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Bailout plan will clamp down on bonus pay

Washington moved to crack down on Wall Street bonuses as a Democratic senator proposed capping employee salaries at companies receiving government aid.
/ Source: Reuters

Washington moved to crack down on Wall Street bonuses on Friday as a Democratic senator proposed capping employee salaries at companies receiving government aid and the White House pledged action from President Barack Obama as well.

Sen. Claire McCaskill proposed a law that would prevent executives from making more money than the U.S. president — $400,000 a year — until their companies no longer rely on government aid such as the Troubled Asset Relief Program (TARP) that bails out banks.

McCaskill, a close ally of Obama who represents Missouri, announced her legislation a day after the president said he was outraged by a report of some $18 billion in Wall Street bonuses being paid while taxpayer money was being used to shore up the crumbling financial system.

At the White House, Obama spokesman Robert Gibbs said the president’s upcoming plan for financial stability also would address executive compensation and bonuses.

“I think you will see the president and his economic team outline a plan to deal with what he found irresponsible yesterday,” Gibbs told reporters. “Stay tuned, because something on that is coming soon.” He declined to say more.

Obama on Thursday said recent Wall Street bonuses in the current situation were “shameful.” His administration is working on options to help stabilize the U.S. banking industry after various experts have said the $700 billion already allocated to the bank rescue program in recent months will not be enough.

Hundreds of billions more
The head of the Congressional Budget Office told Congress this week he thought U.S. banks would need hundreds of billions of dollars more.

Public outcry has grown over reports of corporate excess by companies getting bailout funds, including Citigroup Inc, which intended to purchase a private jet, and bonuses paid by Merrill Lynch & Co, now owned by Bank of America Corp.

Citigroup later canceled the plane order. Bank of America’s Chief Executive Kenneth Lewis ousted former Merrill chief John Thain this month after Merrill awarded large bonuses just days before the merger closed, and following huge losses that led Bank of America to obtain $20 billion of government aid to absorb Merrill.

McCaskill, an early endorser of Obama’s presidential candidacy, gave an angry speech on the Senate floor Friday in which she said an average of $2.6 million dollars had been paid in bonuses to executives from the first 116 banks that got money from the TARP rescue plan.

“I am mad,” she said. “We have bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer. ... They don’t get it!”

Her office said the $400,000 compensation cap she was proposing would include salary, bonuses and stock options.

“We should have done it in the first place,” McCaskill said of the proposed salary cap, “but I don’t think any of us thought these guys were this stupid.”

Obama is also working with Congress to pass a stimulus plan of over $800 billion in tax relief and government spending to try to revive the moribund economy.