Living on $500K a Year?

Hmm... after tax, that's barely above the carrying cost for a family of 4 in Manhattan -- assuming the usual private schools and a typical banker's wife.

I understand the pay caps don't limit incentive stock option compensation. Perhaps that leaves some wiggle room, depending on what people think about the future value of bank shares (and modulo the inevitable nationalization we keep putting off). You certainly have to apply a deep discount relative to cash.

Some individuals are going to hop to foreign and smaller banks which are unencumbered by pay caps, or to hedge funds and money management firms. But I doubt job hopping is very easy for most employees right now, so I suspect this pay cap isn't going to hurt the banks that much (certainly far less than they've hurt themselves recently!), at least until conditions start to improve.

I'm interested in opinions from people on the Street, though.

Comments

[Steven Hansen:]

"Some individuals are going to hop to foreign and smaller banks which are unencumbered by pay caps..."

this would only bring a smile to my face. Try to explain why you hired an exec who ran another company into the ground.

this is the best reason yet for the pay cap.

Feb 06 02:57 AM

[Tim Miles:]

I agree with "The Hand." I have no sympathy for people who, on the average and without bonuses, were making in the range of $150,000-$180,000 a year. If they can't live on that in NYC, they should move. How about Wilmington, Ohio where the working family probably only makes roughly a third of that amount and where many will soon be out of a job?

Feb 06 08:20 AM

[cabaretewil...:]

They seem to be rewarding failure with all those bonuses. That is communism, not capitalism.

Feb 06 08:20 AM

[AHJ:]

These Wall Street guys have no clue. The successful banks (small local banks) would never hire these losers, with or without a pay cap. So they have no where to go except the other Wall Street banks. So the only way around the cap will be to cheat, or to work for the government and cheat and/or get their tax free income there. (We all know high level Federal officials don't pay taxes as only the little people and private people on Main street pay taxes because taxes are too complicated for the foks at high levels and for people on Wall Street.

Feb 06 09:09 AM

[NanO49:]

I was shocked when I heard the excuse from an interview on NPR, that these bankers "need" their millions to pay for the lifestyle they've committed to -- they need this money to pay their bills. WHUT??? I live in TX and we pay a LOT less in bills than $500K. I agree with Tim, if it costs that much to live in Manhattan, move somewhere else.

Feb 06 09:44 AM

[DegreeNodal:]

Americans as a whole can opt out of thier retirement plans, divest from the stock market and other regulated investments, demand thier pension funds divest, and dry out the capital that Wall st and coprorate America leeches off.

I have 80% of my capital and retained earnings reinvested in my own business.

Feb 06 10:21 AM

[morph366:]

Mr Hsu, especially in view of his own background, has a vested interest in pre-supposing that there is a huge pent up demand for the kinds of expertise that financial engineers possess and that there will be competition from plenty of boutiques etc. for their talents.
Alas for him and fellow quants the word is slowly getting out that the mathematical skills acquired at the Ames Lab or NASA, along with the crude bits of economics that they have acquired along the way, are not just a bit wrong in attempting to price risk and quantify the likely default or losses of a portfolio, they are inexcusably wrong and ill conceived.

Feb 06 10:38 AM

[Midwest:]

The entitlements that these people (said with dripping disgust) are claiming are their right is something you would not believe if you read it in a fictional story. Their greed, combined with a staggering level of incompetency, has led us to the brink of a massive repression and most likely, a depression.

It will take a few companies to put their foot down and tell potential CEOs that their pay will be brought to earth before others follow suit. The trend toward astronomical pay will only end when corporate boards grow a spine and are reminded that they have a fiduciary duty to the shareholders, not to their buddy in the corner office who also sits on the board of their company.

Stock options must either end or be counted as an expense that comes right off the bottom line for each year they're awarded, not exercised. And the amount charged against the bottom line must be the market value of the share, not the grant price. If those shares were sold on the open market, then the company would enjoy the market value price not the artificially marked down price that CEOs get.

Stocks used to be a way to raise capital for investment in the company but now they're little more than a way to fleece the shareholders through dilution of share strength. Corporations are giving away the very instrument that is used to raise funds for expanding the business or reduction of debt.

We are now in a moment of staggering surrealism where the moneyed class can steal like Madoff and be held under house arrest while struggling Americans are facing immediate jail if they rob a bank to pay for food for their family. This is an injustice of historic proportions.

This crisis is not because of lethal financial instruments gone wrong, it is due to greed and avarice. Boards refused to be held accountable, CEOs felt legal obligations applied to others (See Hank Greenberg at AIG), investment bankers hoodwinked investors into buying CDOs that were riddled with unrecoverable loans, and average Americans spent so far beyond their means that this outcome was inevitable. It was an unsustainable curve destined for a huge blowout with extraordinary damage to average people.

The only comfort is that so many of the privileged class are getting a mouthful of what has been force fed to so many Americans for so long. This is a harsh wake up call to all levels of society. This one is going to hurt, and for much longer than we think.

Expect the first bottom in 3Q of 2009 with cyclical bull runs followed by additional bottoms for 2-4 more years. During this time, I can only hope that American consumers reduce their debt, save some money and start us down the long and painful road to recovery. There is no easy solution to what is happening. Just hard work and tough decisions.

