Much Ado About Nothing $23B: Goldman Sachs Bonus
Its time for the quarterly hand-wringing amongst the populace regarding the over-sized bonuses at Goldman Sachs. This Q, its a mere $23B.
The focus on the bonuses of top performing traders and investment bankers is misplaced. There are many, many things to be upset about regarding the financial sector — but bonuses are not one of them. [BR: Or, at least not the most important thing to be enraged over]
We live in a capitalist system, where there are going to be winners and losers. Its not fair, but it is how it is. You can complain about it, but it is all but pointless. Feel free to pursue a millionaire’s tax of 1% (or 10%) on everyone who earns more than $1m — a super top tier — to pay for health care reform or whatever you want. (Best of luck with that!)
Every few years, we lament overpaid athletes, musicians, movie stars. Bruce Springsteen is going to make $100 million+ this year on tour. While you can complain about it, ask yourself how many people can fill 50,000 seat arenas 200 night a year at $100 a pop. Lebron James, Peyton Manning, and others justify their salaries by generating massive revenue and profits for their employers.
So too it is with Goldman Sachs and others.
The traders who throw off the most profits, the bankers that generate the most lucrative deals are worth tens of millions to their “team owners.” That is how it is, and it is unlikely to ever change.
What should you be upset about?
• Paying people in year one for risks that last years or decades;
• The “privatized gains, socialized losses” of the current system;
• Dramatically reduced competition in the Banking sector;
• The idea that “Too Big To Fail” is now an official policy of the United States;
• The “gifting” of $100s of billions of dollars to mismanaged banks that should have been allowed to fail in a controlled fashion;
• Bank lobbyists preventing any sort of credible regulation from passing;
• Goldman Sachs wresting $19 billion from AIG;
• The absurd and poorly thought out $750 billion TARP plan;
• The suspension of mark-to-market allowing banks to hide losses and not accurately disclose their bad assets;
• The outsized influence Banks have on Congress and Goldman Sachs has within the Executive branch.
There are plenty of things to be upset about these days. Top performers earning huge paydays at the biggest firms is not one of them . . .
>
Previously:
Looking at Wall Street Pay (August 1st, 2009)
http://www.ritholtz.com/blog/2009/08/looking-at-wall-street-pay/
Why Financial Reform Died: “Banks Run Congress” (October 12th, 2009)
http://www.ritholtz.com/blog/2009/10/why-financial-reform-died-banks-run-congress/
What’s Wrong With Billionaire Fund Managers? (April 16th, 2008)
http://www.ritholtz.com/blog/2008/04/whats-wrong-with-billionaire-fund-managers/
Single Best Investment in History = 258,449% (October 12th, 2009)
http://www.ritholtz.com/blog/2009/10/single-best-investment-in-history-258449/
Derivatives Lobby Corrupts Congress (October 12th, 2009)
http://www.ritholtz.com/blog/2009/10/derivatives-lobby-corrupts-congress/
Total Campaign Contributions/Lobbying by TARP Recipients (October 12th, 2009)
http://www.ritholtz.com/blog/2009/10/total-campaign-contributions/
Top Hedge Fund Earners (March 25th, 2009)
http://www.ritholtz.com/blog/2009/03/top-hedge-fund-earners/
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October 14th, 2009 at 7:10 am
In the Carter days, Barry, the top tier was taxed at 70%…even though the deductions of that era are gone, Harry and I think this marginal tax rate reinstituted today would be only fair.
B in T
~~~
BR: I don’t have a problem with a super top tax rate.
October 14th, 2009 at 7:19 am
To the extent that these GS bonuses are directly related to the items you listed as things to get upset about, I disagree.
This is the question: Would theses $23B in GS bonuses exist to be paid if:
If the answer is that these $23 B in GS bonuses would exist even without the above, then I agree we shouldn’t be mad at the bonuses.
~~~
BR: I am trying to separate out the foolish actions that caused the crisis, and were the bad decisions in response to it, versus regular bonuses paid to profitible employeess.
October 14th, 2009 at 7:19 am
By the way, Harry and I went out last night to see a magic act. It was pretty good. The final act though was the best by far. They put a guy flat on his back, and then the magician came out and waved his wand, and the man floated in the air for several minutes. Harry and I talked about that after we left the performance.
“Did you see how that magician levitated that guy! Wow, that was some magic!” Harry said.
I replied,” Harry, that was just a trick, he had a forklift behind the stage that fits under the fellow that is being levitated, there is no real magic there…”
“No, I saw it with my own eyes. The guy was flat on the ground, and then he was floating in the air. I would have known if there was something unreal about it all.” Harry was adamant.
“Well, ok, I guess we’ll just have to disagree. But I did enjoy the performance. Say, what are you going to do with that raise you got with your stimulus money?”
“They’ve been advertising those Chia Obamas on TV. I’ve got to have one….”
…..OH, well..
October 14th, 2009 at 7:30 am
Note that AIG is a different situation than GS, JPM, etc.
October 14th, 2009 at 7:36 am
I have NO problem with bank bonuses whatsoever….
However, I do have a problem that the very survival and profitability of the banks has been primarily driven by the largess of the government, and by proxy, the American taxpayer. Rather than lend freely at a PENALTY rate, the central bankers have chosen to lend freely to banks a ZERO rate. Give me trillions at 0% and even I could find something to do with it that would earn a $23B bonus!
HCF
~~~
BR: So what do we do about it ?
October 14th, 2009 at 7:37 am
Yet another thing to think about: the terrible deals cut by Paulson/Bernanke/Bush in lieu of bankruptcy…
October 14th, 2009 at 7:39 am
Barry, after all you’ve written about and know about the crisis, what have you to say in response to Singer?
I’m surprised by your post.
October 14th, 2009 at 8:00 am
Agree with Singer. To the extent that the bonuses were generated with direct or indirect government support, we should be upset.
October 14th, 2009 at 8:01 am
Good post, Barry. Also, aren’t much of the bonuses paid out as stock that vests sometime in the future? If that’s the case(I’m not sure) then traders have a huge incentive not to blow up their company(at least until they can access their stock). What kills me is not that they get paid so much, but that they are government “supported”(or whatever their relationship is – bailed out, sponsored, etc). The capitalism for gains, socialism for losses is what is so aggravating…
October 14th, 2009 at 8:06 am
@BR
SINGER is dead on. The inquiry that I would like to see is how much GS contributed to the downfall of Lehman and Bear.
This kind of rock star pay leads the best and brightest to believe that they are the masters of the universe. Their clever financial products nearly caused the collapse of our entire financial system. You may want their autograph. I want them to find another line of work.
Curious
~~~
BR: I am not referring to the AIG FP people, or the JPM derivatives creators — but the rank and file traders bankers who do their jobs and make money for their employers.
October 14th, 2009 at 8:07 am
Barry, is there a reason the traders need to make exactly this much money? Was there an open auction of their talents (that somehow escaped my attention) where their compensation levels were set? If so, did the other bidders have all the relevant information regarding their performance, as they have in the NBA/NFL/NHL? Would $1m either way have any effect on performance? $10m? Any idea how GS (and others) decide how to compensate back-office and other employees who don’t directly produce the returns? Is there some formula that dictates exactly how much the employees should get relative to the account holders and share owners whose money they used to generate these returns? Does anyone have any idea what proportion of the bonuses are paid for employees’ loyalty rather than performance?
I’m not against bonuses in principle, but absent transparency, IB compensation looks an awful lot like pure self-dealing with other people’s money.
~~~
BR: Reason? No.
Its a math formula that reflects their revenue and profits.
October 14th, 2009 at 8:10 am
I don’t have a problem with bonuses per se, only with the extreme amounts. One has to ask, at what point does a bonus become “obscene”? Especially in a very, very weak economy. A better suggestion might be deferred bonuses, and/or stock grants/options.
It is foolish of any company to think that they are an “island” in the capitalist sea and while all of those around them are drowning, they have wine and cheese. It’s just bad business to give such large bonuses now while the economy is in the tank. Looks bad. And I think most “common people” would agree.
October 14th, 2009 at 8:15 am
Barry,
what about the argument that the bonus culture, as currently constructed, leads bankers/traders/etc. to take outsized risks, with the incentives all aligned towards the immediate profits that can be posted, and with no regard whatsoever for the long-term consequences of these actions? Can you really claim that the bonus structure had no bearing whatsoever on bank managers loading up on crap MBS and CDO during this last cycle?
and in this era of TBTF, the bonus issue isn’t simply a shareholder issue (although that might be enough justification, given that corporate governance is essentially defined by legal standards), it’s also a taxpayer issue.
to posit a highly imaginative hypothetical, supposed that these Goldman profits were entirely the result of short-term profits booked on longer-term, high variance risk. if Goldman were to go under as a result of this risk, it seems pretty well established that we the taxpayers would step in and bail them out. so why aren’t their bonuses, which as the major portion of salary for most Wall Street bankers are the largest driver of behavior, of concern to us again? particularly when we are the ones who will bear the costs?
~~~
BR: As I specifically noted above, “Paying people in year one for risks that last years or decades” is something that is both foolish and worthy of your anger.
October 14th, 2009 at 8:15 am
There are plenty of things to be upset about these days. Top performers earning huge paydays at the biggest firms is not one of them
———–
Springstein is filling the arenas because people want to see him. The bankers are getting their friggin’ bonuses because of ALL the reasons you mention and not because people want to see them.
It’s interesting how you can rationalize some stuff. Why bother blaming people for the credit bubble then? Isn’t life just unfair and what we got the natural evolution of laissez-faire?
Bankers have 2 jobs: create leverage which is dictated by regulatory ratios and allocate capital efficiently. The first one is a commodity. The second one is a skill. But they’ve shown us that they have no skill whatsoever in allocating captial properly. So why should they get their bonuses?
~~~
BR: Not all of them. We have to distinguish between the few people that brought the system down and the rank and file wall st employees that did not.
October 14th, 2009 at 8:20 am
Look at Citi dumping Phibro — that’s $600M in revs lost, becuase people were upset the person who generated those revs was paid $100M bonus as per K.
We as taxpayers own a huge chunk of C …
October 14th, 2009 at 8:27 am
Capitalism? Are you kidding me? Crony capitalism perhaps but definately not capitalism!!!
Barry they can pay out these bonuses when they take all the cr*p they dumped on the FED back onto their balance sheets. If they did that there’d be no bonuses because there’s be no profit from which to pay any bonuses; half of the banks wouldn’t even exist.
October 14th, 2009 at 8:27 am
@BR
I was getting prepared to type almost exactly what SINGER wrote…
I’ll add to that that it is disingenuous to group athletes, or pop artists in the same category…
Sure, Peyton Manning & LeBron James earn their teams (and leagues) millions, but the last I checked the NFL, the NBA, the Indianapolis Colts, or the Cleveland Cavaliers weren’t coming to the US taxpayer and asking for a bailout…
When the banks can stand on their own and produce profits to pay bonuses, then they’re entitled to do what they wish…
I know this is an oversimplification, but I resent the idea of being taxed into future generations, so that capital can flow to the banks, allowing some “trader” to bid up the price of oil from $35 to $75 dollars a barrel, and collect a $100 million dollar bonus doing it…
I’d prefer, even at the cost of enduring PAIN along the way, to let deflationary forces set in. From the ashes of that, what REAL capital that remains will find a way towards more productive ends.
