The Year’s Lamest Excuse
The New York Times revealed this morning that Wall Street Paid out over $18.4 Billion in bonuses for last year’s great work by their executives.
That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller. While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.
When asked why he authorized a huge bonus pool in the face of the firm’s largest loss ever, newly booted Merrill Lynch CEO John Thain put forth the standard line.
He defended the reported $4-billion bonus pool, saying that “if you don’t pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave.”
Excuse me, but where are they going to get jobs that pay $10 million a year? I don’t think their rival firms are actually in a hiring mode. This is total malarkey. The Treasury Department should sue any firm that got TARP funds to claw back bonuses paid for last year. Of course the Rush Limbaugh bootlickers in the House will oppose this because Rush thinks this is class warfare.
Isn’t it amazing what grown ups have to say with a straight face?
If you had a chance to watch the republicans blablabla about the “stimulus” it was a hoot.
Michael J
January 29, 2009 at 11:15 am
This morning CNBC argued these bonuses. The worst argument: Wall Street wages are too low. If Wall Street firm paid 6-figure salaries, they wouldn’t have to give out big bonuses.
For guys who took down the economy, put over 4 million people on unemployment in the U.S. alone (climbing to 50M worldwide), and destroyed untold numbers of businesses to think they deserve 6-figure salaries or huge bonuses is ludicrous. What planet are they living on? They’re totally out of touch with reality.
Valerie Curl
January 29, 2009 at 11:18 am
In the seatback pocket in front of you on the Airbus, you find the AirMall magazine. Inside is a 2-page ad for one Alex Karass, who peddles a seminar and various products based around the idea that “You don’t get what you deserve, you get what you negotiate.” And how to go about “negotiating.”
I’ve got a family member who’s ridden the golden handshake-golden parachute escalator to the point where he never needs to work again, though he is always looking for the next best deal. And one would have to look hard, in my estimation, to find what he’s contributed to the good of mankind.
Valerie, I hate to say it, but these people are totally in touch with reality. It’s just that from their perches in the gondolas under the balloons they inflate with funny money extracted and perverted from the Real Economy, they don’t have to give a ripshit about the clowns on the ground. In the world they have created for themselves, they can grouse about “entitlements” like Social Security but feel real comfortable with the notion that they are entitled to 7- or 8- or 9-figure annual incomes.
Like others have said, about the only way to get these peoples’ head in the right place is by severing those heads from their bodies and sticking them up on pikes. These folks are painfully similar to the “nobility” in France toward the end of the 18th Century, which gave us Marie Antoinette reportedly saying in response to a complaint that the people were starving and could not afford bread, “Then let them eat cake!” And her beau the King, Louis XVI, enjoying life to the hilt in his gilded palace, saying “Apres moi, le deluge!” (“After me, Chaos!”)
And Mr. Taplin, I hear from another family connection that the “Big Wall Street Firms,” that have wangled a place at the trough where the “bailout specialists” who will be valuing and disposing of all those TARP “assets,” are hiring the people who best were able to spout the bullshit that made CDSs and CDOs sound like “sound investments.” For Big Money.
Maybe you can peek at that new site that specializes in only help-wanteds for the over-$100K set, and the other employment resources that schmucks like me hear about but can’t access.
Like the pilot on the Airbus with the dead engines said, “We’re going down.”
JTMcPhee
January 29, 2009 at 1:22 pm
@JTM: They make their money the old fashioned way–they steal it.
@JT: Thain: Another candidate for the “head on a pike” treatment.
billy-bob
January 29, 2009 at 1:42 pm
If you invest in companies as the government has, but don’t set limits on compensation, then you have yourself to blame. No investor would put up as much money as we taxpayers have without setting compensation plans. The government should be embarresed by it’s incompetance but the street should be ashamed for taking advantage of the taxpayers.
doug
January 29, 2009 at 2:16 pm
There are two kinds of hypocrites: those who set the bar so high that they have to go back on their word because their values don’t work. This is where Obama finds himself today with Campbell Brown nattering at him for hiring a lobbyist. Then there are those who set the bar so low that any deviation from their expectations sends them screaming foul when disappointed in their rewards. This is where the Wall Streeters and Rush (How Low Can You Go) Limbo find themselves.
“Skating Away on the Thin Ice of the New Day” – Jethro Tull
len
January 29, 2009 at 2:42 pm
As I pointed out in another thread, the scorpian always stings. So somehow, we have to riddle out an adequate response.
rhbee
January 29, 2009 at 4:53 pm
I remember in 1999-2000 when the tech CEO’s were saying the same thing, that they deserved their multi million dollar salaries and bonuses. And then when their companies and stock crashed in the 2001-2002 NASDAQ market crash they used the same pathetic excuse that the Wall Street bankers are using today, “I am too valuable to replace but if you cut my pay/bonus, I’ll go somewhere else. I say this time let’s call their bluff!
Dave in SV
January 29, 2009 at 5:41 pm
Doug: I was ASTONISHED when I learned that there had been no accounting for the TARP monies.
This whole financial escapade is so surreal.
