Millions of Seniors to Receive Smaller Social Security Checks in 2010

Group to Call for Emergency COLA Legislation

By: PR Newswire | 02 Sep 2009 | 09:04 AM ET

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WASHINGTON, Sept 02, 2009 /PRNewswire-USNewswire via COMTEX/ -- Millions of seniors will receive smaller Social Security checks next year, and none of the 37 million seniors who receive Social Security will get an increase, according to an August forecast from the Congressional Budget Office (CBO). The CBO is also forecasting a zero COLA for 2011.

In June, The Senior Citizens League (TSCL) became the first national group to call for an Emergency COLA for 2010. Since then, Sen. Bernie Sanders (I-VT) announced plans to introduce an Emergency COLA bill, expected later this month.

Next year would mark the first time since automatic Cost of Living Adjustments (COLA) went into effect in 1975 that seniors would fail to get an increase.

Since automatic raises were established, seniors have never failed to receive an annual increase of less than 1.3 percent.

Millions of seniors will receive cuts due to the soaring costs of prescription drug plans, which many beneficiaries have automatically deducted from Social Security checks.

"Just as more seniors than ever before are slipping into poverty and filing bankruptcy, the government thinks it's acceptable to eliminate COLAs and cut benefits," said Daniel O'Connell, chairman of The Senior Citizens League. "We wholeheartedly support any effort in Congress that would provide seniors with an Emergency COLA next year." Almost 70 percent of beneficiaries depend on Social Security for 50 percent or more of their income. Social Security is the sole source of income for 15 percent of beneficiaries.

See "Night in America," our latest video about seniors at risk, at www.YouTube.com/SeniorCitizensLeague.

Proponents of a zero COLA argue for its fairness in a deflationary period. But they do not mention that the way the COLA is calculated does not accurately track senior costs. TSCL supports a change in the Consumer Price Index (CPI) used to determine the COLA.

The government currently calculates the COLA based on the CPI for Urban Wage Earners and Clerical Workers (CPI-W), a slow-rising index that tracks the spending habits of younger workers who don't spend as much of their income on health expenditures.

However, the government does track the spending patterns of older Americans, and has done so since 1983 with the CPI for Elderly Consumers, or CPI-E. By tying the annual increase in the COLA to the CPI-E, seniors would see much needed relief in their monthly checks. For example, a senior who retired with a monthly benefit of $676 in 1984 would have received $17,596 more throughout their retirement with the CPI-E.

TSCL supports two CPI-E bills in the current Congress: H.R. 2429 and H.R. 2365, as well as any impending Emergency COLA legislation.

The Coming Deposit Insurance Bailout

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Another lesson that federal guarantees aren't free.

Americans are about to re-learn that bank deposit insurance isn't free, even as Washington is doing its best to delay the coming bailout. The banking system and the federal fisc would both be better off in the long run if the political class owned up to the reality.

We're referring to the federal deposit insurance fund, which has been shrinking faster than reservoirs in the California drought. The Federal Deposit Insurance Corp. reported late last week that the fund that insures some $4.5 trillion in U.S. bank deposits fell to $10.4 billion at the end of June, as the list of failing banks continues to grow. The fund was $45.2 billion a year ago, when regulators told us all was well and there was no need to take precautions to shore up the fund.

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Associated Press

FDIC Chairman Sheila Bair

The FDIC has since had to buttress the fund with a $5.6 billion special levy on top of the regular fees that banks already pay for the federal guarantee. This has further drained bank capital, even as regulators say the banking system desperately needs more capital. Everyone now assumes the FDIC will hit banks with yet another special insurance fee in anticipation of even more bank losses. The feds would rather execute this bizarre dodge of weakening the same banks they claim must get stronger rather than admit that they'll have to tap the taxpayers who are the ultimate deposit insurers.

It isn't as if regulators don't understand the problem. Earlier this year they quietly asked Congress to provide up to $500 billion in Treasury loans to repay depositors. The FDIC can draw up to $100 billion merely by asking, while the rest requires Treasury approval. The request was made on the political QT because, amid the uproar over TARP and bonuses, no one in Congress or the Obama Administration wanted to admit they'd need another bailout.

But this subterfuge can't last. Eighty-four banks have already failed this year, and many more are headed in that direction. The FDIC said it had 416 banks on its problem list at the end of June, up from 305 only three months earlier. The total assets of banks on the problem list was nearly $300 billion, and more of these assets are turning bad faster than banks can put aside reserves to account for them. The commercial real-estate debacle is still playing out at thousands of banks, even as the overall economy bottoms out and begins to recover.

