Bank Bailouts

Bank Bailouts - 1 Running head: USING TARP FUNDS FOR...

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1 Running head: USING TARP FUNDS FOR BONUSES An Ethical Controversy: Using TARP Funds for Executive Bonuses TUI University
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2 USING TARP FUNDS FOR BONUSES An Ethical Controversy: Using TARP Funds for Executive Bonuses In 2008, the United States began an economic spiral downward, into what has been referred to as the “Great Recession.” As a result of bad lending practices by top banks in the United States, the housing market crashed and the economy was plagued with home foreclosures. Businesses began downsizing, and many people in the United States lost their jobs. With an unemployment rate at an average of 10%, more and more people, particularly the middle class, had to tighten their belts, and find a way to overcome the economic recession that had brought the United States to its knees. In order to prevent the United States economy from slipping even farther down from a “recession” into what could have been a full blown economic depression, the Obama Administration decided to bailout the major banks and automobile industries. The bailout money came from the Troubled Asset Relief Program or TARP funds. There were 9 U.S. banks that received TARP funds totaling $175 billion in taxpayer funds, which gave out $32.6 billion in bonuses in 2008, according to a report by New York Attorney Andrew Cuomo. The collapse of the United States economy was a direct result of a poor regulatory framework in the banking industry, according to one article, Mending a Broken Banking System (Holbrook, 2010). Kenneth Feinberg, the Obama administrations guru on executive compensation called on 17 bailed-out banks, and encouraged them to adopt compensation policies that would allow directors to decrease executives pay during a financial crisis. Feinberg said although the bonuses were legal, they were “ill-advised” and showed “bad judgment” (Mills, 2010). Despite the hard times that most Americans were facing, trying to find work so that they could keep their homes, top executives in the banking industry still managed to receive $32.6
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3 USING TARP FUNDS FOR BONUSES billion in bonuses, according to Cuomo. Banks which weren’t even performing well, in fact were operating in the red, were giving out bonuses to their executives. Citigroup and Merrill Lynch suffered losses of more than $27 billion at each firm, yet Citigroup still gave out $5.33 billion and Merrill Lynch paid out $3.6 billion in bonuses, according to one bloomburg.com report. The decision made by these banks to pay out bonuses using taxpayer dollars in the midst of economic trouble, raises some ethical questions which need to be addressed. To further discuss the ethical dilemma of using bailout money for bonuses, we need to
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This note was uploaded on 06/21/2011 for the course ETHICS 501 taught by Professor Johnson during the Spring '11 term at Touro CA.

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Bank Bailouts - 1 Running head: USING TARP FUNDS FOR...

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