Tuesday, January 27, 2009

Confronting the Rich and Mighty with Chutzpah

New York Attorney General Andrew Cuomo apparently has a knack for attracting early Chutzpah of the Week awards, since he won his first award about half a year ago on a Wednesday. That one was for waging a war against child pornography on the Internet by targeting all of Usenet, which I described at the time as "going after the Internet with a big stick without giving much thought as to where he is swinging it." This time, however, I am happy to announce that he is receiving the award for positive-connotation chutzpah; and it is very much an award for our current dire economic straits. The basis for the award comes from a report that Stephen Bernard and Ieva M. Augustums filed for the Associate Press this morning:

The New York attorney general on Tuesday issued subpoenas to former Merrill Lynch chief executive John Thain and Bank of America's chief administrative officer, J. Steele Alphin, amid an investigation into bonuses Merrill paid executives just before being sold to Bank of America.

Thain, 53, was serving as the head of the newly combined company's wealth management division before he resigned last week. The resignation came shortly after reports surfaced that billions of dollars were paid to Merrill executives in late December.

Those bonuses were paid as Merrill was about to report a $15 billion fourth-quarter loss, and while Bank of America was seeking more federal funds to help it absorb the mounting losses at the New York-based investment bank.

Attorney General Andrew Cuomo's investigation will center on trying to determine why the timetable for paying the bonuses was moved up to December from its normal period in January; who knew about the bonuses; and how Merrill could justify spending billions of dollars on bonuses knowing its was on the brink of reporting a multibillion loss for the quarter, a person familiar with the probe told The Associated Press. The person spoke on condition of anonymity because the investigation is ongoing.

Bank of America has said in recent days it knew about the bonuses, but had no authority over the payout because the Merrill sale had not been completed. On Monday, Bank of America spokesman Scott Silvestri said: "John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation at Merrill Lynch. We had no legal right to challenge it."

I can think of no better way to throw a harsh bright light on the failure of the banking sector to provide the Government Accountability Office with the data necessary to monitor the bailout money they have received than to launch an investigation of a particularly egregious use of that money. Hopefully, the news of this investigation will percolate back to Philip Jennings, in the United Kingdom, to let him know that he is not alone in losing patience with the rich and mighty of the banking sector. Indeed, this story broke just in time to be included as part of the "welcome packet" that can be handed out to all of the World Economic Forum participants in Davos (which adds to its chutzpah factor in my book). This is about more that finishing your vegetables before running off "for a dessert of chocolate fondue in Davos;" this is about catching the scoundrels who tried to run off with the silverware! Davos delegates, all, look on the works of Andrew Cuomo and despair!

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