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Wall Street's Bonus Hypocrisy
Richard Drew / AP Photo
Firms like Goldman Sachs are about to announce billions in year-end bonuses. Charlie Gasparino on how banks are rewarding themselves while still gambling with America’s money.
Goldman Sachs is trying to downplay how much bonus money it’s scheduled to set aside for its employees this year, a full twelve months after the firm received federal bailout money. But this is also the same firm that amazingly contends it wasn’t rescued by the Feds, that the AIG bailout—despite the fact that it held the firm’s insurance products on its books—would have no effect on its own finances, and that last year when the financial world was imploding, everything was pretty mellow down at Goldman’s headquarters in lower Manhattan.
Firms are making money not because they’re good at what they do, but because they have been given so many subsidies that it’s impossible not to.
I’m struck by this not just because of the utter hypocrisy involved, but also because Goldman isn’t alone in trying to spin the fact that every firm that faced sudden and assured death last year without billions of dollars in government cash, guarantees on bad debt, relaxation of accounting rules that make their bad bets look better than they should, not to mention that monster AIG bailout, is getting ready to hand to its executives major year-end bonuses. Again.
In the coming days, as Wall Street banks report strong earnings and boat loads of money for year-end bonuses, you’ll be hearing a lot about how paying people at the firms is necessary for the banks to retain talent and survive; that the firms made the money fair and square and that a return to profitability is a good thing. It means the firms are stabilizing. The banking crisis is over.
The banking crisis may be over (I prefer the description “abated” because the banks still hold trillions of toxic assets that could further implode depending on how high unemployment rises) but the fact that the firms have recovered so quickly isn’t so much a testament to their CEOs’ market brilliance and business acumen, but rather the size and scope of the government/taxpayer subsidy that was designed for the banking system to survive, but now that the firms have survived, is being used to enrich some of the same risk-takers who plunged the nation into the financial crisis, and the Great Recession, just one year ago.
Obviously saving the banking system was a good thing. Goldman Sachs and Morgan Stanley may be too powerful, the management of Bank of America and Citigroup too stupid, but having them in the market trading stocks and bonds is necessary to prevent asset prices—and that means everything from 401(k)s to public pension funds and shares of individual companies held by Main Street America—falling to close to zero. That was the worry this time last year when the firms received all that bailout money. When asset prices fall to those levels start talking Great Depression instead of Great Recession.
What isn’t a good thing is how the banks are taking advantage of their massive federal handout. Small business owners tell me all the time that they can’t get loans. Meredith Whitney recently wrote how credit is contracting, meaning the banks still are holding onto funds they would normally lend out to individuals and businesses. All of which would be fine if the banking system was truly building up reserves to cover the possibility that their toxic assets might yet explode in a possible second banking crisis if the economy takes a sharp downward turn.
But there’s some evidence they’re not. For all the billions given to the banks to prevent a further meltdown, they are plowing billions into bonus pools—published reports have the total bonus number at record levels in the $140 billion range, an estimated $23 billion at Goldman alone. That doesn’t mean people at the big banks should work for nothing—or shouldn’t get paid for a strong performance. But Wall Street should end its charade; instead of putting money away to guard against a second banking crisis—which even market bulls admit is at least a possibility—the firms are once again rolling the dice in bond market trades and paying their traders based on their short-term winnings.
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Jacob Bernstein is a senior reporter at The Daily Beast. Previously, he was a features writer at WWD and W Magazine. He has also written for New York magazine, Paper, and The Huffington Post.
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Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
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Jeff Madrick is a contributor to the New York Review of Books and a former economics columnist for the New York Times. He is editor of Challenge Magazine, visiting professor of humanities at Cooper Union, and senior fellow at the New School's Schwartz Center for Economic Policy Analysis. He is the author of Taking America, The End of Affluence (Random House) and The Case for Big Government.
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Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
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Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
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Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
Well, this is a breath of fresh air ... a year late in understanding, and too late to prevent the carnage that has already been heaped upon The People. If you are ever wondering who it is that Wall St. preys upon, it is The People, routinely and most assurredly, this being just the present example Examples being rife throughout History. And yet The People are dumb enough to go along with this sort of thing to their ever unending peril.
Hey! I've got an idea. How about we TAX these suckers 90% on their bonuses and only 80% on their 'normalized income'. That way their employees can no longer be retained at such firms engaged in theft against The People and will have to actually invest in America, rather than robbing from it. Sound like an idea?
