Personal Finance

You Be the CEO: Should Bailed-Out Banks Cut Limousine Usage?

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Last updated on July 23, 2019 Comments: 8

As the government continues to bail out the banking industry and taxpayers continue to increase their stake in these companies, how far should the banks go to cut back spending on the excesses that have grown over the past several decades? The local New York City NBC news program aired a feature on the use of town car limousines by Bank of America, JP Morgan Chase, Morgan Stanley, and Goldman Sachs. Despite billions of dollars from taxpayers, bankers continue to travel extravagantly when more frugal options are available.

The media love this topic. Exposing the continued excesses of troubled companies destined for bankruptcy or in search of taxpayer assistance riles up people’s emotions. That’s the perfect formula for great ratings. The concept is simple: the reporter stands outside the corporate offices, counts the limousines waiting outside to take bankers to lunch meetings with clients or home at the end of the long day. They try to interview the bankers who refuse to talk to the cameras. (Corporations generally tell employees not to talk to reporters under any circumstances, to allow the marketing department — “public communications” — to control the public message.

The marketing departments aren’t doing a very good job. The court of public opinion is important here, as stock prices in the financial industry are tanking. Yes, the banks should do whatever they can to cut back on all these little expenses like limos and parties that add up over time. Yes, they should not use bailout funds to make poorly researched major acquisitions. Just like typical personal financial advice for managing a family’s money, corporations that are now somewhat accountable to the public should focus on both the repetitive small expenses (see the ECRD Factor) and the more expensive decisions (like buying a used car rather than a new car). But most importantly, the industry should be communicating that they understand that the gift of taxpayer funding means they have a new stakeholder, a new boss who cares about how their money is spent. Marketing departments should be ensuring the public sees the extent that the companies are utilizing the funds responsibly.

Brokerages that accepted bailout funds have rationalized the continuation of high salaries and bonuses for their best performers by citing the need to keep top talent. Yes, this does mean that the executives are fine with the concept of “wealth redistribution” when it works in their favor. In these cases, taxpayers are funding the compensation for investment managers and stock brokers whose salaries continue to soar while their companies’ profits sink.

Executives of some banks that received money in the form of bailout have stated they don’t like the terms attached to the funds. Two banks, Northern Trust and US Bank, will return the funds they received through the Troubled Asset Relief Program (TARP) to the government, as fast as possible, so they do not need to answer to the public. This is an interesting concept; in most cases, the TARP funds were in the form of loans to banks, which were intended to be returned to the government with interest anyway. Of course they are returning the bailout funds as soon as possible. That was the plan from the beginning.

Banks who don’t agree to reducing expenses and answering to the public should return the funds in entirety immediately, not over time as quickly as possible.

Put yourself in the shoes of the top executive in a bank that was facing bankruptcy when it asked for an accepted billions of taxpayer dollars. You are the CEO. Assuming you haven’t been fired for nearly driving your company into the ground, what financial decisions would you make to fix your struggling enterprise while maintaining a favorable public opinion?

Article comments

Anonymous says:

I agree that the banks are in a pickle and should watch every penny. However, a good majority of these cars are taking 22 – 27 year olds who work until all hours of the night, home. The bank is working them so hard that they aren’t able to leave at a time when it is safe to take the subway home. It is the bank causing the unsafe condition, so the bank should pay for the employees to take late night cars home. I know for a fact that these cars are not allowed to be used by anyone but high level people before 9pm. Think about the PR if they stopped providing this service, but then their employees are robbed on the way home because they had to walk to and from the subway. Like I said, banks need to get their act together in many ways, but this is a safety issue not a luxury.

Anonymous says:

A safety issue? Really? The only possible way to get employees home safely is in a limousine? We’re not talking about employees who live in Afghanistan here, Frank.