~~~
BR: Actually, the sport teams have huge subsidies in terms of Stadiums that cost Municipalities billions to build. And do you want to discuss anti-trust exemptions for them?
October 14th, 2009 at 8:28 am
Look at Citi dumping Phibro — that’s $600M in revs lost, becuase people were upset the person who generated those revs was paid $100M bonus as per K.
We as taxpayers own a huge chunk of C …
——————
Yes. And all this fast money is what got us in the bloody mess we’re in. A lot of these dealings are integral to the credit bubble. No credit bubble no hundreds of millions per individual.
Barry, you complain about the creators of the credit bubble but you have no qualms about those using the money supply created to line their pockets.
We’ve created a layer on top of the real economy that does not produce anything and just skims the profits. This layer works fine as long as credit is being created at a fast rate. We know that debt creation forces us to create even more debt just to cover interest payments. A lot of this debt has not been created to generate productive businesses, it’s financial manipulation.
October 14th, 2009 at 8:29 am
“Its not fair, but it is how it is.” – If they ever start clawing back/intervening in this area, remember these words.
People wouldn’t be so up in arms about this if there was performance to back it up. At the moment it feels like these people are not only being rewarded excessively but they are being done so for raping America.
I fully agree it is used as a distraction and there are bigger issues, but I will be no more surprised by the govt intervening than I am about the bonuses themselves. The bottom line is we live in a rather broken and unfair system and the system as a whole needs to be fixed.
~~~
BR: I am in favor of clawbacks !
October 14th, 2009 at 8:30 am
Do we really “live in a capitalist system, where there are going to be winners and losers”? We supposed to be, but where are those losers? Fuld and Cayne? Puh-leeezeeee, they’re multimillionaires! I guess life’s a b***ch when you have to get rid og G5 and fly on a 2nd hand G4?
The problem with $23B (B as in Billion) bonus pool is $23T (T as in Trillion) that The Fed, FDIC and the Treasury reportedly pledged to “support the system.” Not to mention that the “backstopping” also created those mega-winners – GS, JPM, and the PPIP partners. All at the public’s (and smaller banks’) expense.
October 14th, 2009 at 8:32 am
@BR
But I do understand your defense of the “bonus babies”. After all, I wouldn’t want to be “odd man out” at the cocktail parties at the East Egg Marina Club…
~~~
BR: I already am!
Its pretty ironic that after I have spent years trashing the Wall Street execs who caused this mess, no one else seems willing to defend the legitimate rank and file workers who were profitable and risk aware and didn’t cause the problem.
AIG had 86,000 employees, their FP division that killed the firm had just 400. Lehman had 25,000 employees, Bear Stearns had 16,000; The vast majority of these workers — my guess is something in excess of 95% — had nothing whatsoever to do with the collapse.
October 14th, 2009 at 8:34 am
The system is built to reward success but what kind? This discussion, ultimately, is about how to regulate the assumption of long term risks. I am no fan of regulation but if “Too big to fail” must exist(right now), then better regulation must too. Why not just go there since we expect Congress to do it and, obviously, they are not. They need to be led to the idea.
There’s got to be a good example from the past that modeled proper balancing of now and later incentives, no? And if not then that only makes the construction of new ideas to delay risk based reward more pressing.
October 14th, 2009 at 8:40 am
Lebron earning his money is one thing. GS getting paid by being not only saved when they would’ve surely went under but also given an unfair advantage by borrowing for free from their friends in the government is a completely different story. The game is rigged and you question why there’s anger over these payouts? The bonuses should be determined at the corporate level then some very large % should be given to the taxpayer for his ‘investment’ in this firm. Remember the investors always get paid first and with much of the pile before the workers.
October 14th, 2009 at 8:42 am
how are these bonuses unlike the first point you suggest we fret over: “Paying people in year one for risks that last years or decades” ?
~~~
BR: Traders on desks run mark-to-market in stocks, bonds, options, etc. The risks are very different than the AIG CDS junk
October 14th, 2009 at 8:44 am
“Top performers earning huge paydays at the biggest firms is not one of them . . .”
I know you’re just trolling here, but perhaps you should look up the meaning of the word “earning” as applied to somebody who was given a truck full of free money. My money, your money… everybody’s money.
October 14th, 2009 at 8:45 am
Please don’t compare a trader or banker from a bailed out bank to The Boss, a Pro Athlete or Movie Star. Yes, many think they too are overpaid but at least you have an option of paying with your feet. At least stadium funding comes down to a public vote. You discredit yourself when you defend record bonuses at bailed out financial institutions year one after a mini depression. At the minimum banks should have to give back the free carry trade money (ok…left field I know…but I didn’t get to borrow at zero this year).
With that said Americans typically do not condemn the likes of a Bill Gates or Sergey Brin for making boatloads of money. They are what the general populous consider true risk takers.
October 14th, 2009 at 9:00 am
In case you were all wondering where fall went GS took that over too
October 14th, 2009 at 9:11 am
You’ve muffed this one Barry. But I’m not surprised, one wall st. prowler NOT upset by the ill-gotten gains of other wall st. rapist – but you should be. The fine line dividing civilized behavior from mob reaction is too, too thin. This is the kind of thing that stretches it even more. The black swans are circling attracted more black swans, don’t be anywhere near wall st. when the next one lands.
~~~
BR: There are shades of gray that too many people are missing. Wall Street is not a wholly illegal, illegitimate business.
There are ill-gotten gains that I have railed against, and legitimate monies earned. Stop lumping the criminal and the incompetent with highly compensated, profitable employees.
October 14th, 2009 at 9:23 am
dead on Barry. I am well aware that SINGER”S points above are very common concerns, mainly “but if we, the people, hadn’t given AIG money to funnel through to Goldman, they wouldn’t be able to pay those bonuses”
yeah – and??? BE MAD AT THE PEOPLE WHO CONSTRUCTED THAT ILL CONCEIVED BAILOUT!!!! that is the whole point… don’t hate the player – hate the game. GS’s job is to make money and get paid. they are good at it. They had contracts with AIG. the government gave AIG money so that it could make good on its liabilities – and that makes you hate GS?!?!?! hate Paulson… Bernanke… Geithner… Barney Franks…Bush… OBama… the guys who GAVE the money out without any foresight as to potential problems and consequences.
October 14th, 2009 at 9:36 am
Barry – Aren’t we overlooking what is perhaps the greatest risk of concentrated accumulation of wealth? That is the corresponding decline in incomes and wealth in the middle/working classes and their inability to sustain consumption and growth of our economy. (Declining incomes now coupled with contracting debt levels.)
This was taught to me as one of the causes of the great depression. It seems to be overlooked in the present day circumstances. My suspicion as to why is because it is the same liberal class that should be raising this issue that instead is benefiting economically from the current status quo. Less a statement of hypocrisy than an observation on human nature.
The consequences may very well be that the greed of the wealthy class will ultimately result in the demise of the very systems that has perpetuated their wealth. However, even if they were to recognize this, they are incapable of pursuing any path other than the continuation of their greedy behavior.
Just some thoughts to ponder.
~~~
BR: That is a very different argument, and we are then talking about Bill Gates and Warren Buffett and George Soros and Steve Jobs . . . .
October 14th, 2009 at 9:37 am
oh – and another thing that I just realized i’m very very mad about – the BofA forced purchase of MER… someone should go to jail – i’m not quite sure who – I keep thinking it’s Ken Lewis for his complete screwing of his own shareholders. The quote from this morning’s NYT article between boardmember emails was ““Unfortunately it’s screw the shareholders!!” ” (http://www.nytimes.com/2009/10/14/business/14bank.html)… and in light of last week’s Vanity Fair excerpt from Sorkin’s book where he illustrates the negotiations to save MS and GS, we saw that real CEO’s actually said “NO” when Geithner called Dimon and said “you have to buy MS”… “NO” said Dimon – I can’t….
October 14th, 2009 at 9:38 am
Really bad grammar above. Note to self: need more coffee before I write.
October 14th, 2009 at 9:44 am
“Top performers earning huge paydays at the biggest firms is not one of [the things to be upset about]…”
Top performers generating millions for their firms do deserve their share of profits.
But what is an appropriate share? 1 million? 10 millions? 50 millions? 1%? 10%? 50%?
You could say: Nobody knows, so let the market decide.
Unfortunately, the market rather resembles an oligarchy with its own standard of relative wealth (when you talk about millions, only relative wealth counts).
As an example, the ratio of CEO to worker pay has increased from 24:1 in 1965 to around 300:1 in recent years. Have CEOs increased their skills 12 times compared to average workers? Didn’t workers also have to adapt to computerization and internationalization?
Or is it rather a race upwards between a small (admittedly highly skilled) group of people that has lost touch with the life and incomes of society in general?
October 14th, 2009 at 9:54 am
The mere fact this this firm wouldn’t even exist without the generous support of we the taxpayer is enough to make me upset about anything Goldman does. I realize that you work in the biz, Barry, and can’t hammer everyone and everything in it, but please, we all know this firm would be done for without gov’t support. The mere fact that we have to listen to just how brilliant these fuckers were/are when all along they only exist because of gov’t support is enough to get any thinking person a bit irritated.
~~~
BR: I have pretty much burned every bridge there is to burn in the industry — it has nothing to do with that. I am less sure that GS would have disappeared, as opposed to Citi and BofA, who were toast.
October 14th, 2009 at 9:55 am
I think Singer has it right. Normally, I wouldn’t join the chorus of “I agree”s, but this is too big an issue.
And frankly, BR, you’re too smart for this completely bullshit post. At the end of the day, GS is paying out a taxpayer-sponsored bonus pool.
One thing you left out – The complete abrogation of liquidation preferences. Why have bankruptcy laws if the government can rewrite them at will?
~~~
BR: I agree that AIG should have been liquidated and GS disgorged their ill gotten $19b.
But that is very different from saying the performers who generate revs/profits should not get their bonuses.
October 14th, 2009 at 9:56 am
I agree with danm. Barry – why bother hammering this culture when you rationalize some things in it and not others? I realize that you’re trying to be a pragmatist but part of me thinks you do this just to fire up the minions here at TBP a bit so you can look like the “good guy” in the process, when in reality you’re just part of the machine on Wall Street that is killing this country .
~~~
BR: I am part of the machine. But I try to be objective and honest and critical and pragmatic about what I see. (Its a niche abandoned long ago by the big firms).
So far, I have seen arguments in this thread that there should be no Wall Street or Capital markets or incentive pay or profit sharing or concentration of wealth or millionaires.
Please make an objective assessment as to how to implement any of these ideas.