Let's watch and see how 'evolved' humankind actually is. I'm betting that the knuckle dragging Philistines of Wall St. will simply have no idea how to actually earn a living once the charade of 3 card monty ends, as it always does in a cataclysmic *poof* once the 'magic' runs out.
Welcome to "Our Egghead Depression".
So let me get this straight:
Wall Street is taking all of the imaginary money it was given to save us from the imaginary monster in the closet, and instead of bracing for future disasters and fixing present problems they are instead paying it to themselves in giant bonuses.
Meanwhile, all of us working stiffs are back on the plantation paying for rich people's' white-linen coke parties in the Hamptons.
I don't know about the rest of you, but wow...I am shocked. Just freaking shocked. Who knew this could ever happen?
Somebody get the smelling salts.
I don't know who the bigger jackasses are...the people who gave out the money or the evil bastards who are stealing it.
:(
They are destroying the capitalistic system. I can only think that Obama is letting this go on only to add further support for his socialist agenda. At some point he will feign shock at the course of events, and team up with Barney Frank to nationalize the banking system.
@ neverlate
There is a precendent for this kind of thing. Please read Jon Meacham's 'American Lion' in which Meacham tells the story of how General Andrew Jackson 'broke the Biddle Bank'. Yeah, we had a Depression then, for two years as a result of Jackson's actions, but the years after that were easily the most prosperous in American History, ending in the tragedy of the Civil War (people fighting over money again).
Sooooo, your point is that Andrew Jackson was a Socialist too? Or was he simply standing up for the interests of the Nation and it's people. I don't know about you, but I am sooo looking forward to seeing my Bonus check from Goldman Sachs this Christmas. Merry Christmas to all at Goldman Sachs and a 'hi how are you' to the rest of us living The Christmas Carol experience as described by the little Dickens himself in a story about SCROOGE.
You've been SCROOGED and you don't even know it. How .... thoughtful.
Yeah Andrew 'Hitler' Jackson who bought on a Native American holocaust, slaughtering millions of indigenous people and uprooting the rest to make way for whites to usurp free land. Don't forget that tiny detail into your equation of prosperity.
Queeny, did you know that one of my ancestors was the Secretary of War that helped create the Indian Territory (Oklahoma), where Andrew Jackson moved all the Indians after the 1830 Removal Act? It's true. And it's also true that he wanted them all to just "disappear", although he wasn't the only one.
That hardly means I approve of it, no more than the fact that my ancestors owned over 1,000 slaves. Of course, I come from the abolitionist side of the family.
Capitalism has already self-destructed. Obama is just trying to prop it up, but it may not work.
Are you kidding me? It is about time that the ever more hoodoo-ed populace comes to grip with the fact that our exalted leader is no socialist. Nor is this guy an idealist. I have never seen a more shining example of a sellout. However, it is also about time that we recognize what the president's strategic gambits are really all about - cannibalizing the soon to be dead carcass of our economy and siphoning as much as can be salvaged to those to whom our exalted leader truly answers.
Do you really think that he or those of his ilk care about advancing any agenda that will benefit the downtrodden? In fact, the very initiatives that the blinded are deeming socialist are almost certain to have a negative effect on the well being of those that such initiatives are touted as being designed to help.
He got his, and he soon will have gotten what was left of yours. Mark my words, it will be sooner rather than later that we are all standing on the breadlines, too hugger muggered to raise the energy to mount the barricades, and our leader will be smirking that smirk of his from his penthouse in Dubai.
I am on the Left, so I wouldn't be surprised if they had another crash. Certainly they are all back to playing Monopoly as if nothing ever happened, only this time with government money. They are opposed to all regulation and consumer protections as they always have been, even though the taxpayers have saved them from extinction.
If they crash again, they should just be nationalized, broken up and run as public services.
Wall Street is just taking advantage of a government that has printed way too many dollars in order to stay in power. Essentially, Greenspan printed a lot of money, which made Clinton happy,. Barney Frank thought it a good excuse to give poor people mortgages they could not afford. And Frank Raines saw it as a chance to cash in at Fanny or Freddie, or one of those monstrosity. The American public was given a little taste of the action with cheap plasma TVs from China, and everyone was happy until the shit hit the fan. Now Obama blames Bush and there is no one "cowboying up" to fix the mess. Obama still is trying to create a liberal La La land while the world goes down the the toilet. Wall Street is taken advantage of more cheap money to get a quick pay day before the shit really hits the fan. Me, am burying gold in my back yard and learning how to shoot a 45. I forgot - Larry Summers is still counting the five million he made for doing nothing, and Tim Geithner is scratching his head wondering why he is the only one not sitting on a pile of cash.