Meantime, even as it "resolves" and then sells failed banks, the FDIC is also guaranteeing the buyers against losses on tens of billions of acquired assets. This is known in the trade as "loss sharing," which is another form of taxpayer guarantee that taxpayers aren't supposed to know about. Most of the losses won't be realized if the economy recovers. But this too is a price of taxpayers guaranteeing deposits. Even as Treasury and the press corps broadcast that the feds are making money on TARP repayments, these guarantees go largely unnoticed.

FDIC Chairman Sheila Bair continues to say that deposits will be covered up to the $250,000 per account insurance limit, and of course she's right. But we wish she'd force Congress—and the American public—to face up to the reality of what deposit insurance costs. Amid the panic last year, Congress raised the deposit limit from $100,000. While this may have calmed a few nerves—though the worst runs were on money-market funds, not on banks—it also put taxpayers further on the hook.

The $250,000 limit was supposed to expire at the end of 2009, but in May Congress extended it through 2013, and no one who understands politics thinks it will return to $100,000. The rising bank losses mean that the FDIC's ratio of funds to deposits is down to 0.22%, far below its obligation under the insurance statute to keep it between 1.15% and 1.50%.

Rather than further soak capital from already weak banks, the FDIC ought to draw down at least $25 billion from its Treasury line of credit. Ms. Bair is going to have to ask for the cash sooner or latter, and she might as well do it before the fund hits zero and we get another round of even mild depositor anxiety. We suppose Congress could raise a faux fuss, but these are the same folks who ordered the FDIC to broaden the insurance limit. They need to face the political consequences of their promises.

Estimate for 10-Year Deficit Raised to $9 Trillion

August 26, 2009

By JACKIE CALMES

WASHINGTON— The nation’s fiscal outlook is even bleaker than the government forecast earlier this year because the recession turned out to be deeper than widely expected, the budget offices of the White House and Congress agreed in separate updates on Tuesday.

The Obama administration’s Office of Management and Budget raised its 10-year tally of deficits expected through 2019 to $9.05 trillion, nearly $2 trillion more than it projected in February. That would represent 5.1 percent of the economy’s estimated gross domestic product for the decade, a higher level than is generally considered healthy.

The Congressional Budget Office, which unlike the administration did not account for the president’s policy proposals in its latest report, increased its projection of deficits over the next decade. Absent any changes in law, it said the deficit would rise to $7.1 trillion, from $4.4 trillion in March.

The C.B.O. did analyze the president’s budget in June and concluded his proposed tax cuts and spending would push deficits through 2019 above $9 trillion. While the administration now agrees with that figure, technical data in the new C.B.O. report suggests that if it were to review the Obama budget now, it would project deficits through 2019 above $10 trillion, analysts speculated.

Anticipating that the deficit figures will stoke the debate over the costs of Mr. Obama’s effort to overhaul health care, the administration was quick to say that much of the projected deficit was a legacy of the Bush administration and that the Obama administration was committed to restoring budget discipline when the economy recovers.

“Over all, it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path,” Peter R. Orszag, the president’s budget director, wrote on his agency’s Web site.

As the president has argued before, Mr. Orszag said that rising deficits make an overhaul of the health care system essential, because the government’s ballooning costs for Medicare and Medicaid are “the key driver of our long-term deficits.”

Congressional Democrats echoed that argument in statements reacting to the budget reports. But Republicans concluded otherwise.

“While the U.S. health care system does need to be reformed, we cannot ignore the fiscal realities of our situation,” Senator Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee, said in a statement. “We must proceed with extreme caution before putting in place a huge and costly new program that will threaten our economy and the future of our children,” he added.

The budget updates from the White House and Congress, required each summer by law, incorporate economic data from last winter that turned out to be worse than either public or private forecasters expected as the year began, and also reflect the costs since then of spending and tax cuts to stimulate the economy and bail out the financial, auto and housing sectors.

Amid signs that the downturn has hit bottom and a slow recovery was under way, one lagging indicator troubles Democrats. The administration now projects that while the economy will return to growth later this year, though more slowly than it forecast in February, the unemployment rate will top 10 percent before employers start rehiring. That would be up from 9.4 percent in July, and a sharp jump from the 8 percent that the administration forecast earlier.

The relative good news was that the administration and Congress’s budget office reduced their projected deficits for the current fiscal year that ends Sept. 30.

Each agency now says that the fiscal 2009 deficit will reach $1.6 trillion, or 11.2 percent of G.D.P., the highest level since World War II. Previously the administration projected $1.8 trillion, or nearly 13 percent of G.D.P.; the Congressional office had projected $1.7 trillion.

The reduction for just this year is largely because of lower-than-expected costs for rescuing financial institutions and because some banks repaid money from the $700 billion bailout program that began in the last months of the Bush administration.

When Mr. Obama took office, his budget office projected it had inherited a deficit for 2009 of $1.3 trillion; the C.B.O. estimated $1.2 trillion.