The cynical side of me says that this nothing but an old fashioned looting of treasure. A modern-day act of politico-business piracy.
I mean who on earth lends out that kind of money without an accounting statement and a pay-back plan? I guess it’s easy when it’s OPM and you’re totally out of touch with reality.
We can blame the financial CEO, BSDs, and MOU for this mess, but as a colleague pointed out to me today–this is not really placing the blame squarely where it belongs. Finance outfits are setup to engineer financial products. The real blame for this mess lies in the regulatory sphere of governance. What we have had for 8 years is slacker oversight, by a cabal of pirates dressed in suits with Red/Blue ties and flag-pins on their lapels.
Heads of Congress: Up on pikes!!
This event gets more disgusting by the day. ARGH!! The only upside is that Obama is now promising more regulatory oversight care of Volcker’s strong guidance. I guess we’ll see what transpires.
billy-bob
January 29, 2009 at 6:02 pm
Doug, since when have either “the government” (possibly with an incoming exception) or The Street had any sense of either embarrassment or shame?
JTMcPhee
January 29, 2009 at 6:25 pm
I worked for 8 years at Lehman in the early eighties and one of my jobs was to design new financial instruments in an R&D group whose first big winner was –Auction Rate Preferreds— for American Express–who owned Lehman at that time—there was nothing wrong with what we were doing but we now know where that product ended up– when wall street works it’s great but in hindsight strong oversight and better enforcement are obviously needed–(although I never thought that at that time!)– wall street will continue to try to build new products so the government better step in and set the regs— handing out money without accountability is insane–I would never do that–when buying/investing in a business setting up compensation plans is a very basic part of a transaction so this slip up is really inexcusable–
doug
January 29, 2009 at 6:25 pm
I absolutely think you are wrong about Republicans fighting a claw back.
You know your opposition very well. It keeps you from finding common ground.
Morgan Warstler
January 29, 2009 at 6:50 pm
Doug-When we get to a place where the smart kids want to go into government, then we will get control of the system. When I graduated from College, Richard Nixon was President. Who would have ever thought of going in to his government?
I worked for Merrill Lynch as a VP Media Mergers and Acquisitions from 1884-1989– The Reagan/Bush 1 era. Who would want to be in those governments, whose belief in the military industrial complex was counter to mine?
But now–My Dean, Ernest Wilson who was on the Obama transition team for the Broadcasting Board of America (Voice of America, Al Hurra, etc.) as well as the Public Diplomacy program, notes that the availability of great talent wanting to work for the administration was astonishing.
This is new. We will figure this out. When the smart people want to be part of the solution rather than part of the problem–then we will figure it out.
It’s clear the clowns on Wall Street, who thought they could get away with buying a $45 million jet after they dinged the taxpayer for $360 billion in cash and loan guarantees are living on mars.
Much worse are the troglodytes who follow Limbaugh. They are increasingly irrelevant–because at 6% of the country (The Limbaugh “faithful”) then can only threaten their base.
Jon Taplin
January 29, 2009 at 7:53 pm
I was go glad to hear Pres. Obama lashing out in anger at those Wall St. “Masters of the Universe” who ruined the economy, sucked up billions of tax payer money in bailouts, and allotted themselves billions in bonuses.
What a bunch of schmucks!
In the short term there’s not much that can be done to reverse the lack of oversight and control set in motion by Paulson. Maybe the new Secty of Treasury will prove better at the job – but I’m not going to hold my breath since he’s another Goldman-Sachs alumnus. We can only hope Obama will hold him to the line.
In the long term, it’s highly possible that those Wall Streeters have hung themselves. I doubt the American public will soon forget the lack of regulations and oversight or the freewheeling “free market” of the last eight years.
Valerie Curl
January 29, 2009 at 8:23 pm
The update to this discussion is here, maybe we should shift the thread while Obama evolves into the new Teddy Roosevelt. The Reformer. http://jontaplin.com/2009/01/29/barack-on-the-bonuses/
Jon Taplin
January 29, 2009 at 8:33 pm
Why no stockholder revolts? What’s going to happen at the next elections of boards of directors? Stockholders are responsible for putting the boards in power. The boards put the executives in power and approve their compensation. Is there such a disconnect between stockholders and corporate management that nobody understands the power of voting? And what about fiduciary responsibility? The boards and the execs should be on the hook for ruining shareholder value and bleeding the companies dry and dessicated. I’m just amazed that we’re not hearing about class action lawsuits, breach of fiduciary responsibility suits, etc. What about RICO statutes? It seems to me that a lot of the Wall St. crowd are awfully close to racketeering.
Rick Turner
January 29, 2009 at 8:34 pm
@JTM- I’m catching up. That long post of yours is as poetic as anything you’ve ever written. As I’ve said, I think the secret is if Barack can turn the campaign win– into a movement.
Jon Taplin
January 29, 2009 at 8:44 pm
@Rick:
RICO statues only cover unlawful activities, such as those of organized crime. Under current rules, stockholders have no power over decisions of the board, regardless of how egregious those decisions are.
