Memo to US Taxpayers — you’ve just paid for the bonuses of rich investment bankers.

The beauty of spending a little bit of a lot of people’s money is that they tend not to complain about it too much. The US Government’s Troubled Asset Relief Program (TARP) was such an exercise. Already, Hank Paulson and his henchmen have blown almost US$350 billion of taxpayer dollars bailing out corrupt and incompetent investment banks who couldn’t tell the difference between sub-prime mortgages and sub-prime beef. To make matters worse, those very banks are now getting away with using the taxpayer dollars to pay their employees who got them into the trouble in the first place.

As part of the TARP program, there were calls for restraint in paying some of the extraordinary salaries received by investment bankers (specifically, traders and salespeople who dealt in mortgage securities). The investment banks promised not to use taxpayer dollars on employee remuneration.

However, it comes as no surprise to read that one of the two last banks standing, Morgan Stanley, has set aside US$12.3 billion for compensation and benefits in 2008 (a mere drop of 26% on last year’s record amount). Now Morgan Stanley will no doubt claim that the US$10 billion in TARP money it received was not paid to employees in bonuses, but that of course, it a convenient lie. Money is fungible — whether the US$10 billion was paid to employees, or used to shore up capital ratios is irrelevant — the fact remains, taxpayers gave Morgan Stanley US$10 billion and then Morgan Stanley gave its employees, the ones who caused the mess, $US12.3 billion.

What’s more, Morgan Stanley shares are off 66% in the last 12 months as the company reported a larger-than-expected loss of $US2.2 billion for the September quarter (fellow investment bank Goldman Sachs, that last year paid CEO Lloyd Blankfein US$70 million, reported a loss of US$2.12 billion).

Although Morgan Stanley recently introduced a bonus ‘clawback’ mechanism, that does not excuse the fact that taxpayer dollars are going exactly where taxpayers don’t want them to go — into the pockets of rich bankers. Further, it’s baffling that Morgan Stanley will subject bonuses to future clawbacks “if an individual engages in certain conduct detrimental to the firm”, but still pay billions in bonuses this year after the company has just announced a US$2.2 billion loss.

As Peter Singer, a philosophy professor at Princeton University noted, “the assumption of having to take public money is that your firm is in an emergency situation, and you put out your hand for public help… this should be a year of no bonuses for any firm that took bailout money.”

Banks argue that employees are their major asset, and if they don’t pay them at least semi-gigantic salaries, they will look elsewhere for employment. However, such an argument appears weak in an environment where investment bankers and other workers are being laid off by the hundreds of thousands. Investment bankers have nowhere else to go and in many cases would have no choice but to accept zero bonuses for a year or two as the industry recovers.

The New York Times put it best when it noted bankers’ “bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning.”

Not only are the gamblers still at the casino — they’re now being bankrolled by taxpayer.