Since then, the administration and Democratic-controlled Congress have enacted a $787 billion stimulus package, though less than half of that will be disbursed this fiscal year, as well as supplemental spending for the wars in Iraq and Afghanistan and bailouts for two automakers.

Also, the recession has reduced anticipated revenue from taxpayers, and increased spending for safety-net programs like jobless benefits and food stamps.

The budget reports underscored another factor that increasingly is driving up deficits: the cost of interest on the expanding federal debt, which is the accumulation of all annual deficits. The debt, which was 33 percent of the G.D.P. when the decade began, would reach 68 percent by 2019.

The House Republican leader, Representative John A. Boehner of Ohio, said in a statement, “the Democrats’ out-of-control spending binge is burying our children and grandchildren under a mountain of unsustainable debt.”

Administration officials countered that they were restoring pay-as-you-go budget rules that Republicans had shelved when they were in power, though Democrats would exempt major items. Democrats also said that while they are trying to offset the costs of health care changes, Republicans in the Bush years cut taxes, waged wars and created a Medicare drug benefit, all by deficit financing.

“It’s fairly clear that responsibility for these numbers doesn’t lie with Barack Obama but with the policies that were in place before him,” said Stan Collender, a longtime budget analyst at the consulting firm Qorvis Communications. He said either Mr. Bush or Senator John McCain, Mr. Obama’s Republican rival in 2008, would have increased the deficit comparably this year with more war and stimulus spending.

But, he added, “regardless of who’s to blame, it’s undeniably Barack Obama’s problem now.”

The administration, with backing from many economists, has said it would not try to cut the short-term deficits until the economy recovers enough that businesses and consumers resume their spending and investment. But Mr. Orszag said the administration, in next year’s budget, would propose savings other than in health care to arrest long-term deficits.

His office’s budget report also said that “the president is committed to addressing the shortfall in the Social Security system.”

BB&T buys Colonial bank; 4 other banks fail

Southern regional bank Colonial BancGroup sees rival grab its branches and deposits.

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By Chris Isidore and Julianne Pepitone, CNNMoney.com writers

Last Updated: August 15, 2009: 12:11 AM ET

DID YOUR BANK FAIL?

• For more information visit www.fdic.gov
• Don’t panic – your savings are insured
• Keep paying your loans – the terms remain the same.
• The FDIC will notify you by mail about your accounts/loans.
• Contact the FDIC with any questions until further notice
• If your bank is purchased, you will be contacted by your new bank.

NEW YORK (CNNMoney.com) -- Troubled Colonial BancGroup will be bought by rival BB&T Friday, the government said after state regulators closed the bank whose assets had been frozen by a federal judge.

The Montgomery, Ala., bank, which has 346 branches spread across Florida, Alabama, Georgia, Nevada, and Texas, is the sixth largest bank failure in U.S. history and by far the largest failure of 2009.

With $25 billion in assets and $20 billion in deposits, Colonial is 100 times larger than the typical bank to have failed this year.

BB&T (BBT, Fortune 500) will buy $22 billion of Colonial's assets, as well as its deposits and branches, leaving the remaining assets in the hands of the Federal Deposit Insurance Corp.

BB&T, based in Winston-Salem, N.C., is also a regional banking power, with 1,500 branches across the Southeast. It is also a major mortgage lender.

Most customers of Colonial should not be affected by the closing. The FDIC, the federal agency that has protected bank deposits since the Great Depression, will guarantee account balances up to $250,000.

But home buyers and those who want to refinance their mortgages could end up paying somewhat higher rates, even if they have never heard of Colonial, said Guy Cecala, publisher of trade publication Inside Mortgage Finance.

Cecala said Colonial was a significant player in the sector of the business known as "mortgage warehouse" lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

"The more firms like this that get out, the more dependent we get on large banks, and less competition there is. That's never a good thing," he said. Warehouse lending used to be a huge source of funds for home loans, according to Cecala, but the mortgage defaults and declining home prices of recent years has decimated the business.

"The warehouse lending market is now so fragile and so small, it doesn't help when we lose anybody," he said. "We have only a cup of water where we used to have a bucket of water."

Trust fund hit: The failure of Colonial is another blow to the FDIC trust fund, which has had to cover 77 bank failures so far in 2009 -- including four more late Friday (see below).

The fund took a $35.1 billion hit in 2008, and an additional $4.3 billion decline in the first quarter of this year, leaving it with assets of only $13 billion as of March 31. But most of last year's decline was due to $25 billion the agency set aside to cover future losses.

"The past 18 months have been a very trying period in the financial services arena," said FDIC Chairman Sheila Bair, in the Colonial failure release. "Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected.

Little more than a year ago, bank failures were relatively rare, with only four occurring in the first six months of last year. The collapse of IndyMac, a major mortgage lender, in July 2008, signaled a rash of failures to follow. IndyMac cost the FDIC about $10.7 billion by itself, and is the most expensive failure in history.