October 14th, 2009 at 10:01 am
@cvienne: Not to be picky, but there are PLENTY of taxpayer subsidies and their implicit monopolies in professional and big-time college sports. Tax paying suckers get duped into funding stadiums for all these wealthy entities and that subisides indirectly affects (pushes up prices) for everything else related to those entities, including players’ salaries. Without taxpayer subsidies for stadiums, the owners would have to find a way to pay for these money-losing boondoggles themselves and most wouldn’t do it. This would result in lower salaries for everyone else.
October 14th, 2009 at 10:02 am
I have no problem with the best in the game getting bonuses they deserve. I think what we see is a lot of jealousy from those who try to defend capitalism but then hate to see it in action. They cry that Obama is making a socialist state yet when true capitalism is on display they balk.
I’ve been indicating to people for quite some time to share in the wealth by buying into the market. We are undoubtedly and inarguably in a mini economic boom. Look at the incredible results being posted by INTC, JPM. If these guys can navigate such rough waters and come out big winners, there employees deserve whatever bonuses they deem necessary.
October 14th, 2009 at 10:10 am
@Mannwich
At least the local citizens get a VOTE on whether or not to subsidize a stadium…
~~~
BR: Not always !
October 14th, 2009 at 10:10 am
It’s kind of like back in the late seventies and early eighties, the kids would jump into bed with me on Saturday morning and we would tune the TV to championship wrestling and watch the choreographed matches of Good vs. Evil. That’s all business, politics and the media are in this country today, just one big championship wrestling pulling on your emotional strings…
GS is what…. The Iron Sheik….? and….. Tim Geithner is who…. “FROM FLATBUSH AVENUE IN BROOKLYN NEW YORK…! THE PRETTY BOY….! GINO DE PASQUALE…!” Who jumps into the ring with the enthusiastic applause of the spectators, and immediately, to the shock and astonishment of the crowd and my daughters sitting in bed next to me, gets his ass stomped into the ground by the Iron Sheik.
Now, that’s entertainment…
Best regards,
Econolicious
October 14th, 2009 at 10:12 am
>>At least the local citizens get a VOTE on whether or not to subsidize a stadium…
not necessarily true. look at yankees stadium. bloomberg came up with the plan and did what he wanted. there are some very nice subsidies in the package for the yankees. but hey it’s good for NY and good for baseball!
October 14th, 2009 at 10:13 am
@cvienne: Most folks do (and are too emotional and stupid about it when they do vote, not realizing they’re rooting for laundry anyway nowadays), but here in Minny, they find a loophile to ram through the Twins new ballpark WITHOUT our vote even though we denizens of Hennepin County are paying for it. Me-thinks that’s “taxation without representation”, no? Don’t get me wrong, I’m glad the Twins will play in a real baseball park outside (during the summer months), but I didn’t even get to vote. The owner here is a billionaire and could have paid for the whole thing. Instead, they’re paying almost half. To add insult to injury, they were too cheap to pay for a retractable roof, so games in April and October are going to be a joke, if they even play them at all.
October 14th, 2009 at 10:16 am
We need a financial transaction tax (tobin tax) to redirect to redirect the energies of creative smart people like our host(and GS traders) away from financial speculation to more productive parts of the economy.
October 14th, 2009 at 10:17 am
I don’t know exactly how they “earned” (or scammed) that much money, and I don’t care. These people are a cancer on society. Here in the boonies where the peasants live, you know, the folks who make real stuff like food and machinery – we are struggling to get by on a few crumbs. What in the world is happening to this country? The predators on Wall Street make ginormous money while ordinary people are trying to avoid financial calamity every day, and too often losing that fight.
~~~
BR: Hence, the basis of our disagreement.
Like your iPod? It is courtesy of capital markets that Apple raised cash, went public etc. Google, Cisco, Yahoo, etc the same.
Try not to paint with too broad a brush. Distinguish between legitimate business in capital markets and the scammers, criminals,thieves and dirtbags.
October 14th, 2009 at 10:19 am
Nothing is immoral, unethical, or obscene to a person with no conscience or compunction. That’s why we have laws.
We all understand that criminality, in the form of fraud, committed specifically by “the banks” in league with “our government” (by both commission and omission, and at all levels) was what led to our current dire situation. That the money has been laundered and blessed by having passed through the corporate non-entity before being distributed among the participants in the underlying crimes is little consolation to those who have been robbed.
The most telling and basic analysis of why such large bonuses are wrong, dangerous, and repugnant in the extreme is to observe that there are enriched “financial services” insiders on one side of the equation and defrauded (and increasingly destitute) investors and taxpayers on the other — with no net benefit or improvement in production levels or capacities, incomes, or balance sheets to be found.
We have witnessed (as one would witness a crime) the largest illegitimate transfer of wealth in history. That wealth went from the many to the few in a very complex and entangled scheme involving new “financial products,” dishonest ratings, and tortured accounting principles. All guarded by the corporate veil and supported by the corporatist government structure (a silent coup, indeed).
The sad thing is that we know what happened and we are watching it continue. No SEC or FBI investigations? No indictments under the RICO act?
Under legitimate government, we would let the bonuses be passed out and begin the RICO investigations starting with the recipients and following the money backwards. I don’t think you’d have to dig very deep before you hit your first crime.
October 14th, 2009 at 10:26 am
Ridiculous post BR. Singer absolutely nailed it.
Additionally, the banksters are the very first people to receive the Dollars from the FedRes. They are given the cheap access to unlimited funding now. So, it’s not like these hot shit traders are operating on a level playing field of any kind.
That said, GS does have some excellent prop traders who can make money from nothing. They deserve some bucks. But, how much money should the Phibro guy get? He was using money from the taxpayers to lock in huge “cash and carry” trades when the oil market was severely contangoed. Any monkey could have made the $$s with those assets and, more importantly, the cheap cash!
October 14th, 2009 at 10:26 am
And on cue over at Naked Capitalism…….I read the William Black article yesterday as well. A very thoughtful piece.
http://www.nakedcapitalism.com/2009/10/does-banking-contribute-to-the-good-of-society.html
October 14th, 2009 at 10:31 am
Couldn’t disagree more.
Especially at GS… there is very little real value added by these crooks: trading gains based on opportunistic electronic sophistication is one thing in a healthy economy. But these guys were at the core of everything that crippled US economy, and the same methods/practices continue in spades.
I would go back to your articles around election time citing ideas like a Manhattan Project for economics and such, and compare that to the rolling-the-dice strategy Obama has carried over from Bush.
GS is at the heart of that… a cancer AFAIC.
Sheesh… it’s a corporate welfare system w/a CAPITALISM sign hanging out front. This thing has degenerated into reap the spoils, take what you can get, and the hell w/identifying real underlying value, much less badly needed economic initiatives which CAPITALISM has entirely ignored and demonized.
Love your blog, get a lot of great info here. But you sure miss the boat on this one Barry… seemingly ignoring everything you wrote on circumstances and practices that got us here.
October 14th, 2009 at 10:33 am
If one ultimately connects ONE too many dots, one may not ultimately like where those dots lead………
October 14th, 2009 at 10:35 am
“Sheesh… it’s a corporate welfare system w/a CAPITALISM sign hanging out front.”
______
Ha!
October 14th, 2009 at 10:38 am
As a general proposition, I am all for bonuses. I think the issue here is not so much the bonuses, in and of themselves.
If I worked at GS I probably would take the bonus money offered to me as an aspect of my contractually agreed upon compensation package, even in the current circumstances.
I think the real issue is the disdain that has built up, and rightly so, over the cozy relationship between: current government officials (judicial, legislative, and executive), former government officials, and current and former employees/partners/etc. of the major investment firms. This is what rubs people the wrong way.
The distinction between the public and private sector has become blurred and the common factor between both is that neither is looking out for the taxpayers, (why we pay taxes like we do is another issue), and/or the common man/society.
Not only that, but all this bailout money, etc. might be justifiable if it were really being used to innovate in an entrepreneurial and productive way, but alas, it appears not to be.
Basically, people made bets that made short term money, got paid bonuses for that, those bets went south, the government/taxpayer stepped in and replenished their funds, they made more bets, which are now profitable in the short term and they, again, collect bonuses for those bets.
Another part of the disdain is an inevitable jealousy, which although common among normal people toward those with high levels of success and wealth, is distinguishable with regards to sports/music figures and the likes of GS.
I know that whatever I do, at this point, I will never be Peyton Manning, Lebron or Springsteen, so I can respect their individual success without being too jealous.
On the other hand, if the government handed me $10 million at 0% and let me trade any market, I believe I could make a nice profit, after paying back my interest free loan. Therefore, because they, the ones with the cozy relationships to the government, get this boatload of cheap money to trade the markets with, and make sick money on a bounce that was pretty callable, and make huge bonuses because of that access to government money, that understandably engenders jealousy and ill will.
October 14th, 2009 at 10:43 am
Harry Wanger,
“I’ve been indicating to people for quite some time to share in the wealth by buying into the market. We are undoubtedly and inarguably in a mini economic boom.”
This must be based on a new definition of “economic boom”. Latest data for retail sales: down. Latest data for business inventories: down. But the “economic boom” is “undoubtedly” and “inarguably” here. Bullying posture of Harry “knows it all” Wanger instead of arguments, analysis, and substance.
“Look at the incredible results being posted by INTC, JPM.”
Go ahead and buy Intel shares then, Harry. They have been doing really great for the last 10 years.
rc
October 14th, 2009 at 10:49 am
Barry, I could not believe my eyes reading your post…, I was relieved by all but 1 commentator.
like dawase says: I think Singer has it right. Normally, I wouldn’t join the chorus of “I agree”s, but this is too big an issue.
The City example doesn´t cut it; it might have been + $ 600 million (well, $ 500 million after his $ 100 million bonus; why can he claim a hedge fund type salary, when on his own he could never get his hand on the money amounts to play with, like he did at City?), but how would it work out when he had hedged his bets for $200/bbl oil, like GS projected? The Phibro thing is a prime example of heads I win, tail you stupid taxpayer lose.
KidDynamite: ¨that is the whole point… don’t hate the player – hate the game. GS’s job is to make money and get paid. they are good at it. They had contracts with AIG. the government gave AIG money so that it could make good on its liabilities – and that makes you hate GS¨
?????
Without players no game, sorry Kid, but after you´ve grown up, you´ll realize that players and game go together. And if players are gaming the game, then we have all the right reasons to be very upset!
You’re reasoning like that bullying schoolkid: ¨If that other kid had not let himself be bullied, I would not have done it¨, or that thief: ¨If they had locked the door, I would not have stolen¨.
¨GS’s job is to make money and get paid. they are good at it¨
UTTER NONSENSE
GS job is to EARN their living IN SOCIETY. They do not operate in a vacuum you know. There is ´collateral dammage´. Plus.., GS was so good at it, that their derivatives portfolio and other gambles were imploding in their faces September ´08.
By the way, how much money would you have made, borrowing at 0%, riding the liquidity induced stock market rally, getting fees for selling loads of Treasuries (to pay for your bail-out), etc.?
