disillusionment in his own ranks.

A little disillusioning, but we must remember the long haul.

Betrayed by their bankers and leaders, Americans were desperate to trust someone when they made Barack Obama president. His debut has left them skeptical about his willingness to smack down those who would flout his high standards or waste our money. Companies that have gotten bailouts continue to make a mockery of taxpayers.

Until it came to light Tuesday, Wells Fargo, which received $25 billion in federal funds, was blithely planning a series of “employee recognition outings” to Las Vegas luxury hotels this month.

As ABC reported, Bank of America took its $45 billion in bailout funds and sponsored a five-day carnival outside the Super Bowl stadium, and Morgan Stanley took its $10 billion in bailout money and held a three-day conference at the Breakers in Palm Beach. (Morgan Stanley had also still planned to send top employees to Monte Carlo and the Bahamas, events just canceled.)

The New York Post revealed that Sandy Weill, former chief executive of Citigroup, took a company jet to fly his family for a Christmas holiday to a $12,000-a-night luxury resort in San José del Cabo, Mexico. No matter that the company just got a $50 billion federal bailout and laid off 53,000 worldwide.

The interior of the 18-seat jet, as described by The Post, is posh, with a full bar, fine-wine selection, $13,000 carpets, Baccarat crystal glasses, Cristofle sterling silver flatware and — my personal favorite — pillows made from Hermès scarves.

Aux barricades!

Citiboobs

Nix the jet, boobs. Maureen Dowd's column today is a winner: Wall Street’s Socialist Jet-Setters.

As President Obama spreads his New Testament balm over the capital, I’m longing for a bit of Old Testament wrath.

Couldn’t he throw down his BlackBerry tablet and smash it in anger over the feckless financiers, the gods of gold and their idols — in this case not a gilt calf but an $87,000 area rug, a cache of diamond Tiffany and Cartier watches and a French-made luxury corporate jet?

Now that we’re nationalizing, couldn’t we fire any obtuse bankers and auto executives who cling to perks and bonuses even as the economy is following John Thain down his antique commode?

How could Citigroup be so dumb as to go ahead with plans to get a new $50 million corporate jet, the exclusive Dassault Falcon 7X seating 12, after losing $28.5 billion in the past 15 months and receiving $345 billion in government investments and guarantees?

The chutpaz, the temerity, the arrogance of it amazed me.

The “Citiboobs” — as The New York Post, which broke the news, calls them — watched as the car chieftains got in trouble for flying their private jets to Washington to ask for bailouts, and the A.I.G. moguls got dragged before Congress for spending their bailout on California spa treatments. But the boobs still didn’t get the message.

So Senator Carl Levin called Secretary Geitner to call Citi and tell them to nix the jet.

“They woke up pretty quickly,” says a Treasury official, adding that they protested for a bit. “Six months ago, they would have kept the plane and flown it to Washington.”

They still had the nerve to protest; amazing.

Senator Levin said that the financiers will not be able to change their warped mentality, but will have to be reined in by Geithner’s new leashes. “I have no confidence that they intend or desire to change,” Levin told me. “These bankers got away with murder, and it’s obscene that close to nothing is being asked of financial institutions. I get incensed at the thought that a bank that’s getting billions of dollars in taxpayer money is out there buying fancy new airplanes.”

We are being bamboozled, plain and simple.

New York’s attorney general, Andrew Cuomo, always gratifying on the issue of clawing back money from the greedy creeps on Wall Street, on Tuesday subpoenaed Thain, the former Merrill Lynch chief executive, over $4 billion in bonuses he handed out as the failing firm was bought by Bank of America.

In an interview with Maria Bartiromo on CNBC, Thain used the specious, contemptible reasoning that other executives use to rationalize why they’re keeping their bonuses as profits are plunging.

“If you don’t pay your best people, you will destroy your franchise” and they’ll go elsewhere, he said.

