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Ever Upward Trend for Bankers' Pay
Some people were outraged last week by a report that a member of the kitchen staff of bailed-out Wall Street firm AIG had received a $7,700 bonus.
Surely that was far less outrageous than the million-dollar bonuses paid to others at AIG who actually carried out the firm's financial business.
After all, the kitchen helper produced something that at least could be eaten. Apart from perhaps overcooking the Chateaubriand or leaving spots on the champagne glasses, what harm could the kitchen helper have done – compared to driving the world economy over a cliff?
Unbelievably, The Wall Street Journal reported last week that banks and securities firms are on track this year to pay their employees a record $140 billion – an amount that exceeds the peak year of 2007, just before they put the global economy into meltdown.
Pay for bankers and corporate CEOs has shot up dramatically in the past 2 1/2 decades, despite often weak performance.
Although the pattern is most extreme in the U.S., the pay bonanza has infected Canada, too. While the real incomes of ordinary Canadians have mostly stagnated over the past quarter century, those of the richest .01 per cent of Canadians have more than doubled, rising on average from $3.6 million to $8.4 million, according to Statistics Canada.
Is there anyone – beyond members of the financial elite and their relatives – who still believes extraordinary pay levels at the top are deserved or necessary?
Society has traditionally tolerated inequalities generated by the marketplace on the grounds that big incentives at the top are necessary to encourage economic growth. But how much is enough? CEO pay was much less generous (and taxes were much higher) in the 1950s and '60s – and yet those decades had much higher economic growth rates.
Intuitively, it's always seemed unfair that bankers make so much more than, say, nurses and teachers, whose contribution to society is more immediately obvious.
But neoclassical economic theory – which has long dominated western thought and shaped western societies – has taught us that each person's compensation reflects his marginal social contribution.
So the banker's high pay reflects his important role in creating efficient capital markets, which benefit society as a whole – or so the theory went.
But, as Nobel Prize-winning economist Joseph Stiglitz recently noted, bankers have now effectively refuted that theory. Stiglitz compares the contribution of bankers to that of the late Norman Borlaug, who saved millions of lives by improving agricultural productivity.
"If neoclassical theory were correct, Borlaug would have been among the wealthiest men in the world, while our bankers would have been lining up at soup kitchens."
But the financial meltdown hasn't shaken the faith of those on Wall Street – and Bay Street – who continue to defend huge pay packages, insisting that that's just the way the free market works.
Or is it simply that the elite have gained too much power in recent years, and use that power to increase their own rewards?
It's certainly a cozy world at the top, where CEO pay packages are decided by corporate boards made up of other highly paid CEOs, who are inclined to believe high pay reflects intrinsic worth. As they vote for ever higher CEO pay packages, they raise the standard for all CEOs.
If the kitchen staff got to set each others' salaries, one could imagine the cost of a good dishwasher might rise as well.
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58 Comments so far
Show Allat least the kitchen worker will stimulate the economy when they spend their money
the million dollar bonuses which come out of regular peoples pockets will just end up in the caymans and other places in their portfolio, having the effect of shrinking the economy
Looking at the big picture rather than just the employee compensation issue, the financial industry should play a supporting role in the overall economy. It should not be the hub of the economy like it is today.
During the 50 years (1934-1984) that New Deal regulations kept it under control, the financial industry was a much smaller part of the overall economy (by any metric) than it has been for the past 20 year and its managers' compensation was on par with managers in other industries (manufacturing, engineering, construction, transportation, etc.)
Financial industry deregulation has now resulted in the financial industry playing a much larger role in the economy with its managers' annual compensation exceeding the lifetime compensation of their counterparts in those other industries. This might be tolerable if the financial industry was producing products that were beneficial to the economy. Instead, the industry has produced products that reduce jobs in the other industries and disrupt the global economy while making a few people enormously wealthy and allowing the industry to own the US Government.
Any talk about directly controlling financial industry compensation is pure BS. It won't happen as long as the industry continues to be out of control. The only way to affect compensation is to re-regulate the industry so that it returns to its role supporting the economy rather than being the hub of the economy.
