As Banks Boomed, Watchdogs Got Big Bonuses

(AP)  Banks weren't the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The government also was handing out millions of dollars to bank regulators, rewarding "superior" work even as an avalanche of risky mortgages helped create the meltdown.

The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government's false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.

During the 2003-06 boom, the three agencies that supervise most U.S. banks - the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency - gave out at least $19 million in bonuses, records show.

Nearly all that money was spent recognizing "superior" performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.

631057After the meltdown, the government's internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough:

- "OTS did not react in a timely and forceful manner to certain repeated indications of problems," the Treasury Department's inspector general said of the thrift supervision office following the $2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.

- "OCC did not issue a formal enforcement action in a timely manner and was not aggressive enough in the supervision of ANB in light of the bank's rapid growth," the inspector general said of the currency comptroller after the $2.1 billion failure of ANB Financial National Association

- "In retrospect, a stronger supervisory response at earlier examinations may have been prudent," FDIC's inspector general concluded following the $1.8 billion collapse of New Frontier Bank.

- "OTS examiners did not identify or sufficiently address the core weaknesses that ultimately caused the thrift to fail until it was too late," Treasury's inspector general said regarding IndyMac, which in 2008 became one of the largest bank failures in history. "They believed their supervision was adequate. We disagree."

- "OCC's supervision of Omni National Bank was inadequate," Treasury investigators concluded following Omni's $956 million failure.

Author Michael Lewis explained on "60 Minutes" Sunday how some of Wall Street's finest minds managed to destroy $1.75 trillion of wealth in the subprime mortgage markets:

Wall Street: Inside the Collapse
Full Segment, Part 1: Inside The Collapse
Full Segment, Part 2: Inside The Collapse
Web Extra: Is Wall Street Overpaid?
Web Extra: Bailout Blues
Web Extra: The $8.4 Billion Bet
Web Extra: Wall Street Misfit

Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it's impossible to determine how many auditors got bonuses despite working on major banks that failed.

Regulators says it's unfair to use those missteps, seen with the benefit of hindsight, to suggest any of the bonuses was improper.

"These are meant to motivate employees, have them work hard," thrift office spokesman William Ruberry said. "The economy has taken a downturn in recent years. I'm not sure that negates the hard work or good ideas of our employees."

At the OCC, spokesman Kevin Mukri noted that the national banks his agencies regulate generally fared better than others during the financial crisis.

"In making compensation decisions, the OCC is mindful of the need to recruit and retain the very best people, and our merit system is aimed at accomplishing that," Mukri said. "We also believe it is important to reward those who worked so hard and showed such great professionalism throughout the crisis."

David Barr, a spokesman for the FDIC, which handed out two-thirds of the bonuses during the boom, had no comment.

In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.

The bonus data released to the AP does not say specifically why each person received a bonus. For instance, one person in the OCC's financial examining division got a $41,000 recruitment bonus on top of a $179,000 salary in 2005. In 2006, the last boom year for banks buying risky mortgages, the FDIC gave out more than 2,000 bonuses to financial examiners.

In 2008, the year the market collapsed, OTS gave 96 financial examiners bonuses of up to $3,000 for exceptional work.

At the three regulatory agencies, the value of the bonuses stayed roughly constant from before the banking boom, through the good times and into the collapse. While the total pales in comparison with the billions spent on Wall Street perks, the justification was similar.

"Bonuses were determined based upon the performance and the retention of the people," said John Thain, the former CEO of Merrill Lynch, the troubled brokerage firm that paid out $3.6 billion in bonuses just before selling itself to Bank of America. "And there is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing."

To be sure, Washington policymakers eased regulations and encouraged banks to write risky loans. Families bought homes they couldn't afford. Brokers found them mortgages. Bankers quickly snatched them up, never asking whether they could be repaid. And rating agencies certified it all as safe.

But regulators were part of the problem, and the bonuses were a symptom, said Ellen Seidman, a research fellow at the New America Foundation think tank and the former head of OTS from 1997 to 2001.

"Is it probably the case that the standards for evaluating how well people in the regulatory system were doing were not as high as they should have been? Probably," Seidman said.

But the bigger question, she said, is why government regulators thought they were doing so well: "Why did the system fool itself?"

[TVO1CITW]

The HealthCare push is because of "big profits" in the insurance companies. You better watch out, because you are next on Obama's agenda.

[strangeworld]

How would you know how much money was printed...the Bush administration quit reporting the number sometime around 2004-2005.

Make no mistake about it, when republicans from Reagan on made policy to deregulate everything from food inspections to financial institutions, the writing was on the wall that America would be at the mercy of the greedy.

