Big Wall Street Bonuses Carry a Hidden Cost for SocietyEnding excessive Wall Street bonuses is an immensely popular idea, but the American people don't get to vote on how much Wall Street pays its people. And while they do get a vote on who represents them in Washington, theirs isn't the only vote -- or even the most important one.

Money is a far more important influencer of what happens in Washington than what happens at the ballot box. It doesn't really matter who is elected in Washington: Virtually all politicians need corporate cash to fund their reelection campaigns, and the biggest single source of that cash is Wall Street. From 1999 to 2008, Wall Street spent more money on politics than any other industry -- $5 billion on campaign contributions and lobbying.

So if Wall Street firms want to pay their people big bonuses, they'll go right ahead and keep doing it. Why do you think nothing made it into the final version of the financial reform law to limit Wall Street pay?

But that doesn't mean Americans will stop wanting their elected officials to take action to rein in Wall Street. Bloomberg reported Monday that 71% of Americans want to ban big bonuses for Wall Street banks that took bailout money, and 17% feel it would be a good idea to slap a 50% tax on bonuses over $400,000. Moreover, 76% of Republicans surveyed favored a government ban on big bonuses at companies that were bailout recipients -- a higher percentage than Democrats or independents.

Wall Street Should Pay to Cut the Deficit It Created

What's most interesting to me about these poll results is how popular the idea is that Wall Street should be a big contributor to reducing the $1.3 trillion federal budget deficit. The logic behind this thinking seems to be that because Wall Street greed was the biggest cause of the financial crisis -- and the deficits that resulted from the stimulus efforts and bailouts that were required to keep the economy from collapsing further -- Wall Street should sacrifice some of its excessive compensation to pay down those deficits.

According to Bloomberg, here are the ways that the polled Americans thought we should reduce the deficit:
  • 70% of Americans want a tax on Wall Street profits;
  • 43% want to freeze education and medical research spending;
  • 33% would cut farm subsidies,
  • 25% favor a new gas tax; and
  • 15% would cut Medicare health insurance for the elderly.
I think the notion of having people vote directly on how the government spends money is an interesting one. Unfortunately, it is not particularly responsible unless every voter wants to become an expert on government finance. And it will never happen.

Wall Street Levies a Tax on America's Human Capital

Meanwhile, it's pretty clear that Wall Street firms don't care enough about what the American public thinks to change their bonus practices, and now that we've bailed them out, they will keep on spending enough of their profits in Washington to keep their good thing going. If Wall Street stopped paying big bonuses, it would lose its best people, and then it would stop making such huge profits. This would make fund-raising harder for Washington politicians, so they're not going to let that money-machine break down.

But it is worth asking whether Wall Street serves any useful purpose beyond making its workers immensely wealthy. According to a recent article in the New Yorker, the short answer is no. The writer points out that the one thing Wall Street does that helps society is raise capital for new businesses through initial public offerings. But it has done very little of that since the dot-com boom in the 1990s, and the rest of Wall Street's activities involve trading for its own profit -- often against its customers' interests.

This criticism is largely valid, but the article misses the biggest burden that Wall Street places on society -- the claim it makes on some of the world's most talented people. The simple reality is that many of the smartest people from the world's top universities are spending their time on Wall Street because there is no quicker way for them to make vast amounts of money.

This means that all that talent is being siphoned away from more socially useful activities, such as curing diseases or inventing new technologies that make life better for people. Even if that popular 50% tax on Wall Street bonuses were levied -- and it never will be -- it wouldn't stop Wall Street from levying its own gigantic tax on the world's human capital.

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Dear Mr Cohen, Your assertion that "it doesn't really matter who is elected in Washington" was soundly disproved by the 2000 election. If you remember, Nader ran on that statement. In the years that followed, we led to war on a lie (which Gore would not have told), the Supreme Court was packed with conservatives who among other things have rolled back campaign finance reform 100 years ("Citizens United") and we had a head of the SEC who was on the public record as opposing the very idea of securities regulation (Cox). It actually makes a very great deal who is elected, and your assertion to the contrary just muddies the waters, as did Ralph Nader.