Colonial will likely be one of the most expensive bank failures, according to Chip MacDonald, a banking lawyer at Jones Day, given its active position in mortgage warehouse lending across the Southeast.

The FDIC said Colonial's closing will cost the Deposit Insurance Fund $2.8 billion. "That's a significant share of the FDIC fund," he said.

It is now a rare Friday night that the agency does not seize the assets of a newly failed bank. And the number of banks judged as troubled has soared to 305 as of March 31, up from only 90 a year earlier. Those 305 problem banks on the FDIC's confidential list have combined assets of $220 billion.

The trust fund that covers the deposits is paid by banks, and the weaker banks have seen those premiums rise about 14% in the last year. The agency has also announced a special one-time assessment on bank assets that will raise $5.6 billion for the fund this September. But those funds will come from money that the banks will not lend out to businesses and consumers in hopes of reviving the economy.

Legal problems: MacDonald said that Colonial is also unusual because of the allegations of criminal wrongdoing at the bank.

Colonial disclosed on Aug. 4 that federal agents had executed a search warrant at its mortgage warehouse lending offices in Orlando, Fla. It also had been forced to sign a cease and desist order with the Federal Reserve and regulators at the end of last month related to its accounting practices and recognition of losses, which limited its abilities to make dividends or other payments to investors.

The agents who searched its offices came from the Special Inspector General for the Troubled Asset Relief Program, even though Colonial never received TARP funds.

Colonial applied for TARP assistance but had been told it needed to be able raise an additional $300 million in private capital to be eligible for the federal assistance. On March 31 Colonial announced it had found such an investor in Taylor, Bean & Whitaker Mortgage Co., a major non-bank mortgage lender based in Florida. But that deal collapsed, and TBW halted operations on Aug. 5 as its offices were also searched by federal agents.

The bank had issued a statement to investors in November saying it had applied for TARP and had no reason to believe its application was being processed through the normal channels. After it later disclosed the need to raise the additional $300 million in capital to get TARP, it was hit by a shareholder suit.

Colonial could end up as the second-most expensive bank failure, according to Chip MacDonald, a banking lawyer at Jones Day, given its active position in mortgage warehouse lending across the Southeast.

"It's probably going to be cheaper than IndyMac, but my guess is it could be $5 billion to $7 billion," he said. "That's a significant share of the FDIC fund."

The sale of Colonial to BB&T also comes a day after U.S. District Judge Adalberto Jordan ruled in favor of Bank of America (BAC, Fortune 500), which had requested a temporary restraining order to keep Colonial from liquidating or transferring assets worth $1 billion.

"Viewing Colonial's contractual breach in conjunction with the fact that Colonial is on the brink of collapse and is suspected of criminal accounting irregularities, the potential for immediate substantial injury to Bank of America is clear," the judge said in his order.

The lawsuit that prompted the order was filed by Bank of America. It involved more than 6,000 mortgages issued by its subsidiary and held in trust by Colonial. According to the motion, Bank of America is owed more than $1 billion in assets, but Colonial had failed to pay the amount owed.

Last month, the bank said in a statement that it had "substantial doubt about Colonial's ability to continue" due to uncertainties about its ability to increase its capital levels.

Shares of Colonial (CNB), which fell 80% in 2009, were not trading Friday. But shares of BB&T (BBT, Fortune 500) gained nearly 9% on the report of the acquisition.

Four other banks fail: Late Friday, the FDIC also said that four other banks had failed. Outside of Colonial, the largest collapse of the day was Community Bank of Nevada in Las Vegas, which went under with assets of $1.52 billion and total deposits of about $1.38 billion. Its failure will cost the FDIC's Deposit Insurance Fund an estimated $781.5 million

The Nevada bank did not find a buyer, leaving the FDIC in control of its assets. The agency immediately created a new institution, the Deposit Insurance National Bank of Las Vegas, which will remain open for approximately 30 days to allow depositors access to their insured deposits and give them time to open accounts at other insured institutions. Banking activities, such as direct deposit, writing checks, and using ATM and debit cards, will continue normally through the transition.

Dwelling House Savings and Loan Association in Pittsburgh closed its door for the last time Friday. The FDIC said PNC Bank will assume control of its assets. It was the first Pennsylvania bank to fail this year.

As of March 31, Dwelling House held assets worth $13.4 million and total deposits of $13.8 million. The FDIC estimates that this closure will cost the its insurance fund $6.8 million.

MidFirst Bank of Oklahoma City assumed all deposits of two failed Arizona banks, Union Bank in Gilbert and Community Bank of Arizona in Phoenix. Community Bank of Arizona had assets of $158.5 million and total deposits of approximately $143.8 million. Union Bank had assets of $124 million and total deposits of approximately $112 million.