Barry, after having read the comments above and given this outrageous, paid-for-by-the-unwilling-taxpayers bonus issue some more thoughts, what´s your take now?
October 14th, 2009 at 10:52 am
@carol7: I don’t think Barry cares. He’s “getting paid”. He’s “good at it”.
~~~
BR: What I am getting paid for is intelligent insight…
October 14th, 2009 at 10:56 am
Barry, the people you list like Lebron James, Bruce Springsteen, or Tiger Woods are essentially sole proprietors. They are main attractions and true rainmakers. For the majority of bankers at GS, their success has more to do with the name GS on the top of their cards (along with their access to the US treasury), than actual skill. Doug Kass says there are very few real rainmakers in the business world, and I agree.
October 14th, 2009 at 10:56 am
Whatever percentage of those firms that are “owned” by “the government” (via TARP, TARP+, or bailout) – the same ratio should be used to determine the percentage of trading profits that should be “clawed back” to the taxpayer.
If a firm is 75% owned by the gov’t then 75% of the trading profits should go back to the government.
If an entity is totally 100% owned by equity or private debt – then they can keep 100% of their trading progfits.
How’s that for an incentive to “get off the dole?”
October 14th, 2009 at 10:57 am
<>
True
October 14th, 2009 at 11:03 am
Singer:
The whole sports figures/entertainers vs. the bankers analogy is bullshit. It’s like comparing Al Capone to Charlie Chaplain.
Your comments on jealousy, especially your last paragraph, seem misplaced and a little logically twisted. True, you’ll never be a rock star, and you aren’t jealous of rock stars — yet you say that jealousy exists against the banking class because of their “success and wealth.” You then tie this “success and wealth” to insider connections and access to free money. So, it’s not the wealth, it’s how the wealth was obtained that irks people. By extension, it’s not jealousy you see, it’s anger. Bill Gates is a wealthy man, but no one is pointing a finger at him, ’cause he’s legit.
October 14th, 2009 at 11:07 am
I have FAR more respect for the likes of Lebron James than I do Lord Blankfiend. One has real talent. I honestly don’t think most of our culture cares about what elite athletest or movie starts make. I hardly EVER hear that being discussed anymore by sports fans, whereas in prior years it was discussed all the time. I think most have accepted the fact that these folks have special talents that very people in the world have, so they’re OK with it for the most part.
@MA: Great comparison. Spot on.
October 14th, 2009 at 11:10 am
What Singer said:
“To the extent that these GS bonuses are directly related to the items you listed as things to get upset about, I disagree.”
Yup. Let’s give them bonuses after we subtract all the largess they have extracted from the taxpayer due to their buddy buddy status with the White House.
October 14th, 2009 at 11:14 am
I want to be in the investment bankers union.
Strongest union ever.
October 14th, 2009 at 11:17 am
Try rationalizing Goldman’s bonuses to these people. It’s going to be a fun holiday season when all the garish numbers start trickling out.
http://www.nytimes.com/2009/10/14/business/economy/14income.html
October 14th, 2009 at 11:23 am
wow BR – i’m surprised i’m the only one who agreed with your post!
Carol – my point is that your anger is misplaced. The bailouts were a massive clusterf*ck initiated by Paulson, Bernanke, Bush, Frank etc etc… You cannot blame the recipients of the money for the lack of foresight of the idiots handing out the money. I completely agree that when money was given to the banks (and newly chartered banks, like GS) there should have been severe restrictions. but guess what – THERE WERE NOT! That’s the fault of the lawmakers – BLAME THEM. The whole process was sick from top to bottom, and was evidenced from the beginning that the government got significantly inferior terms for their investment when compared to private investors like Warren Buffet. but again – that’s not the fault of the recipients. It’s the fault of the lawmakers. Vote them out of office.
ps – yes, i know GS has tremendous influence and connections within the government – so what – total strawman argument – VOTE THEM OUT if you don’t like it! That’s how America works.
October 14th, 2009 at 11:25 am
@MA
I agree, it is anger, too… I think we need MEH to put up the definitions of anger and jealousy from that search engine he always quotes from…
I was talking generally about how people have a tendency to be jealous of the successful and wealthy, from whatever field for whatever reason, whether it be a self-made oil billionaire, to a trust fund kid worth 100 million through no effort of their own. I was distinguishing that sort of general jealousy with that of the GS’ers and that ilk, who got help and dough from the govvie…
I wasn’t really talking about “bankers”. There are people who have run hedge funds ,etc. and real traders at these major firms that have and continue to make money on their skills and merit. So my analogy isn’t Al Capone to Charlie Chaplin, cuz not every Wall Street player is Al Capone-esque or a criminal.
BTW, didn’t Gates steal stuff from Apple and even “Warr Buff” was a Silver manipulator, upon information and belief, see the Martin Armstrong literature…
Also, see my last line, “jealousy and ILL WILL” i.e., anger…
October 14th, 2009 at 11:30 am
@KD: Because you and BR are IN the business. Don’t you get it? You can’t totally disavow things that go on in the industry because that would be too sobering to admit to yourself. You HAVE to drink SOME of the kool aid? I, on the other hand, stopped drinking the kool aide in ’06 and never went back, nor will I ever.
October 14th, 2009 at 11:31 am
@Kid Dyn
How can I vote them out? All I could theoretically do is vote for my congressman and senator from NY. So I can’t vote them out. If everyone banded together, then there would be a chance.
BTW, the GS’ers and the like have foreseen your logic, which is why the contribute mightily to the campaigns of those politicians. So while I and whoever is with me try to “vote them out” since “we don’t like it”, the GS’ers, et al. will be funding their being voted in…
October 14th, 2009 at 11:31 am
@KidDynamite
While I see your premise (vis-a-vis “lawmakers”)
Don’t forget that it was the banks themselves that shoveled the campaign contributions TO the lawmakers to get them to do their bidding in the first place…
Therefore, it revolves back to THEM…
October 14th, 2009 at 11:32 am
Singer & I…
Same concept… Same time stamp…
October 14th, 2009 at 11:35 am
Voting is a waste of time and energy (and money for me this past election). I won’t make that mistake again.
October 14th, 2009 at 11:39 am
mannwich – see, the interesting thing is that i am no longer in the business. i’m not one of those hypocrites that wants low taxes for the rich when i’m one of them, and high taxes for the rich when i’m not one of them. but i don’t want to get off topic.
SInger/Cvienne – it boggles my mind that you’re using the “but the lawmakers are bought and paid for” argument as one that renders you helpless. COME ON! Singer – 1) vote out your congressman from new york. That’s what you can do. That’s what i tried to do! Now i’m moving to New Hampshire (yeah! LIVE FREE OR DIE!) where my new senator is trying to end TARP funding. i will support him in that. 2) you have a blog/website/voice/intelligent demeanor. EDUCATE people – EXPLAIN to them how much the lawmakers fk’ed up – and how we need new rule (change we can believe in ! hehehhehe). 3) use the populist anger around Goldman Sachs to explain that it’s the policies of Barney Frank and the senate finance committee that made such largess possible – spread the word.
you guys using the “banks get lawmakers to do their bidding for them” are proving my point: the problem isn’t the banks – IT”S THE LAWMAKERS!
October 14th, 2009 at 11:46 am
mannwich – with the comment that “voting is a waste of time” you are basically forfeiting any say you have in this or any other debate. if you don’t like the bonuses GS is paying and the money they are making, you can work to get that changed (regulations, Glass-Steagall, etc), by campaigning (to spread the word) and voting. if you don’t want to do that, well, then, I can’t think of a nicer way to say STFU! (And i mean that in the nicest way possible, really).
October 14th, 2009 at 11:47 am
Sorry, KD. No time. I got Giants, Yankees, and Rangers games to watch…
Plus, saying the “it’s the lawmakers” is oversimplifying it. But yes, the lawmakers are part of the problem…
October 14th, 2009 at 11:50 am
How is it on our dime? They repaid the TARP in full
October 14th, 2009 at 12:06 pm
[...] handwringing” about record-breaking Wall Street bonuses. (WSJ also Big Picture, FT Alphaville, Rolfe [...]
October 14th, 2009 at 12:10 pm
Is it ok to be pissed about how their obnoxious wives flout their largess to the great unwashed?
http://blogs.reuters.com/reuters-dealzone/2009/08/05/mixed-messages-from-goldmans-first-family/
October 14th, 2009 at 12:14 pm
I’d agree if this were true capitalism, but Barry you can’t decry TBTF bailouts and regulatory capture on the one hand and defend bonuses paid to incompetent/corrupt persons benefiting from that tilted playing field on the other. WTF?
GS was insolvent last year and that should have been that.
October 14th, 2009 at 12:23 pm
This is what I am upset about:
Bonuses paid to profitable employees who generate real revenue do not bother me.
October 14th, 2009 at 12:24 pm
“There are plenty of things to be upset about these days. Top performers earning huge paydays at the biggest firms is not one of them . . .”
Hate to add a “me too” but really, BR, your post reeks of sophistry.
Why, exactly, should tax payers be unconcerned that “top performers” (who’s standards of performance are undisclosed) are getting huge paydays working for the “biggest firms” (in this case a firm that has been bailed out and is making profits at the public expense) when other public employees are taking huge pay cuts (eg. teachers in my state just took an 8% pay cut)? Sure there are other things that we can easily be upset about in the Big Picture, but many folks are upset at the bonuses because they have every appearance of a taking from taxpayers and because in a time of shared pain it is distasteful even unpatriotic, for folks to leverage government welfare into personal wealth.
October 14th, 2009 at 12:24 pm
I see what you are trying to do — chase away the non Wall Street readers so your demographics show higher incomes, and hence your advertising revenues are much higher. Very clever, Barrysan!
October 14th, 2009 at 12:28 pm
Barry,
You should completely refrain from commenting on Goldman Sachs as your are obviously a huge fan boy just like Cramer. Goldman should have collapsed just like Bear and Lehman but they got bailed out.
Give it a rest. I use to respect your insight. Now I just laugh at you like I laugh at Cramer.
You are talking your position…give it a rest and stop kissing GS @$$. Pathetic!
~~~
BR: I have no position in GS, and have been VERY CRITICAL of Goldman Sachs at this blog over the years:
Feel free to disagree with me, but at least get your facts straight . . .
October 14th, 2009 at 12:30 pm
Transor Z,
“I’d agree if this were true capitalism”
What is “true capitalism”?
rc
October 14th, 2009 at 12:31 pm
PS – IBs are a tax on the capitalist process
October 14th, 2009 at 12:34 pm
RC – i would guess that TransorZ meant that in TRUE capitalism, the insolvent banks would have failed, rather than been bailed out
October 14th, 2009 at 12:43 pm
BR says:
“Bonuses paid to profitable employees who generate real revenue do not bother me.”
________
Reminds me of the Mish/Denninger debate over fractional reserve lending.
What, exactly, is “real revenue?” Was anything of value created or was value added to anything that resulted in “real revenue?” Is a profit actually realized if the losses are not counted? Arbitrage is easy for insiders if the markets are rigged.
