Wall Street welfare

In the 1960s, tabloid newspaper editors discovered a great new way to build circulation: the “welfare queen” exposé.

Reporters had a field day tracking down welfare recipients who were defrauding the system while driving around in Cadillacs. Politicians, especially conservatives such as Ronald Reagan, relentlessly decried welfare queens as symbols of what was wrong with liberalism.

The welfare queen more or less faded into history after President Bill Clinton enacted welfare reform in the mid-’90s. It suddenly became difficult to live like royalty on the dole.

But the story continues in another form: Now we have Wall Street welfare queens. Or, more appropriately, welfare kings.

The papers these days are filled with stories about Wall Street executives receiving taxpayer bailouts and then getting huge bonuses and going on lavish junkets.

The only real difference between the welfare queens of the ’70s and the Wall Street welfare kings of today is a matter of scope. In the midst of the nation’s worst recession in decades, Wall Street companies handed out $18.4 billion in bonuses in 2008. That’s more than double the annual federal budget for Head Start child care, and four times more than the annual budget for the state of Nevada.

It’s reasonable to assume that the individuals running America’s largest companies are really smart. They aced calculus class, served as student body president and glided through top universities. We assume these whiz kids quickly climbed the corporate ladder thanks to hard work, maturity and wisdom. We assume they get those enormous salaries because they possess the intangible qualities of greatness.

We should know better than to assume.

Since September or so, when the economy fell off a cliff, we have seen corporate managers do some incredibly boneheaded things. I’d laugh at their antics if they weren’t so galling. Let’s review some of the low points:

— It started with insurer American International Group. Right after securing an $85 billion government bailout, AIG spent $440,000 on a weeklong executive retreat. Just days after American taxpayers came to the rescue, executives enjoyed spa treatments, golf outings and fine banquets.

This was arrogant and stupid. How could the guys running this giant company — supposedly the best and brightest — have signed off on such an extravagance?

— Next up were the automakers. Remember back in November when the Big Three CEOs came before Congress to ask for billions of dollars to save their foundering companies? Those geniuses flew to the nation’s capital in posh private jets.

Not the smartest move when you’re claiming imminent financial ruin.

— Bank of America, recipient of a $45 billion bailout, spent $10 million on marketing gimmicks at the Super Bowl. The “Official Bank of the NFL” sponsored the 850,000-square-foot “NFL Experience,” a five-day “interactive entertainment” event. Bank officials defended the expenditure as a good marketing opportunity.

Marketing of what? Their utter lack of common sense?

— Not to be outdone, Wells Fargo, which received a $25 billion bailout, planned a series of corporate junkets to Las Vegas this month. The bank booked 12 nights at the Wynn and Encore.

Wells Fargo initially defended the junket. But amid an avalanche of criticism, the bank decided this week to cancel the event. It’s unfortunate for the Wynn casinos to lose the business, but c’mon, it’s lunacy for Wells Fargo bosses to think this was a good idea in light of its gargantuan taxpayer bailout.

It’s no wonder we no longer assume Wall Street CEOs are smarter than the rest of us. The New York Times this week found the essence of the Wall Street disconnect in a bit on Comedy Central’s “The Daily Show”:

“Jon Stewart rolled a clip of John A. Thain, Merrill Lynch’s chief executive, defending bonuses as a way to keep ‘your best people.’

” ‘You don’t have “best people”!’ Mr. Stewart shouted. ‘You lost $27 billion! Do you live in Bizarro World?’ “

Jon Stewart wasn’t just kidding around. He was on to something.

Many of those who earn millions running companies with dozens of divisions and tens of thousands of employees clearly have lost touch with reality. It’s intoxicating stuff being what “Bonfire of the Vanities” author Tom Wolfe called a “master of the universe.” It’s hard to feel the effects of a severe national recession when you have three mansions with three sets of servants, a jet, a yacht and eight figures in the bank.

Most of these guys no doubt are shell-shocked by the near-collapse of their companies. They don’t comprehend the immensity of their failures, and don’t recognize the desperate need to reform their ways. They don’t appreciate that when they took a huge government bailout, you and I would have a new set of expectations.

President Obama’s move this week to cap executive salaries for companies receiving bailouts is a good and necessary first step. One hopes there is more to come. It’s no different from cracking down on the welfare queens of yesteryear.

Geoff Schumacher (gschumacher@reviewjournal.com) is director of community publications for the Review-Journal. His column appears Friday.

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