The two failures, the first in Arizona this year, will together cost the FDIC's insurance fund around $86.5 million.

The 77 bank failures so far in 2009 has more than tripled last year's total of 25.

AP NewsBreak: US bought oil stolen from Mexico

MEXICO CITY (AP) -- U.S. refineries bought millions of dollars worth of oil stolen from Mexican government pipelines and smuggled across the border, the U.S. Justice Department told The Associated Press -- illegal operations now led by Mexican drug cartels expanding their reach.

Criminals -- mostly drug gangs -- tap remote pipelines, sometimes building pipelines of their own, to siphon off hundreds of millions of dollars worth of oil each year, the Mexican oil monopoly said. At least one U.S. oil executive has pleaded guilty to conspiracy in such a deal.

On Tuesday, the U.S. Homeland Security department is scheduled to return $2.4 million to Mexico's tax administration, the first batch of money seized during a binational investigation into smuggled oil that authorities expect to lead to more arrests and seizures.

"The United States is working with the Mexican government on the theft of oil," said Nancy Herrera, spokeswoman for the U.S. Attorney's office in Houston. "It's an ongoing investigation, with one indictment so far."

In that case, Donald Schroeder, president of Houston-based Trammo Petroleum, is scheduled to be sentenced in December after pleading guilty in May.

In a $2 million scheme, Herrera said, Schroeder purchased stolen Mexican oil that had been brought across the border in trucks and barges and sold it to various U.S. refineries, which she did not identify. Trammo's tiny firm profited about $150,000 in the scheme, she said.

Schroeder's attorneys said in an e-mail that neither they nor their client would respond to AP's requests for comment.

Bill Holbrook, spokesman for the National Petrochemical & Refiners Association, said a single indictment against a small company should not be used to smear the reputation of the entire U.S. oil industry, "and is not indicative of how domestic refiners operate."

But in Mexico, federal police commissioner Rodrigo Esparza said the Zetas, a fierce drug gang aligned with the Gulf cartel, used false import documents to smuggle at least $46 million worth of oil in tankers to unnamed U.S. refineries.

Mexico froze 149 bank accounts this year in connection with that crime, which continues at a record rate, according to Mexico's state oil monopoly Petroleos Mexicanos, or Pemex.

In a surprising public acknowledgment, Mexican President Felipe Calderon said last week that drug cartels have extended their operations into the theft of oil, Mexico's leading source of foreign income which finances about 40 percent of the national budget.

"These are Mexican resources, and we do not have to sit back or turn a blind eye," Calderon said. "This is our national heritage and we must defend it."

Highly sophisticated thieves using Pemex equipment "are basically working day and night, seeing how they can penetrate our infrastructure," said Pemex spokesman Carlos Ramirez. The thieves, operating in remote parts of the country, have even built tunnels and their own pipelines to siphon off the product, he said.

How much of the stolen oil is crossing into the U.S., and how much of the theft is at the hands of cartels? So far, nobody knows.

"These questions are really the center point of all of this," Ramirez said.

He said cartels in northern Mexico are responsible for most of the theft, though he said there may well be internal operatives at Pemex stealing as well. Last week, police raided Pemex offices looking for insider misconduct.

Trammo, the sole company named in court records so far, is dwarfed by any refiner most people have heard of. It sells some 2.1 million barrels a year.

Major refiners such as San Antonio-based Valero Energy can produce more than that in a single day, buying crude from tankers or pipelines, and none has been implicated in buying stolen oil.

"It is Exxon Mobil's policy to always obey relevant laws, rules and regulations everywhere we operate," said spokesman Kevin Allexon. Shell Oil Co. said it abides by all laws.

Various kinds of petroleum products, including gasoline, are being stolen and sold to gas stations and factories in Mexico, said Ramirez, adding that service stations in at least two states have been shut down recently for selling stolen gas.

The thefts are a devastating blow to Pemex, which saw production fall 7.5 percent in the first half of the year.

So far this year, Pemex is aware of 190 different thefts, almost half in the Gulf state of Veracruz. Ramirez said Pemex is using hidden cameras, extra guards and additional investigators to catch the thieves, but the problem is still spreading: So far this year, oil theft is up 10 percent, and have been confirmed in 19 states, up from 13 in 2008.

And oil theft experts say that just like drugs, the crimes will be tough to stop as long as there's money to be made.

"U.S. refineries willing to buy stolen crude don't care where it comes from. Once the product is at their doorstep, the deal is done, and they can pay pennies on the dollar without taking the risk of getting it across the border," said Kent Chrisman, director for global security with Oklahoma City-based Devon Energy.

Chrisman, a former Secret Service agent, recently teamed up with Texas law enforcement agents to bust a ring of thieves in that state.