October 14th, 2009 at 1:00 pm
@BR: “That is a very different argument, and we are then talking about Bill Gates and Warren Buffett and George Soros and Steve Jobs . . . .”
I can distinguish between Gates and Jobs whose personal wealth is created as a result of adding significant economic value to the benefit of many and Soros, Hedge Funds & Investment Bankers who transfer and concentrate wealth without creating economic value (except for the esoteric efficient capital argument). Gates’ and Jobs’ wealth are dependent upon a strong economy and the concurrent creation of wealth for others. I would be more than happy to see 1,000 new Gates and Jobs because their wealth is the result of economic growth and prosperity.
Irrespective of the above debate however, Why isn’t anyone discussing the risks inherent in a society where income and wealth is increasingly concentrated? I would love to see Krugman address this. I would have much respect for him if he did.
October 14th, 2009 at 1:10 pm
BR, who usually is so good about, well, seeing The Big Picture, has got tunnel vision here.
He’s irked by people who automatically assume that large bonuses aren’t deserved, and is having a knee-jerk response here.
Your list of concerns, which supposedly makes this a thoughtful position on your part, merely highlights what you are missing, namely: he who has the gold makes the rules.
$23 billion is a lot of gold, enough to influence the rules enough to make it $30 billion next time. And so on.
You’ve seen the graphs showing the massive growth of financial services as a % of the U.S. economy, with little to show for it outside of trickle-down spending and massive amounts of unserviceable debt.
Did you ever stop to wonder how that occurred? Do 23 billion reasons help at all here?
Please, don’t insult us with analysis that stops at: they made a bunch of money for clients/shareholders and have earned their cut.
October 14th, 2009 at 1:10 pm
I’m largely in agreement with all of BR’s comments. There’s plenty (about Congress and the financial system) to be angry/resentful about, but bonuses at GS is not among them. They paid back the TARP money, so they should be able to do what they want. In any case, I think there’s more harm than good in the government trying to regulate bonuses (except where bailed out firms are concerned).
October 14th, 2009 at 1:11 pm
I know who should be mad at the GS bonuses. Shareholders of GS!!! They are taking value out of the company.
October 14th, 2009 at 1:18 pm
Barry said:
Key word there: real. The whole CDS fraud was most certainly not real, nor was it’s insurance (AIG… no funds), nor was the entire premise upon which it was all built: that a house of cards is supported from the roof down.
I don’t see GS “profits” as real. I don’t see BofA, CITI, Wells or all the others having even fessed up to what they’ve done. And I’m reading Treasury’s management of all these assumed toxic assets by Blackstone is drawing hires from same crowd that created this whole debacle.
You’re entitled to an opinion, no problem. My opinion is that, until a legitimate economy is restored w/fundamentally sound initiatives, these bastards trading around the top can go pound sand. That they get per-centages in 6 figures for creating no value whatsoever…
~~~
BR: Are you suggesting this current bonus pool is made up of CDS profits, or that they are somehow artificial?
Help me see how that is the case . . .
October 14th, 2009 at 1:25 pm
BR @ 12:23
I would disagree with one point here. To the extent that suspension of “mark-to-market” requirements can minimize the need for bailouts, I’m all for it.
October 14th, 2009 at 1:35 pm
Calvin Jones @ 1:11
You may have a point there. Shareholders often get the shaft; this is yet another example.
October 14th, 2009 at 1:40 pm
@KD: I did all that in the previous election. What has changed? Voting out the incumbents is all well and good and I may do that in ’10, but if the system stays the same, we will get the same result no matter who’s in office. Sorry……
October 14th, 2009 at 1:42 pm
Barry, I’m all in favor of bonuses paid to honest hardworking people who outperform in a competitive environment. But I thought this post was about Goldman Sachs.
;)
@RC: One mark of true capitalism is that over-leveraged insovent businesses are allowed to fail.
~~~
BR: heh heh
I have been pounding the table about letting insolvent banks fail. But the public focus these days seems to be elsewhere . . .
October 14th, 2009 at 1:42 pm
Sorry Barry but a couple of things get in the way of this argument.
There are no rank and file traders doing the sort of job that these bonuses are an appropriate reward. After 30 years in this business all I have seen is those who stuff the clients and external shareholders and those who allow the clients and external shareholders to be stuffed. The idea of honest Joes and Joans working in these organisations is a fantasy. That is is the Darwinian nature of this sort of organisational culture.
Dont get me wrong, I have friends in these organisations but they are not the deserving little worker ants you describe. They either left or were morally compromised years ago.
These bonuses are the the result of the profits obtained from interest rates massively subsidised by the taxpayer on the liability side and still over leveraged balance sheets protected by the taxpayer. The authorities are hoping that the banks can generate sufficient profits from their solvent customers to recapitalise their balance sheets. I suspect even Mr Bernanke is startled by how much of that profit is going into individuals pockets rather than recapitalising balance sheets
October 14th, 2009 at 1:43 pm
comment over 8:06am
“BR: I am not referring to the AIG FP people, or the JPM derivatives creators — but the rank and file traders bankers who do their jobs and make money for their employers.”
I don’t think we can allow the separation of profits on bankster acitivities as legal activities.
Its like saying “it’s time to Legalize All hallucinogenic addictive Drugs” .. it’s commerce damnit .. and J6P needs a garage business startup now
October 14th, 2009 at 1:44 pm
And let me be clear (to borrow an oft-used phrase from the O-man): I have ZERO problem with successful firms who pay their top performers whatever they deem to be equitable, as long as those the gov’t was not in any way involved in propping up those firms. Otherwise, we taxpayers should have a say (I know, how quaint) in what these fuckers are paid. I’m not againt people making big money (or jealous of, for that matter), but the system on Wall Street with our politicians’ help only guarantees that we will see another blow up in the near future, maybe even sooner than we think and bigger than we think. Constantly bailing out failing firms and industries only insures that such bad behavior will continue. After all, if one is rewarded for bad behavior, why change one iota?
October 14th, 2009 at 1:45 pm
BR: I already am!
Its pretty ironic that after I have spent years trashing the Wall Street execs who caused this mess, no one else seems willing to defend the legitimate rank and file workers who were profitable and risk aware and didn’t cause the problem.
AIG had 86,000 employees, their FP division that killed the firm had just 400. Lehman had 25,000 employees, Bear Stearns had 16,000; The vast majority of these workers — my guess is something in excess of 95% — had nothing whatsoever to do with the collapse.”
BR,
carol7, above, hits on it, with: “BR: I already am!
Its pretty ironic that after I have spent years trashing the Wall Street execs who caused this mess, no one else seems willing to defend the legitimate rank and file workers who were profitable and risk aware and didn’t cause the problem.
AIG had 86,000 employees, their FP division that killed the firm had just 400. Lehman had 25,000 employees, Bear Stearns had 16,000; The vast majority of these workers — my guess is something in excess of 95% — had nothing whatsoever to do with the collapse.”
LSS: maybe, we should re-view “The Sting”
http://www.popentertainment.com/thesting.htm
past that, Singer*, MA, and many others make valid points..
but, it’s good of you to open up this line of discourse, it’s, yet, another boil to be lanced..
past that, *
http://www.thefreedictionary.com/anger
http://www.thefreedictionary.com/jealousy as jealousy is, most, commonly used, it ~ envy..
October 14th, 2009 at 1:46 pm
Barry:
Would you feel the same if, over the last year, your firm went head to head with Goldman with all the advantages they have? If GS had put you OOB, you mean you’d say,” Well, gee, the better firm won…”
Think about it for awhile…this is what the readers are getting at…
~~~
BR: We did, we’re still standing.
(we are a flea on their arse, but . . . )
October 14th, 2009 at 1:46 pm
nice cutting ‘n pasting..
carol7: The City example doesn´t cut it; it might have been + $ 600 million (well, $ 500 million after his $ 100 million bonus; why can he claim a hedge fund type salary, when on his own he could never get his hand on the money amounts to play with, like he did at City?), but how would it work out when he had hedged his bets for $200/bbl oil, like GS projected? The Phibro thing is a prime example of heads I win, tail you stupid taxpayer lose.
October 14th, 2009 at 1:52 pm
Barry,
All of your bullet points are valid and I’m sure most here agree.
“Bonuses paid to profitable employees who generate real revenue do not bother me.”
The question I have for you is:
Could GS have generated any of this “real revenue” without market manipulation and government intervention? The answer is clearly no because the company probably should be out of business ala BS and LB.
The response that profitable employees deserve bonuses doesn’t hold much weight either given the above. Continuing with the sports analogy – in 1992 World Series, Joe Carter hit a game winning homerun for the Toronto Blue Jays. Everyone on the Blue Jays got a World Series ring because they won – obviously. Well, why didn’t everyone on the Phillies get a World Series ring except Mitch Williams – I mean, he was the one who gave up the homerun, the Phillies would have most likely won except for him. ANSWER: Because they win and lose as a team. Winners are not supposed to be picked or chosen – except on Wall Street, obviously.
~~~
BR: 1) That is why we should be upset at Paulson/Bernanke/Bush for cutting such a terrible deal;
2) The firms that repaid the TARP — what should their ongoing obligations be? (I don’t know)
3) Are you arguing against anyone earning a Wall St bonus, or just against Bailoutees ?
October 14th, 2009 at 1:53 pm
Thank you, Bruce. It’s ALL connected and that’s why many of us have a problem with this. To dismiss this as mere “jealousy” or “envy” is a copout and misses the bigger picture and point.
October 14th, 2009 at 1:55 pm
@Barry Ritzholtz: “We live in a capitalist system, where there are going to be winners and losers. Its not fair, but it is how it is. You can complain about it, but it is all but pointless. Feel free to pursue a millionaire’s tax of 1% (or 10%) on everyone who earns more than $1m — a super top tier — to pay for health care reform or whatever you want. (Best of luck with that!)”
(Best of luck with that!) – pretty much sums up my first point.
Republicans have always represented old money and opposed progressive taxes and wealth redistribution efforts.
Democrats of past generations were concerned with the inequalities of income that are inherent in a capitalist system and promoted high marginal income tax rates.
Intellectuals from both the left and the right acknowledged that a strong society needs to have a strong middle class.
Today the Democractic leadership has become a part of the wealthy class. As is human nature, they have rationalized personal wealth preservation with their liberalism and no longer advocate for higher marginal income tax rates to achieve wealth redistribution. Today they are in agreement with Republicans in this area.
Thus that wealth is becoming increasingly concentrated and the middle and lower classes are becoming increasingly unable to maintain standards of living. Jobs are going away, wages are declining. There is a risk of collapse of the entire system.
Of course capitalism is not equitable. It is a meritocratic system and some will do and should do much better than others.
However, it needs to be fair and it need to recognize its inherent tendencies towards the excessive concentration of wealth. That is, to the extent that society can make it so, capitalism should not allow some to gain advantage over others when not because of merit, but because of wealth, power or influence.
