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Risky Business: Astronomic Compensation Still the Norm on Wall Street
What makes Wall Street so attractive to ambitious workers and bright minds?
It's the same thing that also makes it so reckless: big paychecks.
American Roulette, an OtherWords cartoon by Khalil Bendib
Americans get this, which is why Congress has passed a financial reform law to begin to repair the problem. But the official watchdogs responsible for enforcing the law, under assault by Wall Street lobbyists, seem to have shelved the necessary regulations pending "review."
The aggressive loan-makers who made millions churning out junk mortgages contributed to the 2008 financial crash. Those mortgages fed the fee-generating securitization assembly line developed by math whizzes, which fattened more wallets. The high-risk traders at banks and hedge funds took it a step further, gambling on the fate of those original loans to generate even bigger windfalls.
And astronomic compensation remains the norm on Wall Street.
After a record year for Wall Street bonuses in 2010, the nation's six largest banks paid out $144 billion in bonuses and compensation in 2011, the second-highest figure ever for these institutions. Bankers claim that their bonuses fell last year, but they managed to make up the difference with higher base pay. At Morgan Stanley, CEO base pay doubled. At Goldman Sachs, CEO base pay tripled. Since 2008, the six largest banks have paid out $539 billion in total compensation.
Don't be jealous of this compensation. Be outraged.
This figure does include all employees, including tellers, whose salaries average $25,000 according to the Bureau of Labor Statistics. But as the industry has been shedding line employees, rising total compensation has become even more concentrated among managers. "Wall Street has its own 99 percent and 1 percent," observed Mike Mayo, an analyst with the brokerage firm CLSA. "The 1 percent continues to win against the 99 percent."
The bankers' half-trillion-dollar payday comes close to the $879 billion their firms received in taxpayer bailout funds and other federal help after the financial crash. It comes even closer to the estimated $750 billion in mortgage debt Americans owe that exceeds the current value of their homes.
Americans paid — and continue to pay — for this risky business. Beyond the cost of the bailout, unemployment stands at 8.3 percent, real wages have stagnated, and millions have lost their homes through foreclosure.
No wonder Occupy Wall Street, which dramatized the geographic source for the nation's economic troubles, sparked a nationwide movement.
"Compensation systems…too often rewarded the quick deal, the short-term gain — without proper consideration of long-term consequences," the Financial Crisis Inquiry Commission, which Congress mandated, concluded.
Congress addressed the role of these "compensation systems" in key sections of the Dodd-Frank Wall Street Reform Act in 2010. A pivotal section directs the bank regulators in Washington to prohibit any type of compensation that encourages "inappropriate risks."
Unfortunately, the regulators' proposal for achieving this key objective lacks teeth. They suggested that only a sixth of a banker's annual bonus be withheld for three years. That's a small penalty on bonuses that can run into the tens of millions of dollars, especially if the profits the bonus is based on turn out to be illusory. It would be better to withhold the entire bonus for three years.
Washington's banking agencies asked the public to weigh in about this proposal. Thousands of Americans outraged by the role Wall Street pay figured in crashing the economy offered their two cents.
But Wall Street knows a few tricks about influencing Washington. My colleagues and I at Public Citizen documented Wall Street's grip on this issue in a report called "Just Not Us," which showed that opponents of Dodd-Frank spent $242 million, deploying 712 lobbyists, to get the rule to apply to anyone but them. Nearly 400 of these lobbyists had previously worked for Congress or one of the same agencies now finalizing the rules for this law. These Wall Street lobbyists know who makes decisions, whom to call, and what arguments work. And the lobbying seems to be achieving the best results for Wall Street: Nothing.
This vital reform has been waiting for more than 18 months. We need cops on the beat. The sooner, the better.
14 Comments so far
Show AllWithout corporate "personhood" these gangsters would be in jail but to get that we will need more than a new suit in the Whitehouse, we will need a new government.
I am not so sure. They were doing this before corporate personhood. Corporate personhood just makes it easier.
False argument and transparent libertarian logic:
"Business must subvert government and government must subvert the Constitution"
While capitalism, in its present unregulated form, has allowed for the purchase of lawmakers who then grant cover to those intent upon ripping off the nation, it's disingenuous to make this about some natural outcome of government itself. As has been redundantly (and well) argued in this forum, without a force as large as government to stand up to the rapacious interests of big business (think ALEC here), the quest for profit would run even MORE roughshod over lives, lands, and liberties.
Taking the big $ out of government so that government can do what it was designed to do, protect the interests of The People, is what is needed. Instead, you suggest that both are equivalent evils which leaves us without exactly what? Rule by those who think evolution is a myth, or that the slaughter of Arabs constitutes a necessary Holy War?
I hope one of the forum's politically savvy posters will add to my post, to further disabuse you of your quaint notions.
Sytems of government are not inherently 'evil' or corrupt. It is the people who misuse the government who corrupt it. For example, the government is a tool designed to do a specific job, like a hammer to a nail. But, some people find it in their best interests to use that hammer for something it was not designed to do, like hit people with it.
Sounds like the same tired, old right-wing myth about government being the problem, as Sioux noted. And, obviously, a large chunk of Amereicha is buying into that myth, as the swath of right-wing local, state, and federal politicians being elected into office shows. As Sioux points out, if our government actually worked as it was designed to - representing the interests of the citizens - the corporate 1% would be reigned in through proper regulation. But when that same corporate 1% can buy the government as it has been doing for a long time, and the people running the government are the same people who run the corporate 1% - millionaires all - the system is broken. Look at Obama's cabinet picks - every one a Wall Street millionaire who has vested interest in protecting the status quo. Ditto his economic team, ditto every post he has ever filled that has any influence on policy. Coincidence? Of course not. Look at Congress - most millionaires several times over, most with vested interests in Wall Street remaining unregulated, and every one of them feeding at the corporate trough.