As of now, the only recourse investors have is to vote out the board of directors. However, there is a growing movement to change the rules, creating more investor input into corporate governance. See Carl Ichan’s website ( http://www.icahnreport.com/report/2008/10/compensation-co.html ).
Valerie Curl
January 29, 2009 at 9:48 pm
Well there’s still fiduciary responsibility, and that can be fought in civil courts where juries are not likely to be very pro executive bonuses these days. I also think there may be backroom collusion where you’d find interlocking boards of directors basically plotting to vote for one another at various corporations and then essentially price setting executive compensation. Don’t tell me they don’t talk all this over at the country club bar… This bit about how you have to pay top dollar to get talent that is dribbling from one mouth after another is getting old. They need new script writers at least…
It is amazing how they’ve managed to disconnect compensation from performance so quickly. Let the good times roll and don’t look out the window; you may see your unemployed workforce out there with pitch forks and torches. I’d like to see a mash-up of Wall Street with Frankenstein…the mob comes to the street.
Rick Turner
January 29, 2009 at 10:01 pm
@JTM – All I can say regarding your analysis of the current crowd of “financial nobility” is Duh!
Of course, they think they’re better than everyone else. Of course, they think they deserve a salary that is more than 500% the salary of the average worker. Of course, they think they’re Masters of the Universe.
Nevertheless, it boggles the mind of any rational, intelligent human being that they refuse to understand the revolutionary change existing in this country at this moment. That revolutionary change, brought on by corporate greed and mismanagement, brought Obama to the White House.
Anyone who is blind to the change demanded by the American public – and an ever growing number of investors – will undoubtedly follow Thain, Rubin and others as they are permanently led out the door.
They may have legally bilked the taxpayer out of billions, but I’m wondering how long its going to take for the Fed, the new SEC, NY Atty Gen Cuomo, and a bunch of other newly populated Regulatory Agencies to climb down their financial backs and take back those ill-gotten gains.
Marie and Louis lost their heads when France revolted against nobility excess (only to indulge in an excess of violence thereafter) while everyone else starved during a major environmental crisis.
We don’t chop off heads anymore, but it might not be a bad idea if investors legally could recoup the monies given in bonuses, golden parachutes, elaborate salaries and perks from managers and boards who failed their fiduciary responsibilities as well as their responsibilities to the American people as a whole.
SEC and corporate governance laws need to change.
Valerie Curl
January 29, 2009 at 10:20 pm
Just curious — who are “stockholders” these days?
My obviously uniformed take is that the “stockholders” are the big funds, whose managers are kind of in the same club as the chiefs of the companies whose equity they bet on. Haven’t there been some exposes on what might be called venial relationships between fund managers, raters, analysts and management? I know I don’t even the start of a handle on all that.
As a puny “capitalist” with a tiny net worth some of which happens to be in those funds, I am not as I understand it a “stockholder” who could show up at a stockholder meeting like Wilma Soss (anyone remember her?) with a one-share certificate in hand, and demand to lecture the assembled proxy and large-block-of-stock-in-hand holders and directors and management on their sinful ways. Nor could I, under the derivative-action rules as they stand, even take a shot at using the judicial system to redress some of the excesses or “claw-back” some of this money.
I don’t know the answer to the question whether the funds that hold huge blocks of stock have standing to do derivative actions, or whether things have gotten bad enough for the managers to want to butt heads with their buddies on the other side of the equity divide.
So Valerie, even though we’re apparently on the same general side, I guess I am not smart enough to see what can and what needs to be done — in the context we are in. Those of us at the bottom end of the socio-economic matrix don’t have a lot of time to study such things.
So who’s going to fix the corporation law of the state of Delaware, to pore through the tax code and highlight the grottiest exemptions and giveaways, to change the Federal Rules of Civil Procedure like Rule 23.1, and to make additions to Title 18 of the US Code? Fix all the rules that implement “beneficial” statutes like the Clean Water Act and Clean Air Act and such, which from the public’s standpoint are suffering from bad cases of “regulatory capture?” And amend all those SEC rules and rulings that us D’Oh! guys dimly sense through our Duff-Beer-induced foggy awareness?
I have a vague notion and a strong hope that President Obama will turn all the enthusiasts who have flocked to him loose, to do something more than express disappointment and wag fingers.
Having a nodding acquaintance from a past life with how US Attorney offices and the Justice Department actually work, and how big cases generally get resolved, please forgive my skepticism. Have you followed The Strange Case Of Michael Milken, and how much money he got to keep and how much of his “time” he actually served, after his judge sua sponte shortened his sentence and nobody seems to know why.
And I have read a bit about the French Revolution and just about every other revolution, and I’m not aware of any, with the possible exception of what we choose to call The American Revolution, that had a soft landing or made things better for my fellow average citizens.
Sorry, there’s a lot of helplessness-induced anger out here. And Hope-and-Change-induced impatience that needs to be tempered with realism.
JTMcPhee
January 30, 2009 at 5:42 am
The eyes of the world are on Obama and how he is going to punish and reward, set examples. These guys of Wall street should be punished by the society they have betrayed. The “American dream” needs a redefinition.
bernard
January 31, 2009 at 8:34 am