Fanning Populist Rage Over Wall Street Bonuses
Bonuses developed in an era when the financial world spoke a different language. That doesn’t make them evil.
New York State Comptroller Thomas DiNapoli’s report on Wall Street bonuses set off a firestorm last month, but it was ill-conceived. Now his incendiary words have unleashed a populist uprising that is infecting the national conversation with ill-directed anger and hatred towards the wealthy.
At the House Financial Services Committee hearing Wednesday, Chairman Barney Frank (D.-Mass) bizarrely asked the eight Wall Street CEOs sitting before him: “Why do you need to be bribed? … Why do you need bonuses?”
Bribes, bonuses, what’s the difference? Similarly, DiNapoli lumped Wall Street bonuses together with private corporate jets and dividend payments to shareholders. Broadcast, cable, and youtube do-it-yourselfers have all picked up on the theme.
In its most recent show, Dateline dwelled on Wall Street honchos who don’t need to go through security when they hop on their private jets (I guess no one cares if they blow themselves up); Fox News anchors enjoyed chewing on a Wells Fargo defense of its corporate getaways for top-performing employees; CNBC has launched a Wednesday night series called American Greed; and one very funny youtuber has created a mock commercial asking for funds to support the lifestyle of a down-and-out CEO: “For only $3,700 a day … less than the cost of a thousand lattes.”
It won’t be long before we see barricades on Wall Street.
The original bonus news release is worth parsing. It is a study in middle-class rage, which the congressmen today are playing out as well.
First DiNapoli notes that the securities industry had slashed bonuses by 44% and that it “has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It’s painfully obvious that 2009 will probably be another difficult year for the industry.” He also states that the top managers aren’t taking any bonuses, either because the government restricted the payouts or they volunteered to forgo them.
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Nancy Miller is a financial writer living in New York City. She blogs at nancefinance.wordpress.com
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25 Comments
1. David Thomson:“One of the fundamental problems on Wall Street — and Main Street — was the divorce of risk and reward.”
And whose fault was that? Have we already forgotten that the Clinton administration forced lending institutions to provide mortgages to minorities with poor credit histories? This sort of nonsense inevitably occurs when the government interferes too much in the free market.
Feb 12, 2009 - 12:57 am 2. Drider:Coming from a person who has never made over 150k in his life and more than likely won’t……every time I hear this drumbeat on the government stirring up public resentment on what private citizens can make, it’s like driving a hot nail into my eye.
These companies who accepted taxpayer monies we’re fools, those who we’re basically forced to take the monies should have publicly rebelled.
I for one am for the no strings attached form of stimulus…..Does anyone truly believe that with the crop of leaders that we have in Congress, that they are “capable” of doing anything other than destroying this Country?
These are the same leaders who had an implicit hand in bringing about trillions of dollars of debt that has a total worth of vapor.
To see what they put in this stimulus bill, to see their arrogance in simply not giving a damn, to know that what they have done will severely infringe upon our Liberty and prosperity in the name of a historically failed ideology, will sooner, rather than later bring things to a head….and I don’t think our leaders can see it from up top of their Ivory Towers.
Feb 12, 2009 - 1:58 am 3. David Thomson:“Does anyone truly believe that with the crop of leaders that we have in Congress, that they are “capable” of doing anything other than destroying this Country?”
It simply is not merely a matter of finding better leaders in congress. No, we must instead realize that intrinsically nobody is smart or virtuous enough to run our nation’s economy. We could elect legislators who possess an I.Q. of 250 and the virtue comparable to the greats saints in history—and it wouldn’t make any real difference. It is far better to let people run their own affairs. “Elites” need to learn to mind their own business.
Feb 12, 2009 - 3:21 am 4. chris in Toronto:Fanning the flames of class warfare. Forcing the system to collapse. Engineering a crisis. Hmmm. Sounds like Cloward-Piven to me.
Feb 12, 2009 - 4:04 am 5. kansascityshakedown:Barney Frank asking Wall Street CEO’s why they needed bribes, isn’t that ironic coming from this clown? He certainly recieved quite a bit of Wall Street and Freddie/Fannie “bribe” money. Give it back Barney.
http://www.opensecrets.org/politicians/contrib.php?cid=N00000275&cycle=Career
Feb 12, 2009 - 5:27 am 6. Jarhead91:Risk and reward were divorced when Congress, the SEC, and FASB changed accounting rules and essentially ended the practice of granting stock options. Options were well aligned with corporate goals – if the value of the firm dropped, they were worth nothing – if value increased, management shared in the success.
With stock options off the table, companies had to offer other types of incentives to retain talent. Guaranteed bonus based on more narrow criteria were written into contracts – hence today’s situation of loser firms still paying bonuses.
Feb 12, 2009 - 5:58 am 7. Mongoose:The bribe business is just projection on Franks part.The Democrats got millions in campaign contributions from Wall St. This like listen to the poliburo in the old USSR, we are just months away from being the same sort of place. The Communists destroyed Russia, the Democrats will destroy us.
Feb 12, 2009 - 6:07 am 8. marsouin:It’s amazing how succesful the Democrats has been to make Wall Street the poster child villain, when it is the big government polticians (and US Supremem Court justices) in Washington who are to blame for it all. And the press has done all it can to make it happen. The traitors.