Not just bankers, also tech, retail, advertising, energy, entertainment, farming... you name an industry and the most brilliant, innovative and talented people are not the ones profiting from their work. The ones who steal their ideas and/or can walk the walk and talk the talk are the ones who get the money. Also politics of course, nowhere is this more apparent than the government or any industry with strong government ties or excessive regulation like the banking industry. The high pay is completely unjustified for their performance and there are people out there who would work for much less money who are much better qualified but in an industry like banking which is so tied to Washington and politics, that has the biggest government backing or corporate socialism behind it, why would you need to do a good job and be talented? Look at how much money these guys are making now thanks to the government bailouts. They do better financially the bigger they fail! The way for real talent and innovation to succeed is to have a true free market where the small businesses can compete equally with the big corporations and their big government ties. This means abolishing the Fed, abolishing the Department of Energy, abolishing all copyright law, abolishing the Department of Agriculture etc... etc... Competition and freedom is the biggest threat to highly paid incompetence.
Sioux Rose
ATLAW: Excellent, meaningful post.
You get what you negotiate, not what you are worth. Its the American way.
"You don't get what you deserve, you get what you negotiate" Chester L. Karrass.
Certainly the American way according to Dr. Karrass.
http://www.karrass.com/.
Abolishing corporate personhood and Money is speech is the most important.
$140 billion, though a lot less than the $800 billion of the government's stimulus bill, is indeed a lot of money. However, first of all, the author fails to tell us just how many people that pays salaries for. If we're talking all employees for all banks and all securities firms, I take it that there are probably hundreds of thousands involved? How about a fair and balanced breakdown by dividing the amount of employees into that $140 billion for an average salary. My guess is that the answer will not be out of range of a police officer and probably less than the average government worker, and most assuredly less than our useless politicians in Washington.
What is the purpose of this article? To discredit the free market, which has sustained this country since its inception. Government control has been tried and failed with the Communists, the Nazis, the Socialists, and the Fascists.
If everyone is not getting a piece of the pie, I don't think it the fault of the system, but of the people not taking advantage of the opportunities. However, even if it is the system which is at fault, isn't it better that only 10% be unsuccessful than thee 90% or so that was the USSR? Shouldn't our efforts be directed to that 10%?
True indeed that the executive pay is multiplying much faster than the rest. Wouldn't it be nice if the government simply gave a ratio guideline to businesses for lowest worker to highest executive? Maybe when that is exceeded, it should be published within the firm.
>> "people not taking advantage of the opportunities"
Yes, most of the unemployed are just slackers who fail to take advantage of opportunities.
Any other Republican fiction you care to share?
Kevin is just making CD a one stop news center where we can get progressive viewpoints plus the neocon talking points. Unfortunately, the supply-side free market line is a 200+ year old myth that only survives because the neocons own enough media to repeat it 24/7 thereby brainwashing much of the US electorate.
We no longer live in a free market, and the market is not sustaining this country. Selective bailouts are a form of government control. Central planning is central planning, whether you call it communism or government subsidy. Everyone is familiar with how CEO pay has become obscene, even when companies are failing or performing poorly. Bankers continue to line their pockets, and have not stepped up the credit lending that was the force behind the pre-crash economy, and the purpose of the bailout. US companies continue to close, downsize and lay people off, or offshore what jobs they offer. Do you expect a celebration of the banking industry?
Sioux Rose
BLISS DOUBT: Right on! The whole thing is a sickening masquerade, these bankers produced a CRASH. They should be "rewarded" accordingly! Instead, they buy politicians with taxpayer largesse, and then use THAT corrupt influence to twist laws and regulations so they can continue on a scam-spree that leaves everyday people with little to nothing.
I think THIS "welfare for bankers" added to the costs of unnecessary wars, added to the Scrooge-inspired "reform" of health care will be the straws that break the public/camel's back. Christmas sales are apt to be very low, add that to other nations making smart plans to get off the U.S. dollar, and the illusion of pumping up Wall ST with funny-money, only to see its most unconscionable players take what they can (skimming the cream off the top) = a recipe for real disaster. A reality check can only be floated for so long.
The way that "Obama and the elites" (has the ring of a musical group!) have treated last autumn's Wall ST/bank crash reminds me of the children's story: The Boy Who Cried Wolf. When the real wolf arrives, after prior phony announcements, no one will believe it; and by then it will be too late. Who will loan to this nation now, seeing that NO meaningful regulations were put in place to stop the flow of money down a drain to no where? What will our dollars mean to international transactions if they just get printed to hand over to the same ones who have gamed operations and succeeded in removing genuine worth from all equations of commerce? We are living in a phase of absurdity, abject disregard for the remotest premise of honor, and rule by the damaged and damned.