Oil theft in general is a relatively new problem, Chrisman said, "but we've seen a big spike in recent years because oil prices went up. Every year it seems to get worse and worse. It's a profitable business."

Bank Bonuses $33 Billion

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year -- including more than $1 million apiece to nearly 5,000 employees -- despite huge losses that plunged the U.S. into economic turmoil.

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Top employees at nine big U.S. banks that received government aid shared a bonus pool of $32.6 billion. A breakdown of those receiving more than $1 million each.

The data, released Thursday by New York Attorney General Andrew Cuomo, provide a rare window into the pay culture of Wall Street, where top employees typically make 90% or more of their compensation in year-end bonuses.

The $32.6 billion in bonuses is one-third larger than California's budget deficit. Six of the nine banks paid out more in bonuses than they received in profit. One in every 270 employees at the banks received more than $1 million.

Overall compensation and benefits at the nine banks fell 11%, to $133.5 billion in 2008 from $149.3 billion in 2007, the Cuomo report said. But with net revenues falling, the percentage of the firms' revenues dedicated to compensation rose to 45% last year from 41% in 2007.

The report reignites long-simmering anger, on Capitol Hill and beyond, over big Wall Street payouts. The nine firms in the report had combined 2008 losses of nearly $100 billion. That helped push the financial system to the brink, leading the government to inject $175 billion into the firms through its Troubled Asset Relief Program.

The chairman of the U.S. House investigative panel, New York Democrat Edolphus Towns, called the pay figures "shocking and appalling" and announced a hearing into compensation practices at banks.

The White House was more muted. "The president continues to believe that the American people don't begrudge people making money for what they do as long as...we're not basically incentivizing wild risk-taking that somebody else picks up the tab for," said White House Spokesman Robert Gibbs.

More

• Read the full report from the New York Attorney General's office.
• Real Time Econ: Back to the Good Times
• Financial News: Bloggers' reactions

Deal Journal

• What Are Your Chances of Being a Millionaire?
• Bonus Breakdown From Cuomo's Report

Those on Wall Street argue they have to pay to keep talent. Often, bankers say, only a small group is responsible for losses and it is not fair to punish employees in other areas of the business. They say the compensation system will be difficult to change.

"These pay packages are pretty outrageous," said Michael Baldock, a partner at Stamford, Conn.-based boutique bank Ondra LLP, who has worked at a number of big investment banks. "But if you generate $10 million in revenue a year, another firm will always want that revenue and be willing to pay for it."

In releasing the report now, New York Attorney General Cuomo is vaulting ahead of federal efforts to assess and curb excessive pay. The office has been among the first to investigate and bring charges on several Wall Street abuses this decade.

The House of Representatives is preparing to vote as early as this week on a bill that would give shareholders nonbinding say on pay packages and give regulators more tools to prohibit risky pay practices at banks and other regulated financial firms. The Senate isn't expected to vote on the legislation until the fall.

The Obama administration, meanwhile, is preparing to vet pay at firms receiving "exceptional assistance" from the government. Institutions have until Aug. 13 to submit proposed compensation details for the 100 highest-paid employees at each. The Treasury Department's pay czar, Kenneth Feinberg, could push banks to renegotiate deals he sees as rewarding risky behavior or that are out of line with compensation at similar institutions.

Andrew Williams, a Treasury spokesman, said Mr. Cuomo's report "focuses on strengthening the link between pay and performance -- a goal that we share."

Andrew Cuomo

Mr. Cuomo said Thursday he hopes his report will prompt the financial firms themselves to significantly overhaul their pay system to reward long-term performance rather than short-term gains. His report didn't release names of individual bonus recipients because of privacy concerns.

"The banks say they pay for performance," Mr. Cuomo said of the data. "Yet in 2008 there was no performance and they still continued to pay out huge sums of money."

Wall Street has shown little sign of slowing down the pay train this year. Goldman Sachs Group Inc. and Morgan Stanley recently disclosed that they have set aside $11 billion and $6 billion in compensation and benefits, respectively, for their employees so far this year. Goldman's second quarter was among its best ever. Morgan Stanley lost money for its third straight quarter.

Goldman and Morgan Stanley declined to comment on the report.

Meanwhile, some big banks that received government bailouts, including Citigroup Inc. and Bank of America Corp., are offering handsome pay packages to lure stars. Citigroup -- which received about 25% of the aid going to the nine banks -- has the No. 1 pay recipient. Andrew Hall, who heads Citigroup's energy-trading unit Phibro LLC, received $98.9 million in 2008, according to a government official. Citigroup CEO Vikram Pandit, by comparison, received more than $38 million last year.

An early test for Mr. Feinberg will be the pay of Mr. Hall, whose profit-sharing contract with the bank could again entitle him to as much as $100 million, say people familiar with the matter.

