The Wall Street Bonus Bonanza
The pundits are abuzz about reports of Wall Street bonuses paid out for 2008, which was one of the worst, if not THE worst, economic years in this country’s history. The New York State Comptroller reports that Wall Street employees collected an estimated $18.4 billion in bonuses for the year, the sixth largest bonus dole-out in the history of the Street, and approximately as much as the financiers collected in 2004 when the Dow was percolating around 10,000, at the dawn of an unprecedented era of irrational exuberance.
Still, this year’s bonus bonanza was small potatoes compared to the $32.9 billion forked out in 2007, reflecting a 44 percent decline, the largest decline in dollar terms on record. (And, of course, it was but a droplet in the bucket compared to 2006 at the peak.) But in light of the rash of job losses, there was a smaller pool of execs in the mix, so that the amount of the average bonus–$112,000–reflects only a 36.7 percent decline from 2007.
The bonuses paid out on Wall Street, however, are far less astonishing that the bonuses paid in other sectors where many corporate executives received heftier bonuses in 2008 than in 2007, even as the economy shed 2.6 million jobs. The average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.
Focusing on Wall Street, President Obama called the the bonus numbers “shameful,” and bandied about a number of other pejoratives. Mere words won’t solve the problem though.
Sen. Claire McCaskill, D-Missouri, is positively livid, calling the Wall Street barons “idiots.” She introduced legislation this morning–what a quick draw!–that would impose a cap on the amount of compensation that employees of bailed-out companies could receive. But how does that work, practically speaking? If my bonus has already made a safe landing in my bank account, how exactly can the government permissibly barge in and take it away from me? It’s not going to happen, absent a court order, and I’m not sure that any of the Bush-packed courts will be willing to render such an order, nor upon what legal theory a court could support it. We can’t unring the bell. Which is precisely why these bonuses were paid in the first instance–because it’s virtually impossible to unpay them.
Apparently, there are some claw-back provisions in the TARP bill, but utilizing them would probably be just another shot in the foot.
Obviously, this news is not exactly the first of its kind this year. We all know that Bernie Madoff rushed to pay gargantuan bonuses before his confession. Former-Merrill CEO John Thain also made every attempt to pay out large bonuses before the merger with BofA was completed. And the list goes on. The problem is that there’s an unflinching sense of entitlement here, and tongue-lashings by liberal politicians do not reduce that sense but rather strengthen it. Like the the “men of the mind” in Ayn Rand’s Atlas Shrugged, the execs on the Street believe they are pioneers, bold risk-taking visionaries without whom the world would crumble. Each one believes s/he truly deserves this money.
Rudy Giuliani is clearly sympathetic to his Wall Street donors. He argued this morning:
If you somehow take that bonus out of the economy, it really will create unemployment. It means less spending in restaurants, less spending in department stores, so everything has an impact. Those bonuses, if they are reversed, are going to cause unemployment in New York. I remember when I was mayor, one of the ways in which you determine New York City’s budget, tax revenue is Wall Street bonuses. Wall Street has $1 billion, $2 billion in bonuses, the city had a deficit. Wall Street has $15 billion to $20 billion, New York City had a $2 billion, $3 billion surplus, and it’s because that money gets spent. That money goes directly into the economy. First of all, it gets taxed as income. Secondly, it gets taxes again when somebody buys something with it.
The reasoning is flawed because it’s based on a false choice between paying bonuses to execs or locking it up in corporate coffers. The money could have been used to extend credit and save jobs. The question is not whether the money should have paid out, but rather who it should have been paid to–a elite few execs or the rest of us.
What’s disappointing is that, apparently, Wall Street execs chose to lay off an incredible number of rank-and-files, not to save their companies, but so that they could continue lining their own pockets, excessively.
Comments
By Bryan MacKinnon on February 5th, 2009 at 12:00 am
The executives of the money loosing firms need a severe jolt to wake them up that the good days are over. The salary cap placed on by the Obama administration is one such jolt. Such a thing is unfortunately necessary.
Does Giuliani’s comments imply that billions of dollars need to be paid out to benefit New York restaurants and department stores? A more direct way would be just to drop the money directly from helicopters flying over Manhattan.
By Aaron Knapp on February 5th, 2009 at 3:31 pm
Exactly.
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