Hello? They destroyed the franchise. Let’s call their bluff. Let’s see what a great job market it is for the geniuses of capitalism who lost $15 billion in three months and helped usher in socialism.

Bartiromo also asked Thain to explain, when jobs and salaries were being cut at his firm, how he could justify spending $1 million to renovate his office. As The Daily Beast and CNBC reported, 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.”

Does that mean you can only throw used parchment in it or is it made of parchment? It’s psychopathic to spend a million redoing your office when the folks outside it are losing jobs, homes, pensions and savings.

Thain should never rise above the level of stocking the money in A.T.M.’s again. Just think: This guy could well have been Treasury secretary if John McCain had won.

Bartiromo pressed: What was wrong with the office of his predecessor, Stanley O’Neal?

“Well — his office was very different — than — the — the general décor of — Merrill’s offices,” Thain replied. “It really would have been — very difficult — for — me to use it in the form that it was in.”

Did it have a desk and a phone?

How are these ruthless, careless ghouls who murdered the economy still walking around (not to mention that sociopathic sadist Bernie Madoff?) — and not as perps?

Bring on the shackles. Let the show trials begin.

Where is Vishinsky when ae need him?

Busboys Are Cut as Restaurants Suffer

As the economy falters, workers are the ones who bear the brunt of it. While Citigroup asserts that the $50 million corporate jet it is purchasing will not be paid for with TARP money, unemployment soars. Not only has Citi received $45 billion in bailout funds, it has also had over $300 billion of its debt guaranteed by the US government. Workers making $6.55 an hour are fired and not being replaced by restaurants that are making waiters who make as little as $2.13 an hour double up on their work.

On a busy Saturday afternoon, waitress Audrey Baker raced to clear the dishes from a table at a Bob Evans restaurant here. For two decades as a Bob Evans waitress, Ms. Baker relied on a busboy to clear syrup-plastered dishes and wipe biscuit crumbs from her tabletops. But with restaurants in a sharp downturn amid the recession, Bob Evans is among a growing number of full-service eateries that are eliminating busboys to cut costs. Instead, servers are primarily responsible for clearing their tables.

Governor Accused in Scheme to Sell Obama’s Senate Seat

This putz of a politician, arrogant enough to believe he could get away with such sleaze, especially after he unseated a governor who is in jail for his corruption, exemplifies some of the worst in public life. This quote says it all:

“The conduct would make Lincoln roll over in his grave,” Patrick J. Fitzgerald, the United States attorney for the Northern District of Illinois, said in announcing the arrest of Mr. Blagojevich and his chief of staff, John Harris.

Illinois governor arrested

You can't make this stuff up. This is some twist. Yesterday the Governor was banning Bank of America from doing business with the state because of the Republic Windows debacle, anw he is arrested.

As Mr. Blagojevich mulled the Senate appointment, prosecutors say, he discussed gaining “a substantial salary” at a nonprofit foundation or organization connected to labor unions, placing his wife on corporate boards where she might earn as much as $150,000 a year and trying to gain promises of campaign money, or even a cabinet post or ambassadorship, for himself.

And he obviously thought he'd get away with it.

According to the statement from prosecutors, Mr. Blagojevich told an adviser last week that he might “get some (money) upfront, maybe” from one of the candidates hoping to replace Mr. Obama. That person was identified only as “Candidate 5.”In an earlier recorded conversation, prosecutors say, Mr. Blagojevich said he was approached by an associate of “Candidate 5” with an offer of $500,000 in exchange for the Senate seat.

Who is number 5?

And the twist: The authorities also say Mr. Blagojevich threatened to withhold state assistance from the Tribune Company, the publisher of the Chicago Tribune and Los Angeles Times, which filed for bankruptcy on Monday. According to the authorities, Mr. Blagojevich wanted members of the Tribune’s editorial board, who had criticized him, to be fired before he extended any state assistance.

Oh, and look at the hair on this guy.