Feb 12, 2009 - 6:28 am 9. AnninCA:I agree that the uproar over relatively minor expenditures is symbolic more than anything else. However, there is one very clear question in my mind. How in the world can one worry over the loss of this “talent” when devising a performance plan that ignores risk is their best thinking?
I suggest we grow some new talent.
Feb 12, 2009 - 7:45 am 10. TexEd:As much as I resent outrageous bonuses to some officers of companies in which I own stock (stock options dilute shareholder equity and, in effect, represent a transfer of ownership from the stockholders to the company’s managers), I really resent the outrageous salaries that some professional athletes extort, the fees that plaintiffs’ attorneys get from compliant judges, and the money that so called entertainers get for movies, TV, etc.
Feb 12, 2009 - 7:55 am 11. Steve Lee:I’m also willing to bet that there are mechanisms in place, secret mechanisms, that allow union officers to get bubble payments from unions. And, of course, politicians who earn through non-transparent mechanisms, e..g., bribes to a son or wife to pay for the influence sold by the pol, millions of dollars should be severely dealt with. Not Rangel, Frank, Dodd, of course, the other pols.
Why should the Wall Street bankers be rewarded with big bonsuses, the same people that made it much harder for Americans to file for bankruptcy?
Feb 12, 2009 - 8:42 am 12. JFM:The bankers spent a hundred million dollars lobbying the Congress for the passage of the bankruptcy bill in 2005, now the banks are getting hundreds of billions in bailout money.(The money that the bankers spent on lobbying was the last “good investment they made!)
http://www.communati.com/steve-lee/think-bankruptcy
Americans are still having problems getting credit cards and loans to buy cars:
http://www.communati.com/steve-lee/think-credit
The problem about CEO bonuses is not one of amount but one of disconnection between their amount and real performance and financial health of the company.
Example: I manage a company soundly and am paid a million dollars a year. After two years of my management it is in good, very good shape and I have got two millions.
But assume that my contract is such I can get ten millions in the first year even if that means that the second year the company will fold. Since I am in business to make money and I am not playing with mine (ie I don’t own the company) the rational decision is go for broke, buy toxic assets, “leverage” beyond reason, get in debt to the ears (1), anything who can create a spike in stock valuation (or more exactly in my pay) and once the company folds retire to the Bahamas and enjoy life. So given that CEOs are not playing with their own money it is crucial to find a system where CEO remuneration is linked to long term perspectives and health instead of to stock valuation spikes. Otherwise we will time and again find they have run their companies into the ground.
(1) Leveraging works both ways. If you pay 90% of an asset through loans and the asset goes up 10% you have doubled your capital (minus interest), but if it goes down by 10% you have lost all your investment and if by 20% you owe an amount equal to your initial investment.
Feb 12, 2009 - 9:02 am 13. Wally Lind:The ultimate irony in yesterdays’ House hearings with the CEOs from Wall Street was having Barnie Frank preside over them. This guy, Chris Dodd, and many other democrats are the very people who presured these banks (an many others) into approving mortgages for people who could not otherwise qualify for them, and had little prosepct of keeping them up. Barnie Frank and Chris Dodd ought to be in jail, not running congressional committees. I think the voters who kept them in office ought to do at least some community service to apologize to the American people for ruining our economy.
Feb 12, 2009 - 9:27 am 14. Wally Lind:Obviously, my last sentence was tongue-in-cheek but jail was invented for people like Frank and Dodd. Those men stole the health of our economy, and almost three million American jobs.
Feb 12, 2009 - 9:32 am 15. marsouin:And don’t forget how Congress and the White House have all received nice salary increases for 2009. Why don’t they put their money where their mouth is: take large pay cuts to show solidarity with the American people. It’s the least they can do for having caused this mess.
Feb 12, 2009 - 10:14 am 16. TL:Only shareholders and creditors have a stake in corporate greed and watse. It is only the government’s decision to become a shareholder and creditor that gives tax payers cause to be concerned about how businesses’ conduct their affairs. And now the government, having chosen to bail these loosers out with our money, stirs up our outrage at their greed to justify more and more control over how they run the businesses. The money was the Trojan horse. Now the army of socialists is coming out. Don;t fall for it. People are rightly outraged at these companies for taking the money in the first place and for misusing it. But the remedy we should be calling for is not socialism (that is what we ask for when we want our government to tell businesses whom to pay, how much to pay them, what to make, etc.). Rather, the remedy we should demand is that our money be repaid pronto and that we have our free markets restored. Those of us who don’t want to be socilaists need to keep our eye on the ball and not be duped.
Feb 12, 2009 - 10:31 am 17. river:It’s about time regular folk wake up and smell the roses.
Feb 12, 2009 - 10:51 am 18. Ditto:For too long they have been told that nobody quite knows what caused the financial meltdown.
Prof Hanson (at National Review Online today) knows:
“…took enormous risks to get multimillion-dollar bonuses…”
From the US Government website:
http://www.usa.gov/Agencies/federal.shtml
Executive Branch
The executive branch of the government is responsible for enforcing the laws of the land. The president, vice president, department heads (cabinet members), and heads of independent agencies carry out this mission.