James Forese, Citigroup co-head of global markets, cited Phibro's "consistent track record of profitability" and said its contracts directly align compensation with performance. "That said, we are sensitive to the need for a full review of compensation practices in our industry," he said. "We are evaluating the best way forward for stakeholders."

The group of nine's No. 2 bonus for last year, according to a government official, was the $39.4 million that went to Bank of America's Thomas Montag. In 2008, Mr. Montag was sales and trading chief at Merrill Lynch, which got crushed by billions of dollars in mortgage-related losses and was sold to Bank of America. Mr. Montag's pay package included stock grants, which since have fallen in value.

Bank of America said bonuses for Merrill Lynch were shared among 30,000 employees and Bank of America's figures cover more than 200,000 employees.

The study found that pay at the banks remained near previous levels despite revenue declines. Merrill's net revenue fell by $23 billion in 2008, leading to a huge net loss. The firm's pay and benefits dropped by $1.1 billion, or 7%, according to the study. At Citigroup, revenue fell by $28 billion, or 34%. Pay and benefits dropped $2 billion, or 6%.

Similarly, at Goldman and J.P. Morgan Chase & Co., pay fell less sharply than revenue in 2008. Both firms have paid back the government loans they received under TARP. J.P. Morgan declined to comment on the report.

Goldman, Morgan Stanley and Merrill, Wall Street's three largest securities firms in 2008, paid nearly $13 billion in bonuses last year, the report says. That was roughly one-third of their total pay and benefits of $38 billion, according to securities filings.

J.P. Morgan topped other banks in the number of employees receiving $1 million or more -- 1,626 out of its 224,961 employees. This figure includes bonus, salary and options; the numbers of other banks in the study includes bonuses only.

J.P. Morgan's top earner collected $29 million, more than James Dimon, the firm's chief executive, who got $19.7 million in total compensation last year.

Goldman paid the most per employee, about $160,000 each for more than 30,067 staffers. Some 212 Goldman bankers made $3 million or more. Goldman, which weathered the credit crisis better than most rivals and made $2.3 billion in 2008, produced the most revenue per employee, $77,228.

Goldman has said that no partner got a bonus of more than $222,500 in cash. The rest was paid in deferred stock, with an extra year of service required for any of it to vest.

Morgan Stanley had 428 employees who received bonuses of $1 million or more. In addition, 10 people received bonuses of $10 million or more, for a combined $146.8 million.

Wells Fargo & Co., Bank of New York Mellon Corp. and State Street Corp. round out the nine banks. Each declined to comment.

—Aaron Lucchetti, Daniel Fitzpatrick and Robin Sidel contributed to this article.

Write to Susanne Craig at susanne.craig@wsj.com and Deborah Solomon at deborah.solomon@wsj.com

Soaking the poor

Ever use your debit card and overdraw your checking account, only to later discover that the bank lent you the money -- at a fee -- to cover the overdraft?

Do the math. You may find that you paid an effective 3,000 percent annual interest rate on a courtesy loan you never asked for.

Electronic Loan Sharking

Consumer advocates have been calling on financial institutions to address abusive overdraft practices for several years, and now Congress is poised to act.

"I don't know what loan sharks are charging these days, but these rates are probably a bit higher," says Eric Halperin, director of the Washington office of the Center for Responsible Lending (CRL). "They're more expensive than any other financial product out there."

In the old days, banks would deny a check payment if you didn't have adequate funds in your account, and charge a bounced-check fee. The only way to avoid this (both then and now) was to have a backup -- a link to a savings account or line of credit. If overdrafts became too frequent, the bank would close your account.

Fee Overload

Today, debit and other electronic transactions are the dominant form of payment. Rather than deny payment, most banks automatically cover your small-dollar overdraft and slap you with a fee averaging $34 on every subsequent transaction until your account is back in the black.

A CRL study released this month found consumers pay $17.5 billion in fees on abusive overdraft loans. The average overdraft is just $27, and is typically repaid within five days.

"In 2004, 80 percent of banks routinely declined overdrafts," says Halperin. "Today, 14 of the 15 largest banks routinely cover overdrafts. It indicates a dramatic shift in the marketplace." The Federal Reserve allows banks to enroll consumers in overdraft protection programs without their written consent.

Shady Practices

Moreover, banks can legally manipulate the order in which they pay checks and debits to maximize fees. Consider this example: Bob thinks he has $1,300 in his checking account, but he only has $1,150. He conducts six debit transactions totaling $180, and then pays his rent, for $1,100. He's overdrawn the account by $130.

Bob's transactions arrive in one batch at the bank. Instead of paying the six transactions and charging a single overdraft fee on the rent check, the bank pays the rent check first, followed by one transaction for $50. It then provides overdraft loans for the other five payments, so Bob incurs five separate fees of $34 each -- or $170. (Banks reserve the right to pay checks in any order; see, for example, the policy of U.S. Bank.)