I agree with your list of items that folks should be concerned with. But that being said, wealth, power and influence will always lead to the further concentration of wealth. If unchecked, if wealth continues to accumulate in the hands of a few when the majority are experiencing permanent declining living standards – as they are so doing today as we debate – then it will ultimately destroy system. It will kill the Goose.
Today we have nearly 20% unemployment and underemployment. We have bankrupt pension funds and devalued 401Ks. Housing wealth in the middle class has been destroyed. The workng classes have seen declining real incomes for many years – something that was hidden due to excessive bank credit. We are running deficits equal to 15% of our GDP just to keep job losses from becoming worse. And bank bonuses will be the highest in history!
I believe we are in a battle for economic survival. Our leaders do not, apparently cannot understand who they should be fighting. Therefore they are not able to take the actions needed to prevent our economy’s collapse or more likely its demise into mediocrity.
October 14th, 2009 at 2:03 pm
I don’t know why, but after reading this post (and several others here at TBP before in recent days/month), the term “jump the shark” just keeps popping into my head. Won’t go away.
~~~
BR: I calls ‘em as I sees ‘em and let the chips fall where they may . . .
October 14th, 2009 at 2:04 pm
http://www.cnbc.com/id/33308407
Fed Unlikely to Start Raising Interest Rates for Years: Mishkin
…And as bsneath mentions…the Fed here has chosen to vote against the older (or younger) saver at the advantage of the investment banks…the elderly, as I have harped on, will not be putting away new money into stocks, but rather are now eating their seed corn with these interest rates.
However you think it happened Goldman and the other IB’s made terrible investment decisions and have been given a taxpayer mulligan. These businesses are continuing to be favored, October 2009, over the individual citizen. No, it is not right.
October 14th, 2009 at 2:17 pm
“The traders who throw off the most profits, the bankers that generate the most lucrative deals are worth tens of millions to their “team owners.”
Right…and recently I read this:
“These instruments were so complicated. One of these — I’m talking now about ABS CDOs, and actually the CDOs-squared are even worse. Merrill created one. I picked one particular one. To actually model out the things that are inside an ABS CDO [is difficult] because derivatives are already inside the CDOs. They’re already derivatives created out of derivatives. So you have to go way underneath to get to the actual pools of mortgages. To model correctly one traunch of one CDO took about three hours on one of the fastest computers in the United States. There is no chance that pretty much anybody understood what they were doing with these securities. – John Thain, October 2009″
and recalled this: http://www.bloomberg.com/news/marketsmag/mm_0208_story1.html
So, MIT educated, trained “smartest guy in the room” Thain, former (very well paid) MBS Trader and later (REALLY well paid) CEO of GS, (a leading issuer of ABS/CDO/CMO etc during his time) and then later (REALLY well paid and seeking more) CEO of badly injured (by overpaid and irresponsible Stan O’Neal) Merrill (grand puker of securitized mysteries) admits to not really understanding these products. That might explain why Ken Lewis and the public didn’t know the full extent (or did he?) of the toxic and incomprehensible sludge lying in wait but I digress. Back to bright bulb Thain’s lack of insight into one of the single biggest cash cows for GS and the entire street. If he didn’t get it did Paulson? Did/does Blankfein?
I guess my point is how did/do any of them justify their astronomical pay packages (and SOX certifications based on valuations they could not comprehend which makes it hard to understand how they could sign off on financials) if they were clueless about the massive ramp up in these businesses? They were all part of the same crew running the place.
So the CEO’s got paid, all those bankers and structurer’s got paid for inventing crap even they couldn’t understand, marketers, traders et al, ALL got paid handsomely and what happened to investors and shareholders when the music stopped? Remind me about TALF and TARP…or maybe I’m being tangential here.
When this Fed fueled ramp job of a stock market inflates beyond its absolute PSI limits (though GS $100MM trading days are sure going well) is anyone going to get called on it? I read comments from “strategists” wondering if the retail guy on the sidelines might jump in now that the Dow has regained 10,000. Where have we seen this movie before? Isn’t that like Murray the Mayor of Amity inviting the people back in for a swim in Jaws?
OK…let’s let bygones be bygones and not get too nit-picky. I guess I can see your point.
~~~
BR: That is not remotely what I am saying.
October 14th, 2009 at 2:22 pm
“Look at Citi dumping Phibro — that’s $600M in revs lost, becuase people were upset the person who generated those revs was paid $100M bonus as per K”
Well they earned 600M one year taking a huge risk with company money. What about the 600M loss they would have taken the following year (if not shot down), would they have been forced to pay back a $100M negative “bonus” the following year when their gamling bets lost instead of win?
Then there is the issue of the damage to society and hard working people that these commodity speculators are doing. If the banksters didn’t own so many lawmakers these people would be in jail and their loot confiscated. Danm is absolutely right that most of Wall Street is just a non-productive top layer on the real economy just skimming profits. The commodity gamblers on Wall Street are the worst of them, they not just skim profit from the real economy they are destroying it. The productive and legitimate capital distribution function of Wall Street has become a minor side-business done at the end of a days worth of “sucking-dry-whatever-comes-within-reach” “work”.
I do agree that any contract that was given to workers in the banks should be honored. But I also think we have to make sure that no more contracts are written that give the financial company employees incentives to do things that are destructive for their company or country in the long term.
~~~
BR: The head of Phibro is probably the most profitable trader in oil the past decade (much better then T Boone). He’s gone, with his revs and profits.
Yeah! The taxpayer wins!
October 14th, 2009 at 2:23 pm
ottnott Says:
“You’ve seen the graphs showing the massive growth of financial services as a % of the U.S. economy, with little to show for it outside of trickle-down spending and massive amounts of unserviceable debt.”
Well put!
October 14th, 2009 at 2:30 pm
DL, your comment seems naive at best. Yes, Goldman paid back their TARP money. But yes, they also continue to benefit from the $23 trillion or so of non-TARP support that the Fed, FDIC, and Treasury are offering to support Wall Street against their massive losses. And yes, they are benefiting from their lower cost of capital because every investor out there knows that if Goldman gets in trouble, the US Treasury (that’s us taxpayers) will bail them out again.
So should Goldman go back to business as usual, when business as usual means that if their risk gets outsized again, the US taxpayer has their back? Maybe, if you’re a Mussolini-style fascist, that’s an acceptable outcome. But I think for the rest of us, we want to see either a real and meaningful end to Goldman’s federal support and their status as TBTF (which means they get cut off from all of the Fed liquidity programs designed to prop up toxic ABS and derivatives, and the FDIC TGLP, and they get broken up into smaller firms, none of which is TBTF), or if that’s not politically palatable to you, then they are heavily regulated so that they’re not allowed to take high risks (whose ultimate costs would be borne by the taxpayer), including the end of structural incentives such as bonuses based on quarterly stated (read: accounting) profits that encourage the buildup of such risk.
But to say that Goldman has paid off TARP and that’s the end of that, well that’s just simple.
October 14th, 2009 at 2:44 pm
Boo-urns @ 2:30
“they also continue to benefit from the $23 trillion or so of non-TARP support that the Fed, FDIC, and Treasury are offering..”
Yes, they’re benefiting from the low Fed funds rate. But so are many average investors; moreover I think that the unemployment rate will come down faster given the current Fed action than would be the case if money were tighter.
I do think that GS has too much influence on the Congress, on Treasury, and on the current and previous administrations. But is putting caps on bonuses really going to change that? And if such caps on bonuses were implemented, what steps would GS take to circumvent them?
October 14th, 2009 at 2:47 pm
@DL: That is precisely why they should have been broken up (and still should be), not made more powerful and even too big(ger) to fail.
October 14th, 2009 at 2:52 pm
BR: 1) That is why we should be upset at Paulson/Bernanke/Bush for cutting such a terrible deal;
mcHAPPY: No argument here except you can add more names – probably at the top I would add Obama. I’ve been ragging on Obama hard. For the first time in my life I was not a cynic or skeptic – I truly thought change was coming. Instead the world got a jellyfish. Nothing in terms of economic policy has changed – in fact you could argue it is worse. I am VERY bitter about this.
BR: 2) The firms that repaid the TARP — what should their ongoing obligations be? (I don’t know)
mcHAPPY: Transparency. Where did the TARP money go? It certainly didn’t free up credit as told it would.
BR: 3) Are you arguing against anyone earning a Wall St bonus, or just against Bailoutees ?
mcHAPPY: I have no problem with bonuses at companies/institutions who were able to attain those profits on their own – without accounting gimmicks, free money, bail outs, priviledged government information/contacts, or balance sheet destruction for bottom line profit (i.e. massive lay offs).
Barry, could you answer my previous question? I would like to read your thoughts.
“Could GS have generated any of this “real revenue” without market manipulation and government intervention?”
October 14th, 2009 at 2:55 pm
Mannwich @ 2:47
I’d rather break up Citi or B of A; they’re the ones who screwed up.
Most of all, I want to wipe out the bondholders of bailed out banks.
October 14th, 2009 at 2:58 pm
“Bonuses paid to profitable employees who generate real revenue do not bother me.”
It wouldn’t bother me either, if I had any confidence that the finance industry is really able and willing to distinguish such profitable employees from the parasites. So far I’m not seeing much basis for such confidence.
October 14th, 2009 at 2:58 pm
Here’s my useless analogy: I’m a real estate broker in Brooklyn NY. For many, many years the fee for a rental in BK was a month’s rent. Then Corcoran, Elliman, etc. pushed into town and raised the fee to 12% of a year’s rent.
Little guys like me are now at a competitive advantage because we charge less, but I’m at a huge disadvantage in terms of resources. So in 10 years maybe they either a: push me (and all the other little guys) out of business by name recognition, advertising budgets, etc., or b: buy me (us) out.
And maybe they think “hey, why are we charging 12% in brooklyn when we charge 15% in manhattan right across the river?” Now that they’ve cornered the market who will stop them, since they are enormous publicly held companies who can raise vast sums vs. a tiny little guy who wants to take them on? So the fees go to 15%.
You know how the mafia presence in the garbage industry makes garbage disposal more expensive for all? Same damn thing here, whether it’s for municipalities, pensions, endowments, etc. Those bonuses are nothing more than increased cost, and someone’s paying too much for the services, by a lot….
October 14th, 2009 at 2:59 pm
I agree, DL, but Goldman would have been wiped out if AIG were allowed to fail, so they’re in that group too as far as I’m concerned.
October 14th, 2009 at 3:00 pm
McHappy: We are in agreement — get rid of mark to model, add Sumemrs/Geithener/Obama to the mix.
Let’s focus on what we can fix: Pass finacial reform, reinstall Glass Steagall, repeal CFMA, etc.
The focus on bonused is just so much misplaced energy . . .
October 14th, 2009 at 3:03 pm
Mannwhich,
Of all the bailouts, the bailout of AIG bothers me the most.
October 14th, 2009 at 3:05 pm
“The focus on bonuses is just so much misplaced energy . .”
Apparently that’s happening in Europe also.
October 14th, 2009 at 3:06 pm
Agreed, DL. Same here. With good reason.
