When a War on the Banks Turns into Bigger Bonuses

Right or wrong, there's no denying the fact that many Americans think that people who work on Wall Street are paid too much.  While this view was certainly present before the bailouts, it has bubbled up to the forefront of popular opinion since then.  Those of the view that bonuses should be capped or restricted argue that even banks who have paid back the government benefited from the government's actions.  This is certainly true, but a lot of companies outside of the financial sector also took government assistance or regularly benefit from government programs.  In these cases, there is little outrage towards pay.  Professional athletes make salaries on par or greater than the top bankers, and they play in stadiums that are largely financed by higher sales taxes or through the issuance of tax-free municipal bonds.  And just last week, NBC paid Conan O'Brien over $30 million to walk away and take the Summer off, even though NBC's parent company took advantage of the government's TLGP (Temporary Liquidity Guarantee Program) and issued over $60 billion in government guaranteed commercial paper.

As we all learned during the Financial crisis, however, it is important to remember the law of unintended consequences.  Actions or words that look good at face value could end up with results that run counter to your original intent.  While Wall Street bonuses have been labeled "obscene," all the rhetoric against the banks actually has the potential to benefit some bankers, making their potential paydays even more "obscene."  For example, a Bloomberg story this morning reported that the stock-based portion of bonuses for employees at Goldman Sachs (GS) was priced on Friday when the stock closed at a six-month low and had its worst two-day decline since the March lows.  As a result of the decline in Goldman's stock, though, an employee getting a bonus of $1 million in stock received 6,488 shares, which was 436 more shares than they would have received one week earlier.

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Comments

[inthewoods]

A rather standard argument from you guys - but fails, in my opinion, when one considers that these institutions almost crashed the system. Conan didn't start the mess over at NBC - he's just been displaced.

There has long been outrage for CEOs making ridiculous money while taking down companies (hello, Home Depot?), much of it actually from those on Wall Street.

Now that the Wall Street crowd managed on almost blowing up the world (might still happen), they suddenly forget this and argue that they should get their bonuses. Where to begin with this sort of thinking. Imagine what a Wall Street analyst would say about paying out huge bonuses to a particular division of a company while the rest of the company went up in flame. They would call for their heads.

As far as GS employees getting their bonus in stock, I have less of an issue with that because it somewhat aligns them away from short term thinking (still has flaws).

What people are outraged about (at least the smart ones) is that GS was paid 100% on their AIG counterparty risk - and have made huge profits as a result of that direct cash in the door, and as a result of being given free money at various Fed windows to make a huge amount of dough. All backstopped by the US taxpayer. GS would be a pile of rumble without the US taxpayer, and yet they cry about even the possibility of their bonus being taken away and claim they'll walk away. Let them - there are plenty of people that would take their place.

There is naturally equal outrage at the US government which has enabled all of this. Timmy should be shown the door....

[Rational Market]

So, does this mean Obama is still tougher on terrorists than bankers as you highlighted this past Friday? Or, is that thesis no longer operative due to these positive unintended consequences? Maybe Obama is still weak on both terrorists and bankers? And, maybe that is the reason the reason the market rallied today?

[Rational Market]

Whoops - I got bankers and terrorists mixed up. Of course, Obama is tougher on bankers. But, maybe these positive unintended consquences make him weak on both terrorists and bankers again?

[Sia]

I am fine with obscene payments to bankers, as long as they are in stock and they go into effect >= 1 year. Lets face it, this industry has gone into crazy boom and bust mode. Get your money now before your company blows up.