Charlie,. wow.. what amazing hypocracy. Make surre at the end to ALWAYS get your cheap shot at OBAMA. You complained when he named a pay czar , now "he's following the money". Tell the truth.... guys like YOU that did the "rumor filled " reporting contributed a Great deal to the "Panic" that occurred. Your famous, "my sources tell me"..please. The system was completely melting down.. goldman wasn't going under...just like morgan stanely wasn't... .. History will prove that .... Plus since when doesn't a conservative free market guy like you believe that a contract should not be honored. Afterall isn't a CDS exactly that.. A Promise to deliver at a specific time if a certain outcome occurs.. Well that outcome DID OCCUR.. Why shouldn't Goldman and anyone else who held a CDS get paid in full? they paid the premium upfront to AIG>>>Stop the partisan slamming and report the facts..
Zero Hedge linked to this piece - the end is nigh!
Since I live in New York City, I must say that I fully support this transfer of wealth from the taxpayers to the banks. I've always assumed that mom & pop living in other parts of the country subsidized tens of thousands of recent college grads in nyc. This new system simply turns mom & pop into every taxpaying American. If one questions why the recession seems so mild (though not totally unrecognizable) in New York, simply thank the residents of Alaska, or Wyoming, or Arizona, or....
We are still in a deep recession, and there is no normal, productive way to use the huge amounts of money created by the Federal Reserve. Companies are not investing in new plant or other facilities, and they are laying off, not hiring. States and municipalities are revenue-short, so they are not spending. The newly created money is therefore flowing into the stock market, pushing it up despite the awful state of the economy, and enriching Wall Street. And keep in mind that Wall St. was a far bigger contributor to Obama, Schumer, and company than to McCain.
This article is a joke. I'm pretty sick of neocons talking about the 'failed' stimulus package - besides the fact that it's $787 billion, not 800, how much of it has actually been spent? Not even a quarter. Get your facts straight, Gasparino, at least for the sake of journalistic integrity. People who don't know that you're a.) lying or b.) out of the loop may read this article and believe you. Or the converse, people who do know their facts will stop after reading half of the 'article.'
They get rich by screwing the rest of us and stealing all our money. It's always been that way.
There are many Madoff types on Wall Street who haven't been caught, which is why there should be a special prosecutor to investigate all of it. Naturally, I don't trust Obama to do that. I don't trust the Dems or the Republicans, because they've all been bought.
Surprisingly Cowardly of you, Charlie G:
Its unlike you to sniff to see which way the wind is blowing for some Clinton-like populist tripe.
I epecxt more balls from you -- like this:
http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman- sachs-bonus/
Clinton wasn't a populist, but I am. I think we need a real national investment bank in this country, not tied to Wall Street. Pigs.
mcmchugh99 I think your intentions are beyond reproach, but government is not the answer. The mess we are in is because government has subverted true capitalism through the federal reserve.
On true capitalism (neverlate): Capitalism is all about `take the money and run' (cf No Country for Old Men). If entities are bad actors, the only recourse is a boycott.
I suggest strongly everyone read Simon Johnson's recent piece in The Atlantic http://www.theatlantic.com/doc/200905/imf-advice
He makes the very informed case that the US is retracing the path associated with emerging economies--financial oligarchs who either "own" or are "in-bed-with" top politicians. Very discouraging.
o.k. let me try to understand this one thing... So the banks and investment firms screwed up and the tax payers, through the government , gave them money to get started up again and not have to close shop.
Then they have some kind of nice profit or something they call Profit. And now are giving themselves bonuses based on the Profit.
But have they paid the government back every penny they were loaned ? With interest ? Already ? And if not , then why not ? I assume profit means over their investment of the Loaned funds ?
Help me out here ..
It's so easy to be swallowed up by the feeling that fighting the powers that be is futile and hopeless.
These people are expert at finding/making/using loopholes.
I'm wondering if it will take something akin to the French or Russian Revolutions to bring real reform.
Of course, after several generations the story will repeat...
http://PinstripeSniper.blogspot.com
Thank you.
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