The precedents that led to this sorry state of affairs are many. The loosening of the checks and balances to allow the president to act as dictator/unitary executive is certainly one of the gravest pitfalls. The deregulation of banking, a second. And the horror that leadership could boldly make up "evidence" to be used as pretext for war and no one be held accountable... these acts are beyond the pale and as Rumsfeld related, definitely substantiate the idea that "we" will now be working on the dark side.
Yes, and Obama is probably appointing another Goldman Sachs alumni to a regulatory post as you read this.
Call it Snobama and the Seven Insiders ?
Sioux Rose
RAY: Saturday Night Live could probably use that concept for a satire...
Don't you feel like you're a passenger on a train to the voyage of the damned?
Senseless, stupid, costly on myriad levels decisions... one after another, each worse than the former. Theater of the absurd meets M.A.D.
Do you remember that Woody Allen movie that opens with his dream that he's on the wrong train?
The other train is full of rich, attractive people who are well treated. His train, full of homely and apparently depraved poor people, pulls out in the opposite direction while he struggles to get off.
Of course, in another version, both trains crash.
"Sleeping Booty"?
Yes, the boy who cried wolf, except that in this instance it's the wolf who cried wolf! I'm crying "piggy piggy piggy".
I remember from one of RichM's posts where he replied to me on the power of banks, he pointed out that short of government stepping in and actually holding the banks accountable, the bankers would have to lose the customers that give them the biggest lumpsums, their corporate customers. This looks like a formidable task for Main Street to accomplish.
They're all formidable, though, aren't they?
Yet, historically, action has effects, and things change.
The noncorporate public has bank accounts. Most of us can open accounts with credit unions and similar local financial interests. Most salaries can be deposited automatically. Most banking can be done on the Net.
I don't have to do it for the moment, but I could easily live in a different city than my bank. If for some reason I needed a brick-and-mortar branch, I could open a small local account and transfer anything that earned the bank money to the credit union.
Starve them off.
We don't need 100% success in this: any dollar we deny them is a dollar that they cannot use to purchase the next candidates.
bardamu, excellent points. I myself have been a credit union member throughout but I think I understand what JB might mean. I'll have to dig through the archives to look for her conversation with RichM but I believe he nailed me too on a similar topic. Again, I'd have to dig further back. Customers do make or break banks but we cannot just judge in numbers. Let's say that there are 100 customers. 90 of them are regular customers and 10 of them are business corporations. The 90 regulars have a total of 1 billion in the bank while the corporate customers have a total of 10 billion in the bank. If all the regular customers left but the corporate customers remained, that would make less of a dent. Sure, the big banks would be unable to mug the little guys but those big banks are still free to attempt to financially mug and bully small banks and credit unions any way they can. Therefore, the Achilles heel lies in those 10 big corporations tied to that big bank. If we got employees, customers, and stockholders to pull out, those big 10 would have far less money to invest in that big bank and that big bank would find itself in big trouble. I think that is what RichM told JB and what she is telling us. I'll one or both of their inputs on this.
max, that's right but I do give bardamu credit that we have to keep ourselves truly safe regardless. I switched to credit unions last year and don't regret it but our task is obviously not complete.
The truth is there never WAS a Free market in the USA. From day one wealth was built on things like Slavery and Land Grants from The crown.
After that wealth built on land theft. Industry was built up via massive tariffs and Government subsidies.
The saying "there's no such thing as a free lunch" never expires no matter how the crooks try to trick us into thinking otherwise. Everything that's "cheap" comes from more slave labor overseas than most people would ever notice. Try going local on manufacturing and people are conditioned into laughing at us saying that we'll never make it and that the "free" market will see to that.
I don't think that we ever lived in a free market to begin with. At best, we lived in the illusion of a free market. For most people, it was not obvious or at least that's what some say. I think that it was obvious from the start that the market was rigged to economically wreck the working class by seducing as many people as possible into believing that they would be instantly rich by gambling their hard earned dollars in the market. All this resulted in was a backdoor towards enriching the monied elites.
You make an excellent point on central planning. The monied elite had it planned out while Main Street was left poorly prepared and divided amongst themselves.
The only people celebrating the banking industry are the companies stockholders and, believe it or not, the employees themselves ! The employees who think they are going to hold on and get richer are about to get sold out. From what I learned in the basics of finance when I was in grad school, stockholders are supposed to be given higher priority before employees. The employees do all the hard work and yet they get paid less, lose their benefits, and face layoffs while the stockholders don't have to do anything but say "gimme gimme gimme" to the company or threaten to divest the company to bankruptcy. Basically, the company is slitting its own wrist just to prop up their phony "market value".