October 14th, 2009 at 3:11 pm
None of this will change as long K Street exists. It doesn’t matter who you vote for, or which Bankster party is in the majority.
The corporations have taken over DC and thus our federal policy on nearly all issues. This is just an easier target than most.
While the compensation issue is perhaps the least important of the financial mess, it’s the one issue that the MSM can dice up into bite size chunks for the unwashed masses. The pay issue is so simple it doesn’t even have an acronym. Besides if they are real lucky they can stir up enough hate so that someone snaps….if it bleeds it leads!!
FWIW….I strongly believe that all this greed will come back to haunt. I do think there will be pushback and repercussions far beyond what any of us would consider reasonable. The mob will get there’s eventually.
October 14th, 2009 at 3:11 pm
ugh…
October 14th, 2009 at 3:13 pm
my kingdom for a grammar edit button
October 14th, 2009 at 3:18 pm
1) AIG
2) CDS
3) GS
4) ~$12 billion
In sports terms, this is more like multi-millionaire Carl Pohlad (late) pocketing the MLB luxury tax money the Twins got from major market teams instead of expanding payroll. Or Wayne Huizenga crying poor mouth and selling off the Florida Marlins in 1997-98 after winning the World Series. Or Peter Angelos committing his next atrocity on the once-proud Orioles franchise.
Why is that a more apt comparison? Because MLB has an anti-trust exemption from Congress that shields the league and owners from liability for acting like a cartel of muttonheads around financial issues.
October 14th, 2009 at 3:29 pm
I think someone else asked this question – but what percentage of the total bonus awarded was in stock versus cash?
October 14th, 2009 at 3:36 pm
Jealousy, Barry, that’s all it is for these people. Everyone should get rewarded if they are increasing revenue for the company. We do it here, like thousands of other corporations. Why get so upset about it. Goldman is best of the best, the Yankees of investment banking. They should get top bonuses, especially in the current environment – rescuing the company from hell.
As this economic mini boom takes hold, and we’re clearly seeing the evidence of that now, those that navigate to success should be rewarded not chided.
October 14th, 2009 at 3:50 pm
>>Most of all, I want to wipe out the bondholders of bailed out banks.
would never happen as a good portion of the ownership are foreign CB’s and they lose we lose by them not funding our deficits. amazing how the ‘greatest country in the world’ has painted itself into a corner where we can’t make a unilateral move without cutting off our own toes.
October 14th, 2009 at 3:55 pm
At $23 billion per quarter, we are saying that GS’s bonus babies are worth a Google in less than 2 years. In what world does that make sense, BR?
BR wrote:
“Let’s focus on what we can fix: Pass finacial reform, reinstall Glass Steagall, repeal CFMA, etc.
The focus on bonused is just so much misplaced energy . . .”
It is misplaced energy if we are just debating whether the $23 billion should have been a lower number.
The problem is the bonus model, where the recipients can “earn” massive amounts of personal compensation based on short-term results, yet there are no losses suffered if the sort-term results are poor or if they result in losses in the longer term. Incentive bonuses are fine, but the bonus model in the financial services industry does a terrible job of aligning trader activity with either shareholder interest or with the economic benefit produced by the activities of the traders and their firms.
The magnitude of the bonuses just increases the magnitude of the misalignment and creates a concentration of wealth and power able to further shape rules and regulations in their favor. The total amount of the GS bonuses for a single quarter, during a deep recession, is about 10X the total amount spent by both sides to elect a President in 2008.
Consider the Silicon Valley model, where employees and management generally receive stock options instead of massive quarterly or annual bonuses (upper execs. Although there are games played with the timing of options, the options generally reward longer-term results, generally align the employee benefit with shareholder benefit, and generally encourage employees to remain with firms that have a promising future – i.e., firms that seem likely to produce something with a substantial economic benefit. Even the most fabulously successful companies which have contributed important technologies and services to our world don’t have the kind of stock gains that produce $23 billion in “bonus” gains to employees in a single quarter.
At $23 billion per quarter, we are saying that GS’s bonus babies are worth a Google in less than 2 years.
~~~
BR: GOOG’s Mkt cap = $169.47B
Do not extrapolate a good Q x 8 consecutive Qs
October 14th, 2009 at 4:01 pm
HarryWanger,
“As this economic mini boom takes hold, and we’re clearly seeing the evidence of that now…”
Evidence like the decrease in retail sales and business inventories according to the data that have been released today?
Or see my comment:
http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-sachs-bonus/#comment-225588
I am still waiting for your explanations where the great recovery that is predicted by you, is going to come from, or at least for the links where you allegedly have provided your detailed responses, already. I haven’t seen any. Nor any response to this:
http://www.ritholtz.com/blog/2009/10/buoyant-market/#comment-225268
rc
October 14th, 2009 at 4:04 pm
“Jealousy, Barry, that’s all it is for these people. Everyone should get rewarded if they are increasing revenue for the company.”
All those structured finance and securitization brainiacs also massively increased revenue (including at GS) and naturally claimed the lion’s share of the not surprisingly inflated bonus pools that followed.
Of course, the writedowns that followed vaporized the previous 20 years worth of gains for some major firms while creating core meltdown at others that no longer exist. Meanwhile the cratering of the stock market (10,000 today = 7500 in 1999 $) trashed trillions in 401K fund but you’re right, it must be petty jealousy that’s irking some of us.
October 14th, 2009 at 4:13 pm
HarryWanger,
“As this economic mini boom takes hold, and we’re clearly seeing the evidence of that now…”
So you would see no reason for any further QE by the Fed?
And we can get a grip on FHA lending if it’s not already too late?
Housing market’s bottomed?
Unemployment’s reached its nadir?
Discretionary consumer spending is poised for an about face upswell?
Commercial RE is now stable?
FDIC doesn’t need help?
Cauliforneeya’s OK?
Auto Industry’s revved up now?
OK….and then there’s the USD
October 14th, 2009 at 4:16 pm
I fail to see why the IB community has special rules for compensation unlike any other industry.
If the top Sales people at Diebold Corporati0n sell huge bank vaults costing tens of millions of dollars and their commissions on these sales amount to millions, BUT the company in unprofitable, then the bonuses they would have received are deferred until such time as the company AS A WHOLE returns to profitablity; or forsaken if the company goes bankrupt.
If Trader Joe bought the bottom in March and tripled ‘his’ investment, and he is entitled to a bonus of one third, has the trade gone full circle or is the bonus paid on Market Price profits even though it is still inventory?
The bonus structure needs far more light upon it in order to determine if these characters are being paid on phantom performance in which the same trade above results in a quadruple loss a year down the road, exacerbated by the bonus paid on it.
October 14th, 2009 at 4:26 pm
“How is it on our dime? They repaid the TARP in full” .. seen that comment a couple times .. your answer by this poster:
“Key word there: real. The whole CDS fraud was most certainly not real, nor was it’s insurance (AIG no funds), nor was the entire premise upon which it was all built”
in other words a round’n’round pass-thru AIG back to GS via taxpayer bailout that will Not most likely be repaid .. so a repaid TARP in full .. NOT
“BR: Are you suggesting this current bonus pool is made up of CDS profits, or that they are somehow artificial?
Help me see how that is the case” … isn’t that what Bloomberg asked for and was denied
“Voting out the incumbents is all well and good and I may do that in ‘10, but if the system stays the same” .. I hear your pain and revenge action – there is 1 flaw tho – your state will loss its ranking member (its a start over from go) and contrary to Goldilocks “control of the government is the best path to prosperity”
“I truly thought change was coming. Instead the world got a jellyfish” .. as opposed to the world according to POTUS McCain VP Palin and TresSec Gramm .. LOL
October 14th, 2009 at 4:30 pm
@lalaland
“Those bonuses are nothing more than increased cost, and someone’s paying too much for the services, by a lot….”
Another great point that’s not getting any attention… the cash returns for GS are way beyond what should be feasible based on economic theory… Why? Because the system is completely rigged! The bonuses are prima facie evidence.
PS. For the record, I’m not a big proponent of professional sports, and I’ve actually boycotted them for over a year (and I’m a lifelong New Yawker so this has been hard). Sorry, but if you’re paid millions (as a player, manager, or owner) a year and think 1. it entitles you to carry a concealed weapon in public (football), or 2. it makes it ok for you to physically assault the fans in the stands (basketball), or 3. you should strike for half a season to demand more money (hockey), or 4. it’s ok to take performance enhancing drugs (illegal or otherwise) and in doing so denigrate every record-holder that came before you and made your lifestyle a possibility (baseball), or 5. that the public should subsidize your new stadiums when you’re increasing ticket prices and pricing out decades-long season-ticket holders (take your pick) then you’re not going to get my attention or my entertainment dollars.
October 14th, 2009 at 4:44 pm
“stir up enough hate so that someone snaps….if it bleeds it leads!!”
humm .. did most of us pass TBP SAT mid-terms?
liked the relation to mob garbage collection contracts
“Jealousy” .. maybe .. self-scorn ? ..
folks wish they had ahold of the family jewels like this .. and could shoot money all over their own island
October 14th, 2009 at 4:47 pm
BR, you act like higher taxes on multi-millionaires is some kind of pie in the sky idea that Tim Leary might have had on one of his acid trips in the 60s.
The great rise of the American middle class occurred during the 50s and early 60s under tax rates of 90% and 70% for the richest Americans.
I think that returning to these tax rates would be beneficial to the country as a whole.
~~~
BR: I dont disagree
October 14th, 2009 at 5:24 pm
Barry, in the real world, when your employer goes broke, it doesn’t make a damn bit of difference how good you are at your job: you will be out on the street, looking for work. Do you have any idea how many brilliant scientists are right now pulling lattes at the corner bistro while you and your trader pals are out shopping for new toys?
October 14th, 2009 at 5:39 pm
Seattle Chill:
That’s not true — if you are skilled, and can immediately add to an employers bottom line, you get hired.
October 14th, 2009 at 5:50 pm
Wow Barry! I’ve been following your blog for a few years now and you’ve always been able to until now squirm out of a post like that. How do you know that George Soros trades ethically? He doesn’t manipulate currencies? We know Warren Buffet traded in derivatives. Steve Jobs has been guilty of Security and Exchange violations. To hold these guys up as some kind of super heroes is disgusting and shamefull!
~~~
BR: I didn’t say hey were heroes — I said they were wealthy
October 14th, 2009 at 6:09 pm
BR, sure, there must be at least one honest person on wall st., but he’s not getting any bonus either. You can never convince me, and I’ll bet no one else, that GS, et al, don’t CONTROL Washington with a bought and paid for congress. [BR: I don't disagree] The banksters perpetrated a FRAUD that resulted in a financial panic that cost the average american jobs, retirement savings and, in a few cases, lives. Come to think of it, I’m now more than ever convinced that the honest people have been driven out of the bankster business. When the pitchforks come out, no one’s going to care who’s honest and who’s not, who deserves and who doesn’t… mob’s don’t ask, just react.