Be a Man

The premise of this article is both spot-on and flawed: it perpetuates one myth, namely that of having the nerve to be brave and face up to your faults, a sort of machismo, and, concurrently, shatters another myth, that of invincibility. On the whole, an interesting take on the financial crisis and its perpetrators.

Paulson's new 'Global Banking Corp.' IPO 2009

This is interesting, and scary.

Forget Washington, forget Goldman: Our hero has global ambitions

Henry Paulson: Harvard M.B.A., 1970. Then a staffer at the Pentagon and with Nixon. Joins Goldman in 1974. CEO in 1999. Paid $38 million in 2005. Federal ethics laws let him sell $484 million in Goldman stock tax-free when he left. Net worth, about $700 million.

While baffled Republicans wondered why Hank pushed the panic button, his panic set off a scene rivaling "Jaws." Washington is run by 42,000 lobbyists. They smelled blood in this $700,000,000,000 ocean. Add my bank! Foreign banks! Hedge funds! Money markets! S&Ls! Auto loans! Bankruptcy relief! Sharks on a feeding frenzy.

I saw that: car companies wanted more, after getting $25 billion in loan guarantees just days earlier.

Yes, he saw this crisis coming years ago. Bloomberg Markets reports that back in August 2006 Paulson spoke to the White House staff at Camp David: "Paulson held up over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy." Yet he withheld this information from America, didn't tell us till his recent panicky flip-flop.

Isn't that some breach of fiduciary duty?

Paulson owes a lot to Goldman; 24 years almost made him a billionaire. An analyst told Bloomberg News that Goldman and Morgan Stanley may be the two "biggest beneficiaries" of the Bailout Bonanza: They've already "written down the value of their holdings." So they have much junk to dump on taxpayers, thanks to Paulson their, "inside man." And he wanted no oversight. With several former Goldman staffers working with him at Treasury now, you wonder: Did they give their old buddies early hints of the bailout?

This is difficult to believe, but, not implausible.

Main Street may be overlooked, but not old friends like Warren Buffett. Earlier as Goldman's CEO derivatives made Paulson one of the chief architects of today's "Economic Pearl Harbor," as Warren Buffett calls it (a strange comment since back in 2002 Buffett warned derivatives were "weapons of mass destruction").

Buffett is the object of a cult of personality.

Here's another sneaky script subplot from The Huffington Post: First Goldman pays Paulson megabucks, then "lends" him to Bush, a virtual Trojan Horse. Now Paulson's preparing the way for his grand march back into private life by throwing billions of taxpayer dollars to his old buddies. So Goldman gets billions, and taxpayers get a pile of illiquid junk. Scam? Yes, and a classic case of moral hazard: Freed of risky liabilities, Wall Street dances off into the sunset, laughing at the stupidity of the American taxpayer. If Paulson did return to Goldman, his future bonuses would likely more than double his net worth. In short, his 30 months in government will undoubtedly make him a billionaire while costing taxpayers a trillion in new debt as a result of his inaction and incompetence.

Where will Paulson wind up after January, 2009? McCain said just a few weeks ago that he'd think about keeping him on. I don't think he's saying that now.

Some things never, never change, no matter who's president. America is run by 42,000 lobbyists, not our 537 elected officials. And Wall Street's the biggest political campaign donor. For example, USA Today reports that since 1989 Christopher Dodd, chairman of the Senate Banking, received $43 million. Barney Frank, chairman of the House Financial Services Committee, got $7.8 million. No wonder they voted for Paulson's Bonanza.

$43 million in campaign contributions in 20 years? That is a lot of money. But the figures that really catch my eye: 537 elected officials versus 42,000 lobbyists, some of whom are just-departed public officials. 78 lobbyists per official.

