Over 9 million American families lost their homes in the aftermath of the 2008 financial crisis and millions watched their retirement savings evaporate. Meanwhile, the Wall Street banks that caused the crash were doling out executive stock options that would generate huge windfalls once bailout funds had pushed up their stock prices.
Then, thanks to a perverse loophole in the tax code, the banks could write off the entire cost of these options and other bonuses, leaving ordinary taxpayers to make up the difference.
The origin of this loophole is a President Bill Clinton reform in 1993. After campaigning against the abuses of excessive CEO pay, he pushed Congress to cap the deductibility of pay at $1 million. But he included a huge loophole for so-called "performance-based" pay.
So what did companies do? They kept salaries around $1 million and labeled the rest "pay for performance."
This loophole applies to all companies, but it has been particularly obscene and even dangerous when it comes to the financial industry. In the run-up to the crash, the loophole helped fuel the "take the money and run" CEO pay practices on Wall Street. In the eight years before their firms collapsed, executives at Lehman Brothers and Bear Stearns cashed out a combined $2.4 billion in bonuses and stock, most of it fully deductible "performance based" pay.
Between 2012 and 2015, Wells Fargo faced $10.4 billion in misconduct penalties for deceptive lending and other "bankers gone wild" behavior. During these same years, CEO John Stumpf pocketed $155 million in fully deductible performance pay at a cost to taxpayers of $54 million.
Between 2012 and 2015, American Express CEO Kenneth I. Chenault raked in over $123 million. The taxpayer subsidy for this payout was over $43 million. During the same period, taxpayers subsidized over $22 million for CEO pay at Capital One Financial and $17 million at Goldman Sachs.