Wikinvest Wire

Wall Street, big bonuses, and the taxpayer

Tuesday, November 11, 2008

There's an interesting article in Bloomberg this morning about Wall Street bonuses and how they are viewed by the public.

The timing couldn't be worse for those looking to take home a few hundred grand in year-end cheer (or, in some cases, much, much more) at a time when the economic pain is mounting for many Americans with the consensus view being that a good deal of that pain has its origins in New York City.

In fact, many Americans seem to think there should be an entirely new standard set for Wall Street bonuses - zero.

Bonuses for Wall Street Should Go to Zero, U.S. Taxpayers Say
U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated.

``I may not understand everything, but I do understand common sense, and when you lend money to someone, you don't want to see them at a new-car dealer the next day,'' said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. ``The bailout money shouldn't have been given to them in the first place.''

Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it's ``not unduly rewarding the management of financial firms receiving government assistance.''

While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms' most productive workers.

``There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,'' said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. ``Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.''
The risk of "driving away the firms' most productive workers" is going to be a tough sell in other parts of the country.

Considering the fruits of their labor as things look today, maybe all the bright minds that have flocked to Wall Street over the last ten or fifteen years to become such productive workers should be driven away.

Jim Rogers probably had it right when he commented a few months ago about there being something fundamentally wrong with the idea of so many successful twenty-somethings on Wall Street buying Maseratis.

Later in the report, former SEC Chairman Arthur Levitt commented, "Bonuses and severance packages will obsess the American public'' and become "a humiliation and embarrassment".

He's got that right - from the sound of the comments in this story, before you know it, the American public will be ready to storm the castle.

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AJ said...

There's nothing wrong with a reasonable bonus paid for good performance. If a regular worker can get a bonus, then I think an officer should, too. That said, an officer's bonus should be proportional to an employee's bonus.

And, really, how will anyone drive away "the most productive workers" if that job they have is the only place that gives a multi-million dollar salary? Does anyone seriously think they'll just give up their income because they can't get more millions?

dearieme said...

We've learned that the banking stars have been destroyiong wealth for years, so we may reasonably conclude that "the most productive workers" are probably the janitors.

Anonymous said...

Having lived with quite a few of these folks in Northern NJ and now having been fortunate enough to move away, I will say to you that the excess I witnessed, first hand, were over and above even the wildest imagination. When the average American has witnessed the destruction of their kids 529 and investment portfolio, lost their job and have limited options to find a new one, why should they support the designers of their collapse? Talent comes in many forms, America was built on innovation and will be again, at least after the next couple of years of further destruction to our general enconomy and constitution. It is really too bad that the speach maker truly has no depth and alot of Americans really only heard the scripted speach. If I could, I might truly consider moving out of the country as requested by my 15 year old. But alas, even though I have always lived within my means, I cannot sell my home. There are no longer any buyers who do not first have to sell something of their own. The 33% of Americans who own their homes are really feeling stupid for having lived a "clean" life.
In the comming American economy, I expect to pay more than the average just because I do not qualify for any Bonus or Bailout and the pie I have earned (and worked hard for) will be shared with those who choose to spend and play and never pay. Bonuses? Let them pay for those of us who earned our way to those who didn't.
I am certain that they would just love to welcome folks from New Orleans and Camden and Patterson into their homes in Saddle River and Alpine!

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