Why Wall Street pay will hit a record in 2009
Filed under: Columns
2009 is turning out to be a great year for Wall Street pay. With unemployment at 9.5 percent and 6.5 million people out of work since 2007 wrapped up, you might be wondering how Wall Street could pull that off. The answer is simple: nobody makes the kind of campaign contributions that Wall Street does -- between 1998 and 2008, Wall Street made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists.
So the taxes from American consumers coupled with trillions of new debt are being funneled into enriching the people who brought the financial world to its knees. How so? Government is rewarding Wall Street -- with $12.9 trillion in taxpayer funds, the Public Private Investment Partnership (PPIP), a $1 trillion no-lose deal for big asset managers and hedge funds to buy financial toxic waste, and new rules that will make it possible for private equity firms to own banks -- the very capital sources on which they depend for their highly leveraged deals.
How big will Wall Street bonuses be this year? Goldman Sachs Group (GS), which paid back its $10 billion in TARP money, is setting aside $20 billion for compensation this year -- $700,000 per employee, which is 6 percent more than it paid in its record 2007 compensation year. Morgan Stanley (MS) will give out between $11 billion and $14 billion in compensation -- close to the $340,000 per employee in record compensation that it paid in 2007.
How can these banks justify these huge compensation increases? Perhaps fear of comp cop, Kenneth Feinberg, is giving Wall Street a huge incentive to pay out as much as possible before he institutes pay limits. Morgan Stanley's pay is a much bigger than average 68 percent of revenues.
The record compensation is not related to superior financial performance. After all, financial results at these firms are way down from where they were in the first quarter of 2007. Goldman made $1.8 billion in the first quarter of 2009, 44 percent less than the $3.2 billion it earned in the first quarter of 2007. And Morgan Stanley lost $177 million in the first quarter of 2009 -- while making $2.7 billion in the first quarter of 2007. Morgan Stanley also repaid $10 billion and is expected to post a 32 cents a share loss in the second quarter.
In addition to all this, the FDIC is loosening rules to permit private equity firms to own their lenders. With 45 banks having failed so far this year, the FDIC needs all the help it can get. Private equity firms like Carlyle Group have plenty of capital and the FDIC would like to use it to help bail out banks -- as it did with BankUnited Financial Corporation in Florida.
But the new rules require private equity firms to hold their investment for as long as two years, increase their capital if they buy banks, and limit their ownership to 24.9 percent unless they want to become bank holding companies. Private equity firms can get around this last restriction by teaming up -- in club deals.
Wall Street rules Washington. And even though the comp cop is scaring Wall Street on pay, he can't stop it from paying itself record bonuses despite far weaker financial performance.
As our children and grandchildren assume the burdens of all the debt America has taken on to bail out Wall Street for its errors, it is worth asking whether we have a true Democracy or merely the best government that Wall Street can buy.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 3)
7-02-2009 @ 10:38AM
FOXYROSE said...
WE HAVE THE BEST GOVERNMENT MONEY CAN BUY!
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7-02-2009 @ 11:48AM
bailoutsos said...
Where is the line to buy my own bank? Can I get TARP money to buy it?
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7-02-2009 @ 6:04PM
lou said...
Sure you can buy a financial, and then you can get a big, fat tax break for doing so. This ought to seal the deal for your desire to buy a such a thing. Remember the November 10, 2008 tax breaks that GWB sneaked in at the last minute? Well that can be yours also. The more you buy, the more you save. Aint it great ? !!
7-02-2009 @ 11:47AM
Guy King said...
Impeach Obama and the whole administration. Never has so much been taken from so many with such small objection. They're making crime pay, on our backs.
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7-02-2009 @ 8:57PM
sam said...
IMPEACHMENT NOW! THIS MEDIA ELECT-PRESIDENT IS KILLING THIS COUNTRY.
7-05-2009 @ 10:21AM
Bill in NY said...
DUH - TARP money was approved and driven last year during Bush's failed presidency. PLEASE, we need intelligent thinking, not BS lies like this....Do you get the concept of "fact checking"?
7-03-2009 @ 8:31AM
alben said...
Impeaching Obama for this evil is sort of silly in light of the fact that if anyone is responsible it would be a number of people who came before him and created this mess--GWB, Phil Gramm, and others. It is innane to blame this on someone who just arrived came on board. If you are not without some intellegence, this whole mess has been coming since the election of Reagan in 1980. Any fool knows that.
7-02-2009 @ 12:10PM
Allen said...
Wall Street will not recover until the U.S. gets its mojo a/k/a confidence back. How can we get our confidence back while we are dependent on foreign oil? We cannot. Job one is to become energy independent.
