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Thursday, November 13, 2008
Bank Executives Promise Not to Use Bailout Money for Pay
Kathryn Elizabeth Tuggle
FOXBusiness
The Senate Banking Committee grilled top bank executives Thursday as credit markets remain frozen and worries mount they are misusing bailout money.
Lawmakers urged the executives, all from banks who have received money from the $700 billion bailout, to start lending more to consumers and businesses.
Sen. Chris Dodd, D-Conn., the committee chairman, told the executives Congress wants to see more progress in foreclosure mitigation, lending and in curbing excessive compensation. Dodd also said banks need to step up assistance to homeowners facing foreclosure and loosen up credit markets.
The financial sector is slated to receive at least $250 billion per the package passed last month to help bolster balance sheets and resume lending. Officials from Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS), and JPMorgan Chase (JPM), testified on Capitol Hill.
Dodd, who stressed that transparency in the industry is crucial, expressed concern banks are hoarding the money and using it for internal gain.
Sen. Charles Schumer, D.-N.Y., said that he would take action in conjunction with other lawmakers to ensure banks ramp up consumer lending moving forward.
Executives from the four financial institutions vowed they wouldn't use the money to pay their executives and employees.
Gregory Palm, general counsel at Goldman Sachs, said that compensation would be down “significantly” this year throughout the firm, especially at senior levels.
Both Democrats and Republicans have been critical of the way the Treasury Department implemented the bailout. Democrats are pushing for banks to lend more, while Republicans are seeking more transparency from the Treasury.
FOX Translator
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