Judicial Branch
Courts decide arguments about the meaning of laws and how they are applied. They also decide if laws violate the Constitution—this is known as judicial review, and it is how federal courts provide checks and balances on the legislative and executive branches.
Legislative Branch
Article I of the Constitution establishes the legislative or law making branch of government. It has a two-branch Congress—the Senate and the House of Representatives — and agencies that support Congress.
Three Agencies that Support Congress
* Congressional Budget Office (CBO)
* Government Accountability Office (GAO)
* Medicare Payment Advisory Commission
Congress is the branch of government that is playing with our money and our economy. These three agencies are apparently poorly staffed. I include the medicare folks because the last iteration of the bailout had tucked away, hidden from sight, a nice little medical package that will make the Government responsible for dictating what medical procedures you and I will really need. I assume they’ll make the medicare commission responsible. Apparently, it isn’t enough that the insurance executives get a chance at dictating our health care, now these guys want a chance at it too.
We need to fire the people who are playing fast and loose with our taxes, our “bailout” strategies and our political system. By demonizing capitalism and those who have successfully created wealth, the liberal, left-leaning leeches have simply ensured that the host whose blood they suck will die more quickly.
We can’t let them do this… think of all those poor people who don’t work — if the capitalist pigs and greed-mongering wealthy folk fail, all those poor “disadvantaged” souls might have to get jobs! And the so-called ‘undocumented immigrants’ (as if filling out documents would change things) would have to leave, too — we’d have to realize that nobody deems any job as being one that an American won’t do.
Fire Pelosi, Frank, Reid, the whole lot of ‘em. They work for us. Stop voting them back into power! Let’s really examine the stimulus bill and responsibly analyze what kind of good it will truly do.
Remember, we’ve been here before!
Feb 12, 2009 - 12:54 pm 19. John Burke:http://johnrlott.blogspot.com/2009/01/remember-clintons-1993-stimulus-bill.html
I certainly agree that the “populist” attacks on Wall Street by Democratic politicians ring a bit false. But that doesn’t mean that Wall Street firms have behaved well. It seems that in the bonuses paid by Merrill Lynch just before the firm was acquired by Bank of America (and paid out earlier than was the custom, probably to get the money out before the deal closing) there were 700 people who received at least $1 million and about 150 who got $3 million or more. This in a year when the firm lost $17 billion.
This was rank looting of Merrill, and everyone should face up to that. It was deliberately looting money that should have stayed in the firm to bolster its capital position or have been paid to shareholders. What possible excuse can there be for paying an upper management $1 billion in bonuses for losing $17 billion? That the Board conspired with management to make this possible does not make it less a ripping off of shareholders who were left holding the bag.
Then, to make matters worse, this turkey of a firm carried forward its rapidly deteriorating assets into Bank of America, so that its shareholders may face being wiped out (the incompetence of BofA’s management in working this deal should get them tossed out as well.
On top of all that, the taxpayers wind up footing the bill.
It seems to me that conservatives should be just as angry about this as liberals — particularly if they owned stock in any one of a hundred financial services companies that have been terribly managed. It’s preposterous to defend those managers paying themselves bonuses.
http://thepurplecenter.blogspot.com/
Feb 13, 2009 - 12:25 am 20. wildman:The taxes on the bonuses help pay for the rank stupidity in washington. Its a win / win.
Feb 13, 2009 - 5:24 am 21. Ditto:John, I agree – but do we want the government to have the power to “regulate” the bonus money that executive management gets, or should that be a function of that firm’s Board? Think Enron and the resultant SOX legislation. Has SOX benefitted anybody? No – but you better believe that Boards of Directors all over the country sat up and paid attention when they saw what happened to Enron investors and employees.
Let these banks be tried in the court of public opinion — plaster their indiscretions all over the web and shame them into becoming good corporate citizens. But don’t take away our liberties, please. If stock option bonuses hadn’t been stripped from these corporations, we wouldn’t be worried about cash bonuses anyway!
Feb 13, 2009 - 7:58 am 22. Kay:If only there was more of an uproar over completely inept and corrupt Congress members that are destroying this country only so they can become wealthy and have the worlds greatest retirement plan. Talk about rewarded, 9% approval ratings and most of these schmucks just roll on in for another term.
Feb 13, 2009 - 9:38 am 23. Shef Rogers:The problem is that they want tax money while paying obscene bonuses. Is it really so hard to understand why that would make hard-pressed taxpayers angry? This whole article is disingenuous, to put it politely.
Feb 13, 2009 - 10:42 am 24. HM:Regarding the “wall street honchos who jump on their private jets without going through security,” I agree with you: no one cares if they blow themselves up.
Feb 17, 2009 - 7:56 pm 25. ZP:Some people don’t seem to understand–the bonuses are not necessarily obscene, especially if they’re given to reward good performance. The bonsues are part of these people’s compensation. The better they perform, the more they should earn. If government is helping them get back on their feet, then let’s pay competitively according to performance.
Feb 18, 2009 - 9:42 am