December 14 2010 at 3:27 PM Report abuse +1 rate up rate down Reply

Sorry - but with all due respect (and in this case, I'm just not sure how much is really due), this article is stuffed so full of nonsense that it really deserves to be torn apart, piece by piece. Doesn't DF have editors that read this junk before its is posted?

I take no issue with the author's thought that Wall Street money buys influence in Washington. But any more influence than the unions, big oil or other lobbies? An article in this vein would have been interesting - I thought that was where this article was headed... but it quickly veered off course....

I just don't understand - who gave this author or anyone else, other than the corporate governance of that person's employer, the right to decide what people get paid? The bailout of Wall Street firms didn't come with a right for anyone else to run them from now into perpetuity.... If that were something that the government wanted, they certainly had every opportunity to include it in the terms of the emergency financing provided to these firms...

Why are we so interested in who "polled Americans" think should subsidize the deficit that the author so neatly and concisely concludes is due to Wall Street greed? How many of those "polled Amercians" are receiving subsidies that are contributing to the defecit?

The Wall Street firms borrowerd money and paid it back with billions and billions of dollars in interest that our government would not otherwise now have to fund its pork barrel programs. The collapse of our economic system and the ensuing bail-outs really gave the Obama government just the chance it was looking for to accelerate the re-distribution of wealth in the USA and solidify its electoral base. But maybe, based on the President's own popularity numbers, enough Americans are realizing that it takes more to govern than just inspiring speeches and divisive policies.

And finally, where does the author come off saying, with such authority, that Wall Street is taking talent away from other, more useful activities? How do you think those activities get funded? Who else will invest millions and billions in biotech ventures that have very little likelihood of success - but just might provide the cure for the most devastating diseases that trouble us? Bankers have been overpaid forever because what they do is inherently risky - if you're not sure, just take a look at the mortgage market.

You want to re-distribute human resources (I won't say talent) - how about having the incredible overabundance of "journalists" re-assigned to something worthwhile...

December 14 2010 at 11:52 AM Report abuse +1 rate up rate down Reply
2 replies to Consiglieri's comment

If Sohan had a emaining functioning brain cell (hich he obviously does not), he'd quit writing this blather and just go open an investment banking botique. After all, this is a pretty easy business where one doesn't really have to do anything of any use. And you get to earn these outsized compensation packages to boot. And since the myriad of added regulation heaped upon public companies in recent years certainly can't have anything to do with the current dearth of IPO's, Cohan's new firm can simply hire displaced auto workers at $40/hour to start doing what Wall Street was really intended to do. Well, at least it would be great theater.

December 15 2010 at 8:15 AM Report abuse rate up rate down Reply

ADEP5 beyond a shadow of a doubt you must work on Wall Street. I do disagree with the article's statement that the best and brightest go to Wall Street. Do we as a society want the money grubbing pariah that ends up on Wall Street designing our drugs, roads, cars or the technology that makes our country and the world run. I personally don't . We'd have sub par product because they would sell out morals and ethics for a buck
At one time stock and investment product salesmen were needed but in the era of instant information via computers they are no longer required and draw off money that could be used for the betterment of society. Remember every dollar paid to these parasites was earned by some poor stiff's life-blood.

December 22 2010 at 9:31 PM Report abuse rate up rate down Reply
Le Fay

Just Tax the living hell out of the big bonues in excess of $500.000.00. Anybody disagreeing, prosecute them for income tax evasion along with their CEO allowing Bubba to have some new toys to play with, but in no event putting them in one of the Fed's Country Club lockups.
Maybe, just maybe, they'll get the message. As part of the revenue from same, earmark it exclusively for "deficit reduction" so our elected spendthrift's do not get any iseas of spending that too!

December 14 2010 at 11:36 AM Report abuse +2 rate up rate down Reply

Mr. Cohan: I thought it was an excellent article.

December 14 2010 at 10:50 AM Report abuse rate up rate down Reply

They had a special on this at Here we go, another attack on the rich.

December 14 2010 at 9:55 AM Report abuse +1 rate up rate down Reply