Comment

Left a little unsure on what might be the greater of two evils: Outsized bonuses on Wall Street or an outsized stimulus bill for Main Street. Cartoon ripped from Slate.

On my mind

Not too sure if one can find another place on earth where the public is taxed, part of the proceeds of public taxation is used to bailout large banks that were on the verge of bankruptcy and then the large banks decide to promptly reward their underperforming bankers with large bonuses. Ah, the joys of capitalism...

Read here and weep...

'Tis the season

As the annual bonus tree blooms again on Wall Street, firms that were used to making multimillion dollar payouts to incompetant bankers are finally making some practical changes to their compensation structures.

But it was Morgan Stanley’s claw-back announcement, which will affect some 7,000 workers, that captured the attention of employment lawyers and recruiters. It is similar to a rule introduced by UBS, the big Swiss bank, in late November, but Morgan’s is far broader in its language. Pay can be retracted from workers who engage in “conduct detrimental to the firm,” according to an internal memorandum announcing the move, or who cause “a restatement of results, a significant financial loss or other reputational harm.”

Morgan Stanley already holds on to 35 to 60 percent of high earners’ bonuses, but in the past it has held that money entirely in stock and stock options. Now a large portion will be cash, the bank said. “So if you’re a trader and you’ve had a huge year and you get paid a lot of money and then the following year it turns out you were taking outsize risk, we can go back and ding your pay from the year before,” said
Jeanmarie McFadden, a spokeswoman for Morgan Stanley.

The bonus of parsing the fine print

A lot of people are agog over the fact that Goldman Sachs is not giving out bonuses this year. I urge such people to look deeper than just the attention grabbing headlines. The truth is that only 7 employees in Goldman are not getting bonuses. The rest of the employees are collectively pocketing 7 billion dollars in bonuses.

Now it looks like other banks are following the same strategy. Produce eye popping headlines and hide the dirty laundry in the fine print. Today’s headline splashed across the online Times read the following: Top Executives at UBS Will Not Get Bonuses.

Until I got to the fine print:

UBS said that its chairman, its chief executive, and other members of the executive board would receive only fixed salaries this year and that all other UBS employees would get lower 2008 bonuses.

Is Goldman Sachs pulling the wool over our eyes?

Today, Goldman Sachs, the bank that vacuumed in 10 billion dollars of taxpayer bailout money made a pathetic announcement: They said that they were trimming the bonuses of 7 employees. Here is what they said:

Our senior executive officers made this decision because they believe it is the right thing to do. We cannot ignore the fact that we are part of an industry that is directly associated with the ongoing economic problems.

I guess they could not have made it sound more condescending. Of course, other than the seven people singled out as 'top management', the rest of the firm is set to receive 7 billion dollars in bonuses (per last week’s news). Each of the firm's 443 partners is set to pocket an average of more than 5 million dollars as part of the annual Christmas windfall this year.

It might be better if the people at Goldman try not to pull the wool over the public eye with contrite sounding statements like ‘the top management at the firm are getting no bonuses’ – when it amounts to just 7 individuals. Individuals who might more than likely have some left over change from last years bonus packages that totaled more than 17 billion dollars.

Bonus pools of Wall Street firms up until 2006. In 2007, the total bonus pool was a whooping 36 billion dollars. 36 billion dollars would not have fit into the vertcal axis of the above graph. Source: The Washington Post - December 20, 2006

The great monthly flip flopping ritual

Former Goldman Sachs CEO and current Treasury Secretary Henry 'FlipFlop' Paulson is caught in a curious case of shape shifting. We are now able to soundly predict with a large degree of confidence the frequency with which the Treasury Secretary performs the flips and flops on the bailout package. Yes, the predictable recurrence pattern on plans to use bailout funds now happens monthly. See below.

In September: The $700,000,000,000.00 bailout bill was called TARP (or Troubled Assets Relief Program). It was sold to lawmakers as a mechanism to buy off troubled and toxic securitized assets off banks and lending institutions and thus ease the credit crisis sparked by the mortgage meltdown.

In October: Buying troubled assets was cast by the wayside and the Treasury decided to flip and put out a plan to buy equity stakes in American banks of their choice. Hank's alma mater Goldman Sachs saw a cash injection of $10 billion. Morgan Stanley got another $10 billion. Is it a matter of coincidence that both of them announced bonus pools of 7 billion dollars. No, I would not dare suggest that they used taxpayer money to pay their bonuses.

In November: Treasury flopped and now announces that they have decided that buying up equity stakes in banks are not working (or maybe worked just well enough for those banks to declare bonuses). The wizards yesterday announced that they are planning on using the remaining bailout funds to help companies that issue credit cards, make student loans and finance car purchases.

In December: Plans to unveil disbursement of as yet unknown cash injections to as yet unknown set of companies as Christmas gifts. Consumer retail stores, bodegas and kiosks might need to behave properly in line as they queue up to get a part of the largesse.

Curiously missing from the whole bailout equation was help for troubled and distressed homeowners.

United States Senator from the state of NJ Robert Menendez summed it up best:

In the month of August, over 9,800 homes entered foreclosure every day, if this statistic was that there were over 9,800 Wall Street executives that lost their jobs every day in August, we would have ended this a long time ago.

Sad but true...

Maybe we need some spreading of the wealth - II

Recession or not, Wall Street bonuses for this year tell us the usual story - it is a fixture that remains in spite of the turmoils and the bailouts.

• Goldman Sachs has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee.
• Morgan Stanley has $6.44 billion for bonuses, or $138,700 per person
• Merrill Lynch has $6.7 billion for bonuses and set aside an average $110,000 for each employee.

What is especially egregious is that these very same banks were given taxpayer money to shore up their finances a couple of weeks back - part of the bailout package put together by Sec. Paulson.

Just as reminder, the mean annual wage for the average U.S. employee is about $40,690. (according to the May 2007 Bureau of Labor Statistics report). Time here has an article today on how the bailout will actually boost Wall Street bonuses.

We could use some distribution of wealth here...