No, he's not going to stay. He's already the de facto president, an uncrowned king, the messiah of global finance. He raised hundreds of billions to "save" America and the world from collapse. So forget Goldman. What then? He's a former president the Nature Conservancy, a $5 billion global environmental charity. Bloomberg reports he's already working on a "$10 billion international fund under the auspices of the World Bank that would help emerging-market countries avoid investments in heavily polluting infrastructure." He's even lined up "$6 billion in informal commitments [and] Congress is considering the administration's request to kick in $2 billion." Get it? Not only is he bailing out his old buddies. Not only is he preparing for his return to private wealth. But he's also finagling more taxpayer money for his pet cause. All while being paid to work for U.S. taxpayers. Next, a new Paulson Global Bank Holding Corp.? An IPO? You bet, in 2009. But not retail, probably a private placement with $25 billion minimums.

Wow! It seems over the top, but, not to be discounted. Just who is this guy, anyway?

Take the garbage out on Wall Street

I am not sure of this pundit's track record, but, in this column, he begins the needed process of raking Dick Fuld over the coals.

"With the benefit of hindsight," he said in his testimony, "I can now say that I and many others were wrong." For this he earned $480 million in pay since 2001? Forgive me while I roll around on the trading floor laughing.

And:

For the better part of a year, David Einhorn, the hedge fund investor, railed against Lehman, its lightweight chief financial officer and its numbers that didn't quite add up. J.P. Morgan Chase & Co. and Lehman's counterparties questioned the values that Lehman was assigning to its troubled real estate assets. See full story. Someone get a shovel. It's getting pretty deep in the gorilla's cage.

A big shovel, plu-eez.

Several people who negotiated with Lehman during the past six months tell me that Fuld overvalued the firm by amounts that left no room for further negotiation. Offered a series of lifelines that would have given Lehman the independence Fuld seemed so hell-bent on preserving, he passed.

That's what I saw, only recently, say in the last month: arrogance.

Were Lehman's demise limited to lost jobs, it would be shameful. That Lehman's spectacular collapse, which fueled the inferno that is now raging through our financial and economic system, was preventable is infuriating. But even that debacle is not entirely Fuld's fault. His mistakes were covered up by a system that rewards obfuscation and deception.

It is a systemic virus: not only is greed extolled, but money is worshipped.

So, when this mess is finally over, the government – if it's still around – should require banks to open up the books. No more hiding everything in off-balance-sheet transactions, no more "proprietary trading" for Goldman Sachs Group Inc. Accounting firms need to do some real accounting or stop wasting shareholders' money. Ratings agencies should have a stake in every rating they make or miss. Let hedge funds be strictly regulated.

Free-market proponents say they can't make money when they reveal trading positions. Such information is proprietary. Well, Lehman reported a $2.8 billion loss at the end of May.

Does transparency solve all problems? No. But it helps discourage and catch the cheaters.

Even a gorilla can figure that out.

Very sobering.

These jerks just don't get it

I have mostly stayed away from writing about the implosion of the markets and the economy, both because every day there is more detail and more pain, and because there is so much of it to go around -- but this is one story that leaves me incredulous.

A week after the insurance giant, the American International Group, received an $85 billion federal bailout, executives at its life insurance subsidiary, AIG General, held a weeklong retreat at the exclusive St. Regis Resort in Monarch Beach, Calif. Expenses for the week, lawmakers were told, totaled $442,000, including $200,000 for hotel rooms, $150,000 for food and $23,000 in spa charges.

That is simply being blind to what normal people are facing, and is pure arrogance. It is beyond greed.

In addition, the former A.I.G. executive who led the London-based division whose implosion is largely blamed for the insurance giant’s downfall, Joseph J. Cassano, continues to receive $1 million a month from the company, on top of the $280 million he received in the last eight years.

And even after A.I.G. reported $5 billion in losses in the final quarter of 2007, its chief executive at the time, Robert B. Willumstad, argued before a compensation committee that executives should receive performance bonuses. He received $5 million. Mr. Willumstad left after A.I.G. received federal assistance. The current chief is Edward M. Liddy.