Until and unless money and its inherent influence - i.e. bribery - is removed from politics through a Constitutional amendment, the system will remain broken, and will benefit ONLY the 1%. In the meantime, our votes mean quite literally nothing, as they simply perpetuate and sustain the broken system.
The author only goes part way - along the dem/repub model where the Law was passed that can rein in Wall Street but not implemented.
What Bullshit.
And the Author also states the bailout amounts without taking into account the bailouts from the Federal Reserve which swamp the aforementioned bailout amounts. That adds up to lying by omission.
Peddle that bs elsewhere. Not buying it.
This conversation is suffering from presentation of the question being contained simply in 'compensation systems'. These monies, particularly in the globalized financial crisis, are in constant motion, with constant impact in funding things like predatory extractive processes by gargantuan transnationals.
We are being used as taped-mouth human shields by massive land grabbing interests such as the argument for 'food security'. This terminology is an extension of the security state to mask denial of human rights being bulldozed. The proper term is 'food sovereignty' - which is commensurate with international law and treaties on human rights, indigenous rights and accountability by governments and corporations.
Awareness of these dynamics is not the responsibility of "Occupy" but journalists and the NGOs receiving funds from major corporations to make the connections to document for accountability purposes those hedge funds, IMF, WB, banks of nations and all "players" in the financial sector.
We've got a notion of how the petroleum interests, transnational mining and construction extract resources from a given place. These points of origin are inevitably fraught with profound abuses to keep the extraction as cheap as possible and massive inflation of value as these resources change hands through the financing system for transnational export/import.
We sign petitions to support the indigenous peoples in the Amazon, in Tibet, in Africa, the Middle East, Asian nations - throughout the world. This situation is masked by platitudes and rhetoric about 'aid', the western welfare state, how revoltingly 'benign' the western structures are while extracting at every turn eight ways from Sunday.
We face the challenge of bringing the essence of love, which informs our very capacity to engage what needs to be done to strengthen accountability, integrity, solidarity, and sustainability. In order to do this, we must break down false separations between cause and effect.
mtdon:
According to the GAO, 16.1 TRILLION in "secret" loans were made by the Federal Reserve between December, 2007 and July, 2010. You don't have to be an Einstein to figure out why 2010 was their record year for bonuses!
And those amounts were only over a very specific period of time........
Couple that with fact that the Entire Resential Mortgage Market is less than 12 trillion and what we have is an out in the open financial Coup -
And obama says of these people - " I know them - they are my friends - they are savvy businessmen deserving of their salaries and bonuses"
Only the braindead would think the obummer is on Our Side.
As one who is prone to historical comparisons; the ones that works for the sociopath grandees of Wall Street is the nobility of Ancien Regime France or the patricians of the later era Roman Republic. In both of those epochs, the sheer rapaciousness of their respective elites ultimately led to messy and violent social change. Considering how cossetted and isolated the douche bags of Wall Street are, the time for a pitchfork up their collective arses is well past due.
Compensation? This is govt. supported kleptocracy. The banksters have the politicians and judges in their back pockets. They have every incentive to continue raping and pillaging the country. The are too big to fail. Not only has NO ONE been held accountable for the largest financial crimes in history, they were REWARDED for their crime and continue to be rewarded with ZIRP and other crooked policies.
This is dead simple: when the largest crime is rewarded through the power of the state we can call it neo-fascism, or "inverted totalitarianism" (Wolin 2008).
David Mamet, a recent "convert" to conservatism, in his reprehensible, illogical, contradictory, racist, sexist, self-described "tragic view" of why unfettered capitalism is best, his 2011 book, "The Secret Knowledge," says of corporate pigs who received exhorbitant compensation and/or golden parachutes when they drove their corporations and employees into the ground: "But who suggests that the contract of a highly paid pitcher [baseball] be torn up because his team did poorly or that a movie star whose last film flopped return his salary?" He bases this purely on the contract the fat-cat exec signed when he began his tenure. That contract should be honored and not changed because of sentiment. I don't think Occupy and Liberals are making that point. They are saying that NO ONE is worth that money. The pitcher will be punished, also. He likely will not stay with the team, will be shamed into offering to change teams, or will be traded to an idiot who will gamble his OWN money on the has-been. No one will be laid off. Mamet writes that "Greed is not good, greed is bad. but Ambition is neutral and the distinction is no business of the State." He says "The socialistic spirit of the Left indicts ambition and the pursuit of wealth as Greed, and appeals, supposedly on behalf of "the people", to the State for "fairness." "But such fairness can only be non-Constitutional intervention of the State, awarding as it sees fit, reparations, affirmative action or confiscation." Yes, David, you may be technically right. But the poor people don't have access to lawyers who can argue that in court, even though the poor may have more brains than the idiots who gambled others' money, retirements and jobs in what you call "ambition." You later in the book say that baseball prospers only if the game is umpired correctly, or the fans will protest. Well, that much compensation buys a lot of "human growth hormones" for capitalists and the game is NOT fair. A person of high talent, intellect and ambition can be trapped in poverty by a racist idiot [who wants his white monogamous-marriage family to hand down millions to descendants] who got lucky or knows how to "game" the system. Also, David, are you saying that humans should not strive for Lincoln's and JFK's and Ghandhi's ideals of equality for all or at least for FDR's four freedoms (from hunger, to work, for shelter, for medicine). Are you saying that YOU David are BETTER than me, because you've made a lot of money in Hollywood? And that elites with billions--no matter how earned (as long as technically legal: remember Clinton's "not" inhaling)--should decide the fate of me or of my child?