I expect you to respond as you have, but you should expect that we, outside of New York and Washington, have had it with the fraud, theft, and corruption that this bankster run non-economy has become. Gerald Celente has said, “when people have nothing to lose, they lose it,” a sentiment that we all hope never comes to pass. Absent these fraudsters going to jail, that’s exactly what’s going to happen.
October 14th, 2009 at 6:58 pm
@m111ark:
I can not express any better than you have my sentiments.
October 14th, 2009 at 7:45 pm
Transor Z,
“One mark of true capitalism is that over-leveraged insolvent businesses are allowed to fail.”
Why is this “true capitalism”? I wonder what the adjective “true” is supposed to mean in this context. What makes something “true”? In contrast to what? “untrue capitalism”? What would this be, then?
rc
October 14th, 2009 at 8:24 pm
@rc:
5 card draw, played properly, doesn’t have deuces, tens and one-eyed jacks wild. And the dealer definitely doesn’t get to name wild cards after he’s seen his own hand.
After some conversations with Lloyd, the dealer named AIG CDSs wild and, lo and behold, GS was holding some.
The fairness principle in capitalistic rule of law is simple: you play, you pay. Work for an insolvent employer, lose your job. Unless your industry is obsolete, good people land on their feet in a free market system. All GS employees deserve to be either unemployed or rehired at other institutions. GS should be gone.
October 14th, 2009 at 10:09 pm
We have to distinguish between the few people that brought the system down and the rank and file wall st employees that did not
———–
Rank and file employees are not the ones getting the multi-million bonuses.
I am trying to separate out the foolish actions that caused the crisis, and were the bad decisions in response to it, versus regular bonuses paid to profitible employeess
——-
If the banks took their losses, there would be not profits.
don’t hate the player – hate the game.
———-
Exactly. I don’t hate the players getting the bonus. Shit, I’d take the bonus if I were handed one! I hate the fact they are getting these friggin’ bonuses. Thus I hate the game.
That’s the fault of the lawmakers
———-
Since the Magna Carta, laws have always been to the advantage of the property owners/rich. Bankers, lawmakers = same
October 14th, 2009 at 10:16 pm
Transor Z
“Unless your industry is obsolete, good people land on their feet in a free market system. ”
Too bad that this statement is untestable. Thus, it can neither falsified, nor verified.
rc
October 14th, 2009 at 10:26 pm
Someone stole a “be”.
rc
October 14th, 2009 at 10:41 pm
“true capitalism” = “free market system”?
rc
October 14th, 2009 at 10:54 pm
Too many posts, too little time to read them all.
I think the thing I’m most upset about is the disconnect between virtual gains and the real economy or virtual reality and reality.
And it isn’t just on Wall Street, it’s in society as a whole, we are in a terrible recession with millions losing their jobs and it seems like TV and the BS pouring out of it rules.
It is worrying when nothing seems to have changed, back to watching A-Idol soon, back to big bonuses and no lessons learned; this a point in time when history should be learned and should not repeat itself but it will.
Bonuses and TV programs are just mere distractions from the core problem, we have no respect for the future, in finance, in culture, in human relations, just a big blob of moral relativism eating itself.
We are fed day in day out what’s best for our kids down to which way they should be facing when you wheel them down the street in a stroller, but who talks about what we’re leaving behind?
A financial and cultural desert and an absurd corrupt government we are supposed to tolerate, this is the time we have to stop thinking about ourselves and start caring about what happens next, and it isn’t next year, it’s for the next 50 years.
As for bonuses, what do we learn from huge bonuses?
I wish I could tell my kids one day they’ll go to Mars or Jupiter and they’ll tell me I’m an old dreaming asshole, the real money is in trading.
October 15th, 2009 at 3:07 am
“BR: I am not referring to the AIG FP people, or the JPM derivatives creators — but the rank and file traders bankers who do their jobs and make money for their employers.”
Ah the ol’ “I was only doing my job” meme. Isnt that what the guards in the Nazi concentraion camps said too?
October 15th, 2009 at 5:17 am
Vasco7777 -So the CEO’s got paid, all those bankers and structurer’s got paid for inventing crap even they couldn’t understand, marketers, traders et al, ALL got paid handsomely and what happened to investors and shareholders when the music stopped? Remind me about TALF and TARP…or maybe I’m being tangential here.
When this Fed fueled ramp job of a stock market inflates beyond its absolute PSI limits (though GS $100MM trading days are sure going well) is anyone going to get called on it? I read comments from “strategists” wondering if the retail guy on the sidelines might jump in now that the Dow has regained 10,000. Where have we seen this movie before? Isn’t that like Murray the Mayor of Amity inviting the people back in for a swim in Jaws?
OK…let’s let bygones be bygones and not get too nit-picky. I guess I can see your point.
~~~
BR: That is not remotely what I am saying.
—
Thanks for replying but definitely within remote range anyway. Your point is, those that earn it should be rewarded. No argument however you miss the point, the bonuses are based on actions which lead to “increased revenue” which inflates the comp accruals. Simple process and reflexive. The lag between “earning it” and burning it, when the fuses finally go off, that little part of the story is being glossed over.
My point is that from the CEO’s on down, people running FICC, the “risk managers”, counterparty credit…any and all who were part of the equation in the product lines which melted down (and many positions remain) got paid based on their “earning it.”
It was illusory and yet I haven’t seen one single name from that period thru today be forced to disgorge any bonuses received based on creating, marketing, trading financial timebombs.
Zero accountability and now they benefit as my tax dollars help fuel another liquidity driven bubble.
Sorry…all the points you make about where focus should be directed are true enough but there should be no statute of limitations on recent events nor should this year’s uncanny $100MM trading days and barely any misses are ripe for review.
October 15th, 2009 at 8:49 am
Ah Barry, I think this is one of the best threads I’ve seen on this site. You really stirred up the hornets nest. I think all of us that have followed you for some time know that you are probably the most level headed person in the financial blogosphere in terms of your views. This is clearly a very emotional issue and I commend you for commenting on it.
What you are trying to say regarding the rank and file deserving the bonuses they earned seems logical and rational. However I would ask you to look at the context of the situation. We are indeed in unprecedented territory and there are various aspects to this.
A major issue at play here is the fact that we are discussing giving these people bonuses, when in reality (fair or not), none of them should even have jobs. Their companies should have failed and they should be on the street like the rest of us looking for jobs. They are luckier than the rest of the public in that they still have a job! What about all those people that performed excellently yet their companies failed. They don’t have a job never mind a bonus. This is the biggest issue I have on this subject.
There is also the public perception that the bulk of the bonuses don’t go to the rank and file and unfortunately it seems that a defense of these bonuses is also a defense of the larger executive/senior bonuses (At least this is the public perception).
October 15th, 2009 at 10:21 am
[...] Wall Street Bonuses: As 90% of you made clear to me, Wall Street bonuses ARE something to be upset about. (My RSS [...]
October 15th, 2009 at 11:31 am
I see a few problems here.
First, it shouldn’t be up to bankers to decide how much to compensate employees but owners of banks. As it stands, they have little say on pay. Bankers largely act in self interest – they only need to be a more attractive as investment than other investments. A bank performs exceptionally well should have the option of keeping all the profits and letting the employees be unhappy with it and leave. That cannot happen today.
Second, compensating employees in stock only solves some problems with incentives. The employees then become larger owners and through dilution can allocate more and more capital to themselves while few of the gains are passed off to other shareholders who don’t work for the company. IPO? Thanks for the free money.
Third, the limited risk externality still exists with stock bonuses because they can’t be retracted. A much better approach – one which many other employees outside Wall Street have to deal with – is to provide compensation such that the bulk is base pay rather than bonus. You’ll find that employees will try a lot harder to keep their jobs than make a quick buck and they make the most money by performing well over the long term. True – it means that companies can’t change their expense structure very easily but that’s what layoffs are for. Why shouldn’t finance companies use this highly valuable tool? For that to work, they’ll have to reduce the cost of laying someone off. A year of severance is way too much. In many other industries you’d be looking at 0-3 months maybe and certainly no guaranteed bonuses.
Last, the problem I have with government handouts is that the money isn’t going to the place they wanted it to go – growing the economy. Instead, they’re just fueling a compensation bubble as every company competes for “top talent” and as we’ve learned in the past, companies can get pretty reckless when they start searching for things they must have (think tech acquisitions). We give money to virtually all the big banks. That’s like giving weapons to both sides fighting a war – you’ll just cause more deaths. When it comes to competing for talent, they can’t all be winners.
Along these lines, over the past decade we’ve put so much money into finance that the economy has become finance and as we all know finance brings efficiency to markets. Goods and services have to be created elsewhere. Obama talks about providing more money for schools to teach math and science better but even if our students were smarter, would they want to innovate for this economy? Probably not. The average banker/doctor/lawyer pay? Probably $300k. The average scientist or engineer? $100k. Even those that enter those fields work for finance companies because they pay 2x what other companies pay. It’s no wonder that we have to import all of our talent. What happens when the talent no longer wants to come here? Living conditions are rapidly improving in India and China. We’ll be left with these service professionals and no economy and loads of debt to the countries that have all the talent.
October 15th, 2009 at 3:07 pm
PPS Almost 24 hours later, and I’m STILL pissed off. You’re too smart for this. Even Rick Santelli gets it…
http://www.thedailybeast.com/blogs-and-stories/2009-10-14/wall-streets-bonus-hypocrisy/full/
October 15th, 2009 at 7:32 pm
I’ve worked for Investment Banks , Money Management firms , and Hedge Funds for 25+ years
I have run 7 trading desks and been on the Investment Committee of 2 very large International Banks
I will never apologize for the $$$$$ that I have made .
For all the haters ……. we don’t care what you think – - – -14 hour work days and taking care of our families is more important than getting into food fights with Tin Foil Hat nutcases
October 16th, 2009 at 4:17 pm
The law of capitalism was totally corrupted in order to keep the banks alive (or zombied), at the forced sacrifice of taxpayers, and it pissed you off….
Yet, you are equally offended by the idea that the employees of these zombie banks dare to be asked to sacrifice their status quo to backfeed the gaping hole created by “someone” within their company as well? Perhaps they weren’t the direct party responsible, but if you’ve ever been in partnership, you know the blessing/curses of having partners.
Don’t hate the player, hate the game??? Dude, there should be no game at this point!! Yet, you’re still allowed to play and reap the spoils because you’ve paid off the officials? You’re right…how could someone be pissed? PLAY ON PLAYA!!!!
What a joke.
October 17th, 2009 at 11:21 am
[...] economy is improving. For example, luxury spending jumped 29% this quarter from last. (Most be that $23B in Goldman bonuses getting [...]
October 20th, 2009 at 7:21 am
[...] Much Ado About Nothing $23B: Goldman Sachs Bonus (October 14th, 2009) [...]
October 22nd, 2009 at 5:31 pm
[...] that last week, after the Goldman bonus debate, it popped from 41k to 46k. [...]
October 24th, 2009 at 11:31 am
[...] Much Ado About Nothing $23B: Goldman Sachs Bonus (Oct 14, 2009) [...]