A million a month even now? And Willumstad argued for more money? WHere are those directors now? I wish they'd explain why they agreed to more compensation.


“Looking back at my time as C.E.O., I don’t believe A.I.G. could have done anything differently,” Mr. Willumstad said. “The crisis that required A.I.G. to seek assistance from the Federal Reserve is not limited to A.I.G. It is a marketwide crisis of confidence that has affected the entire financial industry and the American and global economy.” “A.I.G. was caught in a vicious circle,” Mr. Willumstad said.

Nothing could have been done differently? Nothing? Looking back, I know I could have done a few things differently, beginning with understanding how much risk I was taking and how exposed I was leaving my portfolio. Doesn't do me any good, but, hopefully, I have learned a lesson.

“A.I.G. is blaming its downfall on accounting rules which require it to disclose losses to its investors,” the specialist, Lynn E. Turner, the former chief accountant at the Securities and Exchange Commission, said. “That’s like blaming the thermometer, folks, for a fever.”

This next one is precious.

An accountant, Joseph St. Denis, who had been hired by A.I.G. to address accounting problems, was not given access to the very unit whose losses, mostly in toxic credit-default swaps, led to the bailout, lawmakers were told. Mr. Cassano told Mr. St. Denis, according to testimony, that he had been “deliberately excluded” from the evaluation of AIG Financial Products, to avoid polluting the process. Mr. St. Denis resigned in protest.

Polluting the process? He must mean covering their asses.

Artistic license, bad taste, or utterly disgusting

I vote for #3. He's dressed up as a "Misdeastern Muslim" and she's given an AK-47 and a gun belt. That's bad enough; notice the picture on the wall: Osama binLaden. Osama-Obama. Oh, and the American flag in the fireplace. What shit.

A slave at £ 125,000 a week

This one strains credulity. A blog post in the WSJ.com site has this headline: Why Cristiano Ronaldo Isn’t a Slave. The entry goes on to describe this spoiled prima donna wanting to break his contract.

Cristiano Ronaldo is no Curt Flood. Mr. Ronaldo is a 23-year-old soccer player for Manchester United who is one year into a five-year contract that pays him 125,000 pounds a week, but would like to move to Real Madrid. Mr. Flood was 31 years old when he was making $90,000 and was subject to Major League Baseball’s reserve clause, which gave him no chance at free agency and no control of his future.

Some slave wage.

Mr. Flood’s evocation of slavery was controversial; Mr. Ronaldo’s is laughable.

Perspective is so important.

Yanqui arrogance

Few slights irk Mexican politicians so much as when Washington treats Mexico like a backward country in need of outside guidance, and that anger raged full throttle this week as top Mexican officials threatened to walk away from a major United States aid package to help defeat drug traffickers.

The US is good at lecturing others on how to comport themselves properly. Witness Bush lecturing the world about freedom and democracy, the same democracy that gave Hamas the chance to be elected to govern.

A chorus of similar protests went up this week from Mexican lawmakers, prosecutors and law enforcement officials, who called the bills insulting and reeking of Yankee arrogance. Some pointed out the United States had no room to talk, given the detention facility at Guantánamo Bay, Cuba. Others said Mexico had not asked for unilateral aid from America, but a partnership in fighting crime.

Some politicians complained that drug consumption in the United States, along with the sale of arms to Mexican drug dealers by American arms merchants, were driving the violence here. “The only thing we need is for them to stop selling arms to narcotics traffickers,” said Javier González Garza, the leader of the left-wing opposition party in the Chamber of Deputies.

Some of those millions should be used to decrease demand for drugs, in inner cities and in suburbs, on Wall Street and on Main Street. (Ach, the cliches!)

Regulating thinness

Perhaps only France would come out with such a proposal.

France's Anorexia Law Moves Forward French lawmakers adopt a bill that would outlaw the promotion of extreme thinness, including in fashion magazines, ads and on Web sites. Fashion industry experts said such a law would be the strongest of its kind anywhere.