Get your Outrage on....according to the Wall Street Journal, pay at U.S. banks and securities companies increased 18% to a record $145 billion.
Src: Mother Jones
At JP Morgan Chase, we have $9.3 billion for just their investment branch alone.
JPMorgan Chase & Co., the second- largest U.S. bank, set aside $9.3 billion for compensation and benefits for investment-bank employees in 2009, enough to pay each worker in that unit $378,600.
Recall the U.K. just put a 50% tax on executive compensation greater than $40,000. If the United States had such balls to do the right thing and enact a similar tax!
Bloomberg is reporting other bonus plans:
Goldman Sachs Group Inc., which announces results on Jan. 21, set aside $16.7 billion, or enough to pay each employee at the entire firm $527,192, for the first nine months of 2009.
According to Mother Jones:
- 4,793 bonuses were $1 million or more in 2008
- 7.7% overall compensation increase from 2007 to 2009 on Wall Street
- 30% increase at JP Morgan Chase, a TARP recipient
Are you asking yourself how such outrageous riches can be had by a group of financial institutions that just caused the great recession, put the entire globe at the brink of Economic Armageddon, and demanded the U.S. taxpayers fork over trillions to save them?
Barry Ritholtz calls it as it is, Record bonuses based on record fraud. Ritholtz points out (and this hasn't gotten much press) but in March 2009 mark-to-market accounting rules were changed, so we have no idea what kind of real losses are on those financial institutions books.
Hence in terms of real profits, we know banks are not lending, we have story after story of derivative games, mortgage modification horror stories and fictional books. We also know they have free money from the Fed (0% effective federal funds rate), and can turn around and lend that free money at a profit, guaranteed. Ritholtz gives this possible conclusion for the bonuses:
Perhaps they realize the true state of their balance sheets, and are making hay while the sun is shining.
Joseph Stiglitz says the financial institutions are morally bankrupt:
How the market has altered the way we think is best illustrated by attitudes toward pay. There used to be a social contract about the reasonable division of the gains that arise from acting together within the economy. Within corporations, the pay of the leader might be 10 or 20 times that of the average worker. But something happened 30 years ago, as the era of Thatcher/Reagan was ushered in. There ceased to be any sense of fairness; it was simply how much the executive could appropriate for himself. It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance. In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high. The bankers knew—or should have known—that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses.
Paul Krugman outright calls bankers clueless.
the important thing looking forward is to stop listening to financiers about financial reform.
But what do they know? The answer, as far as I can tell, is: not much.
I disagree with Krugman on financial executives being clueless. Financial institutions know exactly what they are doing. They simply are very good at feigning stupidity to the public.