Luke Landes says:

I used to work in Newark, and despite the cameras everywhere, some employees were followed and verbally harrassed by individuals while trying to walk to their cars after working late. One even had her purse ripped off her shoulder. So for some, even in the United States, I would agree that safety is a concern, but obviously not for everyone. Not everyone qualified for a car when working late, but at least there were shuttle buses to take them from the office to the parking lots or to the train station. Still, it’s not completely safe waiting for a train late at night, either.

Anonymous says:

If I was in charge? Let’s see….

Pretty much what the CEOs are actually doing. I’d cut my pay to $1, forgo private jets and ritually humiliate myself in front of the clueless media and congress so my employees don’t have to. Then I’d spend very long days trying to keep my business afloat and begging my key employees to stick around even at half the compensation they could get elsewhere and under constant threat of populist government meddling.

You don’t have to look beyond the stock market to understand that the government “bailout” of the financial system has been haphazard, half-baked, and consistently a dollar short and a day late. Things are very bad on Wall Street, they’re not getting better, it’s killing the global economy, and the Obama administration is working on reforming health care.

I understand the anger and frustration that many people have with Wall Street. I really do. But has anybody else noticed that the depth of that anger is inversely corellated with how well a person understands the financial markets?

Luke Landes says:

Frank: IF CEOs are in fact making the right decisions in this market — and I’m not saying they aren’t — they aren’t doing a good job of getting the message across. Most of the people in this country do *not* understand the financial markets, and the companies don’t seem to care. They need to win over the public, prove to them that they are making the right decisions for the right reasons, or the public will demand continually more oversight and refuse to support the industry. It’s a mistake to believe that it doesn’t matter what the public thinks.

Taxpayers will pick apart any public move in the finance industry because they, no matter how well informed about the industry, have a stake. So the CEOs better make sure they’re communicating. Let’s be honest, town cars are hardly the problem. The media like to sensationalize because it draws ratings, but corporate executives must defend their image or face the consequences of a public that is sick of feeling like the companies are wasting their money.

Anonymous says:

I’ve got to agree with guinness hiring a driver possibly even for day to day use keeps these guys productive in their commutes, especially with cell phones, mobile web etc.

Even if you hire the driver for all day, *I’d assume* that’s what 1 or 2 hundred dollars salary for the day if the driver is employed by the company using a company car, maybe a bit more for maintenance etc. I’d think keeping an executive of a large company productive for an extra hour a day would be easily worth that extra two hundred dollars.


Anonymous says:

I’m finding it hard to get my knickers in a twist about this one. It’s not private jets that’s for sure.

The cab fare after-9pm stuff is pretty typical, no? It’s always been offered to me wherever I’ve worked, and I’m 99% sure yellow cabs won’t take you to westchester or connecticut. And it must be cheaper to get these guys towncars (and really, there’s limos and there’s limos, some of them are awful scruffy) than pay them mileage and parking – especially for airport runs.

Anonymous says:

First off, these banks shouldnt be getting these bailouts and tax payer money to start with.. If you screw up and go broke, you go thru chapter 11 restructuring or close the doors and go home. But since we now have the bailout. I believe the banks should be able to spend that money exactly as they choose, because it IS stimulating the economy. Limos need drivers, (they hire a guy to drive the limo), they need upkeep and maintenance (someone is getting paid to do this, there for we have another job), remodeling a bathroom in an office.. Gives a contractor or two some business, so they have an income to pay their employees which puts food on thier tables, along with the materials going in to the remodel, Paint company is able to make some money and pay thier guys, along with the furnature company, the carpet outfit, the door/glass and plumbing outfits.. Private Jets, gotta hire a pilot, and upkeep crew, pay to store the thing and pay a logistics company to handle the flight plans. This all creates jobs. its not like the money is going in to a blackhole and doing nothing. We may think these are poor uses of tax dollars but at least they are going back in to the economy and providing someone somewhere a job (even if its only for a little while). What would make me madder than bailing them out in the first place is they just hoard that money and it never goes anywhere…