Scrooge, aka Taxpayer, Heads for Wall Street

There's an interesting article in Bloomberg this morning about Wall Street bonuses and how they are viewed by the public.

The timing couldn't be worse for those looking to take home a few hundred grand in year-end cheer (or, in some cases, much, much more) at a time when the economic pain is mounting for many Americans, with the consensus view being that a good deal of that pain has its origins in New York City.

In fact, many Americans seem to think there should be an entirely new standard set for Wall Street bonuses - zero.

Bonuses for Wall Street Should Go to Zero, U.S. Taxpayers Say

U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated.

"I may not understand everything, but I do understand common sense, and when you lend money to someone, you don't want to see them at a new-car dealer the next day," said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. "The bailout money shouldn't have been given to them in the first place."

Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it's "not unduly rewarding the management of financial firms receiving government assistance."

While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms' most productive workers.

"There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,'' said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. "Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.''

The risk of "driving away the firms' most productive workers" is going to be a tough sell in other parts of the country.

Considering the fruits of their labor as things look today, maybe all the bright minds that have flocked to Wall Street over the last ten or fifteen years to become such productive workers should be driven away.

Jim Rogers probably had it right when he commented a few months ago about there being something fundamentally wrong with the idea of so many successful twenty-somethings on Wall Street buying Maseratis.

Later in the report, former SEC Chairman Arthur Levitt commented, "Bonuses and severance packages will obsess the American public'' and become "a humiliation and embarrassment". He's got that right - from the sound of the comments in this story, before you know it, the American public will be ready to storm the castle.

Comments

[herbert hoover:]

Nope go ahead, pay those bonuses. Then watch the American public revolt if another "bailout" package comes up in DC. It's cheaper in the long run for all us taxpayers if "that best talent" just goes away. They've done a helluva job so far, may as well give em a bonus for screwing up.

2008 Nov 11 05:00 PM

[bricki:]

I'd suggest a deferred bonus plan with vesting at a rate of 20% per year. Provide the bonus in the form of company stock payable in two years. If the stock goes up, great. If the company goes bankrupt, oh well.

2008 Nov 11 05:10 PM

[sheople:]

Instead of passing out bonuses to these executives, how about free lodging at Lansing? That's what ought to be done.

2008 Nov 11 05:17 PM

[k9s-4-k8:]

The payroll system on Wall Street can sometimes be quite troubling. They don't earn their income like the average Joe. They get a salary but it isn't what attracted them to the industry. Its the year-end bonus that provides them with the necessary incentive to produce. If they eliminate the year-end bonus, Wall Street firms would be less productive. Now some would reason that would have been good considering what kind of production they have been doing the last few years, and I'll give you that. But if they were operating under a union contract much as the UAW has its union members, we would be in the same place but for different reasons. Productive vs. nonproductive.
Yet still, a case must be made for those that weren't at all involved in credit default swaps or the packaging of mortgage backed securities. Anyone involved in these divisions of production deserve no bonus, but for those involved in divisions that were profitable, should they not be rewarded accordingly? And what do we say about the firms that were forced to accept government investment. They weren't all willing participants. Should they be treated in the same way?

2008 Nov 11 05:49 PM

[NOWHEREMAN:]

I am not a willing participant in the Current Financial crisis nor do I willingly enjoy the future brought upon all of us by same. There are many who are guilty by association or knew but did not say anything because they would have lost their bonus.

Since We get to suffer, they should also. IMHO

2008 Nov 11 06:18 PM

[Nikola:]

Oh, and where are these disgruntled brokers gonna go? China? Russia? Tennessee? Lehman Brothers? Pahleeeease.

I have a friend or two recently laid off from Wall St. They ain't looking to get employed for another year or two at least, no jobs. Luckily, they have fat reserves from last year bonuses and, oh yeah, severance packages.

Like the Main St. consumer, they're cutting down on spending. Out the window goes that Paris condo.

2008 Nov 11 07:50 PM

[NOWHEREMAN:]

The disenfranchised London brokers are heading to the Gulf States where they are being met with open pocketbooks. The New Financial Capitals of the World: Qatar and Abu Dhabi.

The Main St. consumer never had a chance for that Paris Condo, maybe that's why so many over reached. They were trying for a piece of the pie that they saw others getting.

2008 Nov 11 09:27 PM

[Illusional ...:]

If employees of other companies get no/less bonus for a bad job done, why should these people get bonuses. I would argue that bonuses are no longer an incentive to the most capable people out there.

Right now, it's not even about how good they are, which they are not for getting into the need to be bailed out. Taxpayers' money are already wasted with all the government actions being put in to waste. How can banks afford to lend to so many people who can't afford to repay the loan? How can rating agencies not assess the risk correctly and misinform the public of the risk to return ratio?

One simple question to anyone who obviously paid for something with hard earned money, how much would you pay for a service that you do not want or in fact wastes your money? The abundance of money should already have attracted the best of the world to come here, so I don't understand what is so good about the current crop of people at these companies.

Frankly, if Goldman Sachs fail, maybe there will be a Silverman Sach or Bremann Sisters will rise and attract capable people. If so much money has been in the system and no one is capable enough to solve the problem, maybe money has now become a liability because it also attracts too much attention and therefore thieves? Perhaps getting the right structure (and regulations) and leadership (and people to regulate) is more important?

2008 Nov 11 11:48 PM

[Steven Hansen:]

i think wall street better hirer a good PR firm because it seems the average american thinks these boys are ripping them off. Perception is truth.

2008 Nov 12 12:02 AM

[zermux:]

How about we force Wall street to pay zero bonuses and force the banks to give the money to poor people. Communism is great and clearly worked really well - Doesnt Cuba have the largest GDP in the world - no? I wonder why not!

2008 Nov 12 12:28 AM

[Illusional ...:]

I agree that we can't enforce bonus payments, but the bailout belongs to the people, since the loss is socialized already. I would think that they had better be confident that they are the best before merely claiming so. I doubt the single bailout could save them completely.

2008 Nov 12 12:33 AM

[rockawayboy:]

Sorry.......but if a firm received government (taxpayer, that's you and me) bailout funds, then it would be logical and morally correct for said firms to freeze bonuses until this crisis is over.


On Nov 11 05:49 PM K9s-4-k8 wrote:

> The payroll system on Wall Street can sometimes be quite troubling.
> They don't earn their income like the average Joe. They get a salary
> but it isn't what attracted them to the industry. Its the year-end
> bonus that provides them with the necessary incentive to produce.
> If they eliminate the year-end bonus, Wall Street firms would be
> less productive. Now some would reason that would have been good
> considering what kind of production they have been doing the last
> few years, and I'll give you that. But if they were operating under
> a union contract much as the UAW has its union members, we would
> be in the same place but for different reasons. Productive vs. nonproductive.
>
> Yet still, a case must be made for those that weren't at all involved
> in credit default swaps or the packaging of mortgage backed securities.
> Anyone involved in these divisions of production deserve no bonus,
> but for those involved in divisions that were profitable, should
> they not be rewarded accordingly? And what do we say about the firms
> that were forced to accept government investment. They weren't all
> willing participants. Should they be treated in the same way?

2008 Nov 12 12:09 PM