Two weeks later, Bob deposits his paycheck, and the bank gets its money back. Bottom line: When Bob pays $170 for a two-week loan of $130, the annual percentage rate comes out to 3,400 percent. (See my blog for details on this calculation.) But the Federal Reserve has ruled that overdraft fees are not considered finance charges that have to be disclosed, a spokesperson said.

Preying on the Most Vulnerable

Overdraft loan abuses fall mostly on the backs of middle- and lower-income consumers with little financial education, like Paddy Page, an Idaho mother of four. She receives no child support from the abusive husband she left six years ago, who's now in prison.

Page, who dropped out of high school but eventually earned her GED, works full time as a bill collector for Citibank, making $12 an hour. With no family nearby, she was on her own after her divorce.

"Once you get caught in the cycle, it's hard to get out of it," Page says, adding that most of her overdrafts were for groceries and medical bills for her kids. She racked up nearly $500 in overdraft fees last year at Washington Mutual Bank -- $243 of it over a two-day period in August, for nine overdrawn transactions.

Sleepless Nights, Tipped Scales

Like many consumers, Page didn't maintain her checkbook register, relying on her online account balance -- which didn't factor in outstanding paper checks. And because Page chose Washington Mutual's "free" checking account, she wasn't eligible to open a cheaper line of credit.

"I couldn't make it. There were times when I had no money and no groceries," she recalls. "I'd go to the grocery store and think, 'What else can I do?' I'd write a check, the bank would cover it, and on my next paycheck I'd be fighting to get back up to zero in my account. I couldn't sleep at night; I was about to lose my home."

Clearly, the consumer who spends more than he or she has is at fault. But the scales may be tipped against them: The Check Clearing for the 21st Century Act, approved in 2004, allows banks to clear checks they receive more quickly than in the past. But the act doesn't require financial institutions to credit deposits any faster.

Page, for instance, says she would sometimes make a deposit and get hit with an overdraft fee because the credit didn't clear as quickly as she expected.

Without Warning

Consumer advocates would like to see banks provide a warning to consumers if a transaction would overdraw their account. Similar technology already exists: When you use another bank's ATM, you sometimes receive a warning that you'll pay a $1 or $2 fee. You can choose whether to pay the fee or cancel the transaction.

A survey conducted by CRL earlier this year found that three-quarters of consumers wanted to be warned if they were on the verge of withdrawing more than they had in their account.

But the American Bankers Association (ABA) says it would be unfeasible to apply the technology this way; it would lengthen transaction times and raise the costs to merchants and consumers. "Consumers are in control of their finances and can avoid overdraft fees," said Nessa Feddis, ABA senior federal counsel, in a Congressional hearing earlier this month.

A Happy Ending

Happily, Page got back in control of her finances with the help of a fellow church member who's a financial executive.

They worked together to create a budget; get on time with her bills; learn to steer clear of high-fee payday loans and check-cashing stores; and pay off her credit cards.

Page's oldest two children are now in college. "I tell my kids all the time that education will set you free," she says. "You don't want to be bouncing checks and always scrounging money just to have groceries. It's ridiculous."

Help on the Horizon

Representatives Carolyn Maloney (D-N.Y.), Barney Frank (D-Mass.), and Julia Carson (D-Ind.) are sponsoring legislation (HR 946, or the Consumer Overdraft Protection Fair Practices Act) to protect consumers from abusive overdraft policies. The act contains four common-sense provisions to address some of the industry's sneakier tactics. It would:

• Require written consent from the consumer before enrollment in an overdraft loan program.

• Require financial institutions to warn the customer when an ATM withdrawal will trigger a fee -- and allow the customer to cancel the transaction at that time.

• Prohibit financial institutions from manipulating the order of check clearing or delaying the posting of deposits to increase customers' overdraft loan fees.

• Amend the Truth in Lending Act to clarify that overdraft fees are finance charges, so that annual interest rates are reported. This would allow consumers to compare overdraft loans with other credit options -- such as lines of credit, which typically offer annual interest rates of less than 20 percent.

Act Now

In her prepared remarks, the ABA's Feddis told the Congressional hearing that forcing financial institutions to report an annual percentage rate would confuse customers: "In these cases, the fee is fixed, the overdraft often small, and the term of repayment short. It is easy to see how triple digit APRs would result ... In the overdraft-fee context, consumers understand a dollar amount far better than an inflated and meaningless APR."

I think consumers are brighter than that: Given a chance to consider the APR on overdraft loans, they'd understand that their bank has been taking them to the cleaners.

Click here to email your support for the Consumer Overdraft Protection Fair Practices Act bill.