Bend Over America, Incoming!

$144 billion dollars! Yum! Want sum… er… some? Get into the financial sector and prepare to enjoy your year-end bonus (often paid in January) from that massive pool of expected bonus nectar. Or get that the “face-saving-bonus-eliminator” of vastly higher pay in the first place: “At Goldman, for instance, the base salary for managing directors rose to $500,000 from $300,000, while at Morgan Stanley and Credit Suisse it jumped to $400,000 from $200,000.” New York Times, December 19^th. Why, oh sayer-of-sooth, are these denizens of Wall Street (a very long and wide road that seems to crisscross America) making so much damned money, 5% more than the “rape and pillage” of last year, and oh so much from those “too big to fail, but bailed them out and boy did they not fail” institutions.

The December 14^th New York Times dispassionately lays the groundwork for the explanation: “[I]t makes sense to look at how the financial sector ballooned in recent decades, before the financial crisis. In the last 40 years, financial profits went from just under 20 percent of corporate profits to around 40 percent before the financial crisis. Financial company stocks became 22 percent of the Standard & Poor’s financial index by 2006, up from 13 percent in 1999. And in New York City, the capital of finance, nearly $1 out of every $4 that companies paid employees in 2007 went to a financial worker… As Wall Street grew in influence, its workers’ pay ballooned, increasing sixfold since 1975. That was nearly twice as much as non-financial worker pay increased in the United States, according to data from Moody’s Economy.com.”

Did we even slap Wall Street on the wrist with new regulations and statutes? Nuh-uh! Not even. The December 28^th Washington Post tells it like it is: “The U.S. government, promising to make the system safer, buckled under many of the financial industry's protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives. Higher capital and liquidity requirements agreed to by regulators worldwide have been delayed for years to aid economic recovery… ‘We continue to listen to the same people whose errors in judgment were central to the problem,’ said John Reed, 71, a former co-chief executive officer of Citigroup Inc., who estimated only 25 percent of needed changes have been enacted. ‘I'm astounded because we basically dropped the world's biggest economy because of an error in bank management.’”

But what really pissed off Americans was Wall Streeters getting bonuses in the years of the bailout, an obscene $18 billion at the end of 2008, when the collapse was most precipitous. We were mega-pissed when insurance giant, AIG, needed a cool $100 billion “to stay afloat,” but some of the money went straight was used to cover insured trading losses (credit default swaps) that made other Wall Street mavens’ bonuses even bigger. In 2009, the New York Times reports in the present tense, “A handful of big banks that are struggling in the post-bailout world are, by some measures, the industry’s most magnanimous employers. By some calculations roughly 90 cents out of every dollar that these banks earned in 2009 — and sometimes more — is going toward employee salaries, bonuses and benefits, according to company filings… Responding to criticism over its pay practices, Goldman Sachs is giving its employees an unusually small cut of its profits even though its paydays will, in dollar terms, rank among the richest of all time. But to keep up with the Goldmans, laggards like Citigroup are handing out fat slices of their profits, leaving little left over for their shareholders.”

Want to feel your blood really boil? “Even now, after all those big bonus numbers, the pay-to-profit ratio for the financial industry might come as a surprise to many people. The five largest banks on Wall Street — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley — earned a combined $147.4 billion before paying compensation and taxes last year. They plowed back a combined $31.2 billion into their companies and returned a total of $2.1 billion to shareholders in the form of dividends. They paid $114.1 billion to their employees.” The Times. To be honest, that $114.1 billion was a combination of salaries and bonuses, but that sure is a pretty absurd cost of labor for any business, and in a time of horrific unemployment and under-employment, it really is hard to justify. We bailed out most of these dudes!

Wanna really drill down on the richest employees of the richest of the big banks (at least as to senior executive pay)? Yeah, you know it has to be Goldman. We’re talking about 860 former and current Goldman “partners,” particularly the elite 475 “partners” (87% male) who run the firm and generate the highest levels of compensation. The January 18^th New York Times lays it out, down and dirty: “Goldman Sachs executives have long been among the most richly paid on Wall Street in the best of times. They are now poised to reap a windfall that was sown in the dark days of the financial crisis in 2008… Nearly 36 million stock options were granted to employees in December 2008 — 10 times the amount issued the previous year — when the stock was trading at $78.78. Since those uncertain days, Goldman’s business has roared back and its share price has more than doubled, closing on [January 18^th] at nearly $175.” [It has since fallen after an announcement of an abysmal, yet very profitable by most folks’ measure, fourth quarter.]

And since bailed out companies don’t have to report beyond their top 25 executives, very few of Goldman’s partners’ compensation will actually be revealed. But Goldman is beginning to realize one ugly truth: their clients are starting to realize that someone must be charging a lot more than perhaps they should to make that kind of money… making profits that should, maybe, be finding their way into clients’ accounts? As I noted, Goldman had a nasty fourth quarter, but its veteran partners, with these long-term benefits, are barely impacted.

And we have serious political groups who stand for further deregulation and lower taxes? Yeah, that philosophy worked so well before. What exactly is it about ignoring history and past behavior that is so profoundly compelling to so many Americans? It seems the angrier these folks get at this economic imbalance, the more they want the government to let these big boys play without rules and pay lower taxes on these outrageous bonuses and forms of compensation. They even believe with favorable tax loopholes for certain businesses (oil industry, private equity managers, etc.), government barriers to foreign imports (like massive taxes on Brazilian ethanol), and government “incentives” that have been around for decades (like farm subsidies), there is such a thing as a “free market” economy in the U.S. Go figure.

I’m Peter Dekom, and I really haven’t heard the slightest believable rationale for further deregulation of these financial miscreants, but maybe I just need to drink a lot more tea.