Feb 06 11:19 AM

[Robert Bateson:]

Citigroup's Vikram Pandit drove Old Lane Capital into the ground and has not been able to turn around Citigroup despite hiring his old chums from Morgan Stanley at astronomical guaranteed bonuses.

He hired Sanjiv Das as CEO of Citigroup for almost a million dollars a MONTH (not year). What has that moron done to turn around the mortgages business at Citigroup? Nothing.

Same is true of Sandy Weil - the ego maniac who created the Citigroup monster that has failed its shareholders, its customers and its employees in every way. Yet Sandy Weil gets to take the Citigroup private jet for holidays. What the hell is going on guys? Citigroup needs government / tax payer bail out money and who is Sandy Weil to use the company jet for holidays when he is no longer an employee of Citi any more.

These bankers and CEO are running America into the ground and ruining the country. America is in danger of coming apart as did the Soviet Union.

Feb 06 12:14 PM

[Phil Trupp:]

At this point in our economic evolution there's nothing we'd encourage more than a mass exodus from the Wall Street i-banks. If those who object to a pay cap are unable to live on $500K a year, please, by all means, make your exist now. You are unable to adapt, and nature isn't kind to those who don't. So why wait? Get out of the way before now before your do even more harm. Try learning some real world skills--medicine, engineering, teaching, physics, nursing. Go back to school and take up something useful, something less destructive than your current career path. Recognize we're living in a different era. Too big to fail is over. Wall Street as we have known it is over. Trouble is Wall Street has yet to get the message or see the signs of its own demise. Perhaps this form of cluelessness is nature's way. After all, the dinosaurs didn't foresee their own extinction, and they were the most successful species on the planet.

Feb 06 12:17 PM

[LIVE21:]

Um.. Lets not forget the cost of living in Wilmington Ohio is probably about 60% less than NYC...

Both my wife and I work in corporate jobs, we make about $195K a year, have no kids, and live in a 1 BR apartment. Most of this country, including the IRS and our President, thinks we are "Rich" ... we not only pay taxes through the nose, but you try paying $7.99/lb for cold cuts and tell me how far your paycheck goes...

The problem with this country is we measure everything by the almighty dollar, we need to start measuring by quality of life. A family making $80,000 in Wilmingotn Ohio is just as well off as a family making almost $200K in NYC.... however nobody attacks you for being "rich" and the IRS doesnt come looking for an extra 10-15% every year...

See for yourself...

cgi.money.cnn.com/tool...


No all of us in NYC are theives, we are hardworking middle class Americans like everyone else... To be considered "Rich" in NYC, you are truly looking at incomes over $500K a year... and yes I agree most of these Wall St. peckerheads should be hung in the streets, they robbed everyone in America... taking huge bonuses while the times were good and then asking for handouts when things got rough... sounds a lot like Socialism to me...

Feb 06 04:47 PM

[mkreisel:]

Most of quants should go back to their original professions, which is to help societies as opposed to destroy it.

Feb 22 04:20 PM

[nyguy123456:]

I have personally seen these models you speak of. They are actually very, very good at predicting default rates, provided that the right inputs are used. However, that was the problem. The inputs to the models weren't the greatest. You can have the greatest model in the world, but as the saying goes - garbage in, garbage out. "Modelers" are not the ones to blame alone. Everyone shares a little bit of the blame. Plus, in 2006 and 2007, fraud was actually involved! So it didn't matter what the model said, because when people lied on mortgage apps and brokers pushed them through, they were approved and the model failed because the inputs were fraudulent. It seems those who criticize always have the benefit of hindsight, but very little of the knowledge or understanding of the situation at hand to do so.

As to Mr. Hsu's comment about making 500 grand a year to live in Manhattan? You can make living single on 40 grand a year quite easily - you just have to sacrifice. I live in Manhattan and I make nowhere near that. But, my lifestyle isn't all that great - I live in a tiny apartment (<300 sq ft) with lots of problems and I don't have any of the amenities that come along with living in a newer space, but that's life...not everyone can get what they want. For a family of 4, you definitely don't need to make 500k.

For those who comment something to the effect of "MOVE OUT!", I noticed that they are usually from some place that has almost no cost of living to it, i.e., Ohio, or Texas. You don't work in the financial industry, I take it. Bulge bracket investment banking doesn't really exist outside of New York. Where are these people going to go to do the same job?


On Feb 06 10:38 AM morph366 wrote:

> Mr Hsu, especially in view of his own background, has a vested interest
> in pre-supposing that there is a huge pent up demand for the kinds
> of expertise that financial engineers possess and that there will
> be competition from plenty of boutiques etc. for their talents.
>
> Alas for him and fellow quants the word is slowly getting out that
> the mathematical skills acquired at the Ames Lab or NASA, along with
> the crude bits of economics that they have acquired along the way,
> are not just a bit wrong in attempting to price risk and quantify
> the likely default or losses of a portfolio, they are inexcusably
> wrong and ill conceived.
>
>
>

Mar 02 10:55 PM