Even when all this is getting obvious, the monied elite appear to have new tricks rolled up their sleeves ready to try out or reinventing some of the older tricks. I wished Main Street would be prepared and united to call them out.
Wrong. The $140 billion is in BONUSES, not in salaries. I.e., this is in ADDITION TO their normal pay for doing the work they were hired to do.
Try reading the article first before spouting your Rethuglican, oligarchial, pro-fascist/capitalist bullshit.
"When fascism comes to America, it will be wrapped in the flag, carrying a cross."
Sinclair Lewis, "It Cant Happen Here", 1935
Demon 11:46 -- You are correct but the is written article is wrong.
The average Goldman Sachs employee is receiving a $700,000 bonus on the taxpayers back.
The USA has the greatest disparity of wealth in the world ( GINI (sp?) ratings)
except for Zimbawae (sp?)
Yes, even according to the IBRD (World Bank) annual indicators, the USA has the worst disparity of income and wealth among the "developed" countries (by a huge margin) a GINI coefficient of .42 I believe was the latest figure I saw. The "Brazilification" of our economy is almost complete as we are competing with poor countries for the top spot of most un-equal.
I believe it is essential that people be convinced that it is far better that everyone is poor rather than that a few are rich and the great majority are poor. In the latter case, the few wealthy will not only consistently bully the many poor (sometimes to the point of actual slavery, and always to the point of abuse with physical and mental health consequences), but will control the government to serve their interests at the expense of everyone else. So it is far better to be poor when everyone else is poor than to be poor when some are rich, and if most are going to be poor, then one maximizes happiness of the population, i.e. achieves utilitarian goals, by making sure that all will be poor.
"However, even if it is the system which is at fault, isn't it better that only 10% be unsuccessful than thee 90% or so that was the USSR?"
If I am not mistaken, hasn't the the TOP 10% (or more accurately top 1%) received two thirds of all income in this past year, thus making the 10% the successful ones and the bottom 90% the losers? If so, then the statistics you quote for the former Soviet Union were right on par for what the soon to be former U.S.A. is seeing today.
During its last decades, the USSR was fairly saturated by black market interests: unregulated business.
In the middle 80's I used to regularly lose chess games to a Russian who had moved to Paris to live off of his investments in the Soviet Union while he looked for an educated virgin of Caucasian or East-Asian ancestry to marry.
Why Paris? I don't know.
More importantly, the tremendous success and tremendous failures of nonviolent overthrow of the Soviet should interest Americans more than it seems to. Russian nonviolence toppled Russian government but failed against capital interests that plunged the former holdings into abysmal poverty in the years that followed.
There are plenty of differences, but the parallels are disturbing.
"What is the purpose of this article? To discredit the free market..."
Free Market -Definition - "Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy."
In a "TRUE" free market these banks would not have been bailed out. We do NOT have free markets in this country when it comes to large companies. We have been told we have some companies that are "Too big to fail" How can that possibly exist in a true free market system. Wake up and smell the roses Kevin.
True enough in the sense I take you to mean it. The US is nothing like a free market, even by existing definitions.
However, if a good definition of "free market" exists, it is not to be found in Friedman or his acolytes. What model does not retain forcible protection of private property? Given this protection, regulation, and the subsidy of having it paid for by the society, "business not restrained by government interference, regulation, AND subsidy" (have I paraphrased this adequately?) is an oxymoron.
Accordingly, by "free," Friedman and the libertarians I have spoken to at length appear to mean the enforcement of some laws and not others. I imagine some variation on this exists, and I would love to be updated.
Roses smell different at the roots than by the blooms.
Cheers, Tom. I suspect the progressives can learn a lot from the libertarians, but this point requires clarification.
Duplicate
Opps another duplicate
KevinDeElder , since you asked, one report indicates that Goldman Sachs is paying bonuses (in addition to salary) equivalent to $700,000 per employee. I doubt they all get equal shares.
Not to worry Bush/Obama did nothing except reinflate the bubble.
There is a worse crash coming in a year or two, the current ploy was just a way to empty the Treasury and deplete international credit for the USA.
I know this is not constructive commenting but I think everybody should shut up and suck it up.
Your elected officials, both republican and democrat, voted to bail out Wall Street. I am willing to bet a week's wages come next election most incumbents will be reelected.
