How many times have you heard a Republican rail against any government interference into the financial sector or the private sector? Obama, among others, has been called a socialist for suggesting it. The case against intervention always seems to be that if left alone, the market will regulate itself. Well, let’s take a look at just how well the market is “regulating itself” in regard to Wall Street firms and their salary policies and upcoming bonus schedules.
Remember last year when Goldman Sachs and Morgan Stanley had their hands out, asking the government to subsidize them so that they could stay in business after a series of disasterous decsions made by their execs in regard to credit swaps and risky investments? Remember earlier this year when Citigroup was almost single handedly bringing the market down with its record breaking losses, as it was forced to disclose and dump billions in toxic debt? This after the US Government helped them out with bailout money? Keep that in mind when you hear how they are planning to hold themselves accountable.
2007 was a great year for Wall Street. The Dow Jones Industrials posted a record all-time high and the top 5 firms gave themselves a whopping $39 billion in bonuses. Well, Goldman Sachs and Morgan Stanley must be feeling pretty darn good about the economy since they are both on track to match or beat the amount of bonus dollars they are paying this year as compared to 2007. Yes, I said that right- Morgan Stanley is scheduled to pay $11-14 billion in bonuses this year, an average of $340,ooo per employee, the same amount they paid in bonuses in 2007. But that’s chump change compared to the $20 billion Goldman Sachs will be paying out in bonuses this year, averaging to $700,000 per employee. That’s MORE than the $661,000 they paid out in 2007.
Citigroup, on the other hand, is being far more conservative- they are only raising base salaries instead of offering huge bonuses. When was the last time you were given a raise for bringing your company to the brink of extinction and dragging down the entire stock market with it? Gives you new perspective about the validity of asking for a raise the next time you get a bad review at work, doesn’t it?
The reason given for all this is that Wall Street needs to retain the best and brightest, so it has to keep shoveling out piles of cash to do it. Base salaries at the big firms run anywhere from $80-300,000 and account for only one-third of the total compensation. If these best and brightest left their firms, where else are they going to go to earn that kind of money? I’m sure there are tons of smart, talented people would be more than happy to take those jobs for the adjusted compensation that was too low to retain the previous employee. And if these examples of the best and brightest were any part of the mess that got us here to begin with, why would you want to retain them anyway?
This is the market regulating itself because “all of the top Wall Street firms are doing it,” the same excuse they have always used for their excess. The government has anti-trust regulation in place to prevent collusion; this is about as blatant a case of collusion as it gets. Considering that it is our taxpayer money that is helping to fund these bonuses, we have an interest in preventing and eliminating this situation. I think the government is justified to regulate and, under anti-trust law, to come in and slap fines where necessary, as they would with any other violators.
If the rats want to jump ship because they didn’t get their bonus, they can find out for themselves just how rough the waters are for the rest of us…
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