That was Hank Paulson’s big mistake. He partially nationalized the big banks before they went under. He rescued them before we could gain control. The result is that we – the American people – are the largest shareholders of Citibank (with 7.8% of their equity) and of Bank of America (with 6% of theirs), and yet we have no way to really influence their lending practices, no way to make them thaw the frozen credit markets, nor any way to stop them from lining their pockets with our tax money.
Now, there’s a raging debate over the $18.4 billion in year-end bonuses that the bankers just gave themselves. President Obama went out of his way to express his anger, calling the bonuses “shameful” and “the height of irresponsibility.” Senator Christopher Dodd is trying to find a way to claw back the money; and it seems that Andrew Cuomo is actually going to try to get Merril Lynch to return their $4 billion in bonuses. Some on Wall Street are defending the bonuses and others are justifying them on various tax and compensation grounds. Personally, I don’t think President Obama went far enough on Thursday. I think Geithner should immediately have told the banks to return the bonuses to the American people. Even if Geithner probably couldn’t force it, I think he could have made it happen in a phone call. Clearly, the banks didn’t need those $18.4 billion – I mean, our $18.4 billion – that badly.