While the GOP would like to somehow place blame with Obama, as they say "That dog don't hunt" - Despite the wishful reporting by the right wing media, America will not soon return to the party that left America on the brink of a depression because of their willingness to do absolutely anything for a dollar.

[sdh26234]

Whose fault should it be, if the true National Debt even before Obama was handed the disaster of all time, was already way over $100 trillion when the unfunded liabilities of Social Security and medicare are added to what the Federal Government claims to as only $12 or so trillion! These two programs have been in existing for decades under both sides of isle, right? Yes, Socialism/Communism plus Americas ever more satanic militaristic imperialism, is to America what in real life termites are to a wooden structure! While presently all blame goes to Obama, which is the greatest lie ever, yes, by the so called conservatives. Where were they in the past? Asleep like zombies, at best? By the way, I voted for Ron Paul, the man of the hour, in the same fashion the Founding Fathers were in their time. If America keeps going as it presently is, hell is waiting down the line, just like all brutal Empires of the past. Yes America is actually here today because of the brutal and oppresive British Empire, right? Yes, the Founding Fathers are actually screeming from their graves telling America, to stop destroying the nation they created, for the purpose to do away with wars forevermore. However now America's brutal military might is and has already for decades, circled the globe, right? And in reality for what, but creating problems more and more? America is now worse than the British Empire ever was!

[douglyte]

Big Bonuses? Consider $19 million divided by 4 years (2003-2006) divided by the number of employees in the agencies yields $731. If the bonuses were concentrated in the top 25% of the employees, that?s $2714. Please. With what these federal employees have to deal with, traveling around the country, supervising 8,500 banks, if you add a 0 to that it?s still a paltry sum. Consider that all the bonus given to all the regulators over 4 years was about half that given to one top investment banker at Merrill Lynch in 2009 alone. Again, please.

[mac82059]

This was going on during Bush's watch, where were the tea baggers then?

[scottyusa]

They were not awake yet. It took Obama to wake them up and I am joining.

[ky7474]

At least now we can see how corrupt our system really is, so hopefully a strategy can be developed to once again make this a nation of the people, by the people, and for the people. GOD is on our side, but people must unite and act. It won't be easy!

[steveinohio1]

Look you can write all day that Bush, or Obama are to blame on what happened in the past. But who is in charge now? He is doing little to stop the spending. He is blindly letting the regulators fill their pockets at the tax payers expense. He is wanting to throw us deeper into the red with a medical health care plan that he has no idea how to run or fund. How could he? He has no experience in running a country. Call me what you like, or tell me what he has done to qualify as a person to tell me what I need. Wake up, everyone here knows who will pay for this. There are NO Freebies out there. Who can run this health care for the masses? Christ, the government can not run Medicare/Medicaid, Social Security, Welfare, protect it's borders, or bring Democracy to a third world country. I can manage for myself. The only hand out I want is the Governments hand out of my pocket. You have to recall that the President (Obama) stated, "that the banking and Wall Street would not be doing business as usual anymore". That they would be watched and held accountable. Well, guess what? Someone better let him know that while he has his head in the sand, the money is pouring out again.

[fer60us]

Are you delusional or don't know how to read. All this happened on Bush and Co. watch. They put the country on this situation. If the government doesn't how to run all these programs how are they still running, some of them for more than 60 years? I think you are full of BS. I don't like to get scr*w*d but I guess you do; keep going and enjoy it.

[trailwalker2]

And remind me, why do we think the government is going to do a good job with health care? Is it based on they manage social security? The bail out?

[fer60us]

Ignorance at its best; where did you get the government is running health care? Our Prez is trying to put a stop to "financial predators" that profit from your health and mine. The most powerful nation on earth's has more than 30 million people without access to health care; what a shame and do you call yourself Christian? What a joke!

[debinok1]

Both parties work in conjunction to slowly destroy our constitution. The republicans feed the people fear so they can remove liberties and freedom, then they hand over the power to the democrats who comfort the people with promises of help and programs to take the place of those lost liberties and freedoms but do nothing to restore them. When both parties have finished with this cycle the people will have no rights, no liberty, no freedom, and will be under total control of the government.

[pragmatist1]

...we're pretty much there already thanks to what the government has done to this country for many decades...

[bobkat258]

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson

[roach9703]

Maybe,but the government's lurching fiscal policies are to blame, also.
Bush Obama printed over two Trillion dollars in the past 18 months.
The bank bailouts are the responsibility of the government. Bank behavior is often result of our politicians and regulators. So, let's throw the real bums out.