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7-02-2009 @ 12:21PM
dajt57 said...
we have to ask ourselves one thing. is there anything more we can deregulate so we can give them more free money? the market for the last 20 years has been only for fools.
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7-02-2009 @ 1:06PM
JJ said...
WOW I lost 47% of my 401K and then they sent my job (of 10 years) was sent to India. We need change. NOT OBAMA CHANGE but real change. Get the crooks out of Washington. Here in California they are handling out IOU's I wonder if Ralphs will let me buy food with an IOU or the electric company allow me to keep my lights on? I would have Never thought in a million years my beloved country would come to this..
I'm mad as hell and want my country back!!!!!!
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7-02-2009 @ 8:12PM
PHIL said...
to late now they bought it
7-03-2009 @ 2:09AM
t scott said...
glad i am 40 and smoke,wife if 62 spent my 401 k on tomb stone for the both of us.the way they spend in washinton is observe.i spent before the downfall,i am lucky,so many lost so much,and pres.o wants more!cant wait till they tax us on every breath we take,it makes me laugh what can they do put me in jail and feed and cloth me.everyday when i go to work instead of time to make dough nuts have to go to work to feed the people that are better than me and dont have to work(it is an every morning richuall)
7-02-2009 @ 12:46PM
brocknv said...
Sure get yours before its gone that seems to be the way. Why be based on performance like the real capitialistic has to be to work, we are getting further away from it with every move, bailout and depenendency program implemented today. You know the tax revanue will be less next year so we need to balance the budgets , make the hard cuts now. But who wants to be that unpopular. We need tough leaders and there does not seem to be any.
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7-02-2009 @ 1:04PM
Grant Davis said...
And now the greedy crooks on wall street are going to make even more money this year. When will it all end? I think it is time that us hard working American who follow the rules need change. Thomas Paine wrote a book called Common Sense. I think we all need to read it. Glen Beck wrote a book about Common Sense which is included with Thomas Paine's Common Sense. Read It! It is in bookstores now.
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7-02-2009 @ 1:55PM
camille said...
You want this to change? Quit PATRONIZING the companies that are participating in this bull...t. Do you bank at any of the institutions that received money? Move it to an institution that did not need money. Do you use a credit card from a company that needed bailout money? Move it .... you know the drill. This is a free country. Quit depending on our crooked government to solve your problems.
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7-02-2009 @ 1:18PM
mick said...
Nothing will change unless we all act to get rid if the Fedral reserve Banking system. These bunch of criminals will keep destroying America and your wealth untill you all you all have nothing left. Everyone will then be under the complete control of these banksters. There "aggenda" is to create a nation of debt slaves that is totally subordanet to them. They can then do with you whatever they want. Its time to wake up or things will only get worse.
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7-02-2009 @ 1:28PM
Tech said...
We have to get rid of the private FED oil banksters that control EVERYTHING! Rockefellers must go! Turning over control of all our money to the robber barons was the kiss of death for America back in 1913. To have a few old geezers controlling everything who are just oil bankers who don't give a damn about human beings is sheer stupidity! The FED/IRSscam has been the greatest criminal scheme in world history and totally against what we were supposed to be about. They are the elite trillionaires that print money and are now globalists selling busting us down into their New World Order BS. Executives just pass out stock options and fleece regular investors monthly-why do allow this baloney? How about we just stop all the trucks bringing food to NYC and DC and starve them out? I mean they're just leeches and criminals so let's dump them.
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7-02-2009 @ 1:51PM
angrysavor said...
Wen are Americans going to become less passive and start seriously expressing our displeasure. Wall street is raping the country and our elected government and unelected federal reserve system are allowing this folly to continue daily. This money is totally comming of the back of the taxpayers. Real in the hedge funds, private equity and wall street day traderes and lets take all of this excess profit and start creating real jobs. We need to take our country back before we become a permanent memember of the banana republics.
Tweeter yourself to the streets. Get active y generation before your standard of living and job prospects are totally destroyed.
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7-02-2009 @ 1:58PM
skids said...
lets see, there are alot of people out of work in the financial service industry, which means there is a huge pool of potential employees. when this happens in any other business the wages one might earn go DOWN, not UP. these coddled millionaires, who are solely responsible for fleecing america (and the rest of the world it turns out) now want to keep thier "valued employees" by paying them billions in "bonuses". there is something very wrong with this picture.
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7-02-2009 @ 1:58PM
DaveT said...
So this basically illustrates that Obama and company voted for the bailouts DESPITE the people saying NO to the bailouts. They did so because they are getting something in return for it. Great Government we have - don't listen to the people and do whatever you want as long as you or your party benefit. No wonder he is going Socialist and Facist. And Wall Street wins again even though they created the problem in the first place - turned out to be very beneficial for them.
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