"Our" elected officials, when the "bailout" was up for vote, in both the House and Senate, received phone calls and faxes from their constituents that were 90% AGAINST the bailout!!! Our elected officials? Hardly. They have been bought and paid for by the very beneficiaries they bailed out using our money to bail them out and then once again buy their vote. See the pattern?
Your basic assumption is that we have a genuine democratic choice. This is clearly not the case. The two-party system is merely a front for an Oligarchy that pre-determines the candidates. In the USA democracy is merely the world's most expensive public relations stunt.
I am pretty close to writing off the Democratic party for the rest of my life. That said, it would be nice if we could coalesce some of these third parties into one third party that could consistently garner at least 5% of the vote in any given election.
Yeah, just coalesce all the third parties into one big (kinda) third party. Great idea! It'll work, see, because they are all "third" parties so they have that in common; "thirdness" can be their platform.
I said some, not all. The ones with overlapping interests would be wise to see strength in numbers. As for your reading skills, is it dyslexia or your fifth grade education?
Beware of NoMoreForCorps. He/she is a closet Obama operative trolling and pulling his reverse psychology tricks.
That comes of too many people shutting up and sucking it up.
Let's cough it up and spit it out.
None of my officials voted to bail out Wall Street, but had I voted for them, I would have felt betrayed. More importantly, I would have been betrayed.
I see no special reason those who voted Democrat or Republican should hang their heads in shame: better they should squawk. They got robbed. Democratic voters in particular got defrauded badly in the 2006 and 2008 elections.
Honestly, over 50 years of watching politicians hoodwink constituencies regularly, I have never seen the like. Usually the poor dogs get a bone and a "good boy." Usually people are better off under the Demned because of the little bone of progressive policy that Dem candidates have to throw their constituencies to retain credibility.
Really, exactly what bone are the Democrats throwing their poor voters?
Democrats ought to be barking up a storm.
The answer to the question:
First: "You'll never get rich digging a ditch." Or teaching or nursing or extinguishing fires - but, of course, nobody enters any of those professions with dreams of being the next Trump.
Most of these fellow Americans aren't - or are hardly - afflicted with Severe Greedism Disorder. They don't even 'work' per se - they perform a service/duty that they enjoy, for which they get paid X amount, and they learn to live comfortably within X amount. The key: money is necessary, but not the sole reason for existence.
They are the vast minority.
2nd: The vast majority of fellow Americans, however, suffer from some level of Severe Greedism Disorder. Half deny it and the other half are proud of it - but all agree that, if they were a VP at Citi, they, too, would happily accept a $50 or $60 million/year 'salary' without a second thought.
Plus, they actually think there's a chance that that might actually f@#king happen - and the last thing they want to do is destroy the only system where there's even an infinitesimal possibility their delusion might become reality.
Solution? Those immune from Severe Greed Disorder need to team w/recovering money-addicts and start holding Greedaholics Anonymous meetings nationwide, 3x/week.
And, once GA meetings are up and running, all fellow Americans working in the 'financial industry' will be required to attend GA meetings for 6 months within the present year.
At least, say, 20 percent will 'see the light' and evolve towards a life of meaning, which just may be enough to steer the rest of us towards the better path...
The obscenely high outrage at the low paid workers getting a comparatively small bonus while weak at best outrage at the CEOs for getting obscenely high pay raises and bailouts despite their crimes is a symptom of unfair class treatments and the dirty business connections amongst all huge corporate customers. I used to always believe that if we all would just switch from banks to credit unions, then the banks would collapse. After I had gotten some help from RichM explaining how big banks prepare to adjust their hideous behavior when they know that they are in trouble, I realized that even all the switching and dumping those stocks would have little effect on those big banks. Their biggest customers are the big corporations that are also our enemies. It is overwhelming when one looks so deep into the total picture but short of government reining in corporate wrong doing from Big Banks, we would have to stop doing ANY business with all of those corporations from being their small to big customers to being their employees and/or stockholders.
"...we would have to stop doing ANY business with all of those corporations from being their small to big customers to being their employees and/or stockholders."
I arrived at the same conclusion. It all starts and ends with consume. And in the midst is our parasitic monetary system (I missed why Credit Unions are not a viable option).
Essential info: "Zeitgeist Addendum", "The Corporation" and "The Empire of the City"
Eat the rich! But first put them on a spit and roast them slowly until brown.
Corporate fascist dog on a stick! It would be a fave at the next world's fair!