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Bankers Press Case Against Punitive Tax
The bill passed by the House on Thursday would eliminate those bonuses for thousands of workers at eight of the largest U.S. banks, in addition to employees of AIG, Fannie Mae and Freddie Mac. It would slap a 90 percent tax on bonuses to employees with incomes above $125,000, or household incomes above $250,000.
A broader Senate bill, which could reach the floor next week, would also tax thousands of bonus recipients at regional banks.
The rapid progress of the legislation surprised many in the financial industry, triggering widespread panic. The measures are retroactive, and many employees have spent some of the money, which they might now be required to repay. There was also alarm at the Treasury, where some officials fear that the ferment on Capitol Hill will damage the government's ability to partner with financial firms on economic recovery.
The program to buy toxic assets would involve three components, sources said. The plan would establish an entity, backed by the Federal Deposit Insurance Corp., to buy loans from banks, a source familiar with the matter said. The idea is rooted in what some market analysts and regulators call a "bad" bank.
Treasury and Federal Reserve officials are also preparing to partner with private investors to create funds that could buy toxic assets, which provided the financing for troubled loans such as mortgages and have been at the heart of the banking system's troubles. The funds would borrow money at favorable rates from the Fed -- without having to pay back the loans for at least five years and possibly as long as seven years -- to buy the assets, freeing banks to lend once again, a source said.
Finally, the Treasury and Federal Reserve would expand a recently-launched program that provides financing to private investors to buy assets that back new consumer loans, such as credit card debt, student loans and auto loans. That initiative would be broadened to address toxic assets that have been sitting on the books of banks for months, not just new ones.
Several of the nation's leading bankers yesterday tried to comfort their employees.
Jamie Dimon, chief executive of J.P. Morgan Chase, held a conference call with senior executives to emphasize their value, and to tell them that the company was working to convey its concerns to the government.
Bank of America chief executive Kenneth D. Lewis told employees in a memo that they deserved to keep their pay.
Pandit of Citigroup raised another common theme, arguing that most of those responsible for the bank's mistakes in recent years had left the company, and that the remaining employees were playing a key role in helping the nation to recover.
"You have been invaluable in our collective efforts to put the company on solid footing," Pandit wrote. "The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees."
Staff writers Michael Shear, David Cho and Neil Irwin contributed to this report.