Wall Street Sets Aside Money for Bonuses

After losing trillions of shareholder and client funds, the surviving Wall Street firms have set aside billions for bonuses. This is not surprising given the attitude of these people. They are entitled to large sums of money whether they perform or not. This politically tone-deaf move is going to result in tougher regulation than they might otherwise face.

The International Herald Tribune records the list of shame, “Five straight quarters of losses and a 70 percent slide in its stock this year have not stopped Merrill Lynch from allocating about $6.7 billion to pay bonuses. Goldman Sachs and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers, which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.”

The IHT also noted, “Goldman, the most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 32 percent from $339,400 a year ago. Morgan Stanley, which was the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.” That is more tolerable, but still it will grate on a number of ears.

Congressman Barney Frank (D-MA) said, “There should be a moratorium on bonuses. If nobody gave them, there wouldn’t be a competitive aspect.” A moratorium is not a bad idea. The financiers need to let the public settle down about the bailout and the 401(k) losses. Nell Minow of Corporate Library, a corporate-governance research company, said, “I'm just flabbergasted that the financial community has failed to show any sense of leadership on this issue and doesn't seem to understand how angry people are at them. They are just a bonus away from having the villagers come after them with torches.”

The argument that the banks make is the bonuses will not be going to the desks that did poorly, but in order to retain the guys who did well this year, they need to pay out. This is only true if the moratorium idea is ignored. Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies, told Time, “Some people might argue that these bankers should not be penalized if they weren’t personally involved in the risky mortgage-backed securities. My response is that average taxpayer wasn’t either, but she is being asked to take a hit.” Perhaps she didn’t get the memo that said only the risks were being socialized, not the bonuses.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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