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Wall Street Loves Money

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It's a bad time for the country, but struggling Americans can take some comfort in knowing that Wall Street is finally having fun again. According to the Wall Street Journal, "major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture." It's a nice increase over 2007's measly $130 billion. You just can't attract and retain the best talent with $130 billion bonuses. Those people will become schoolteachers or nurses or something.

Sigh. I'm leaving this to Kevin Drum:

I sort of feel like I've run out of things to say about this. There's an insanity here that's almost beyond analysis. Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair's breadth — said hair being an 11th hour emergency infusion of trillions of taxpayer dollars — and then turn around and use those trillions to return to bubble levels of profitability within 12 months. And they can do it even though the rest of the economy is still suffering through the worst recession since World War II. It's mind boggling.

Is there any silver lining here? Probably not, but I'll try: If Wall Street can shrug off the worst recession of our lifetimes as if it's a minor fender bender and get the party rolling all over again in less than 12 months, it means the next bubble is already in the works and its collapse will be every bit as bad as this one. That in turn means it will almost certainly happen while today's politicians are still in office. So maybe news like this will finally spur lawmakers to realize once and for all that the financial industry needs to be cut down to size. Half measures won't do it. Self-regulation won't do it. Compensation limits won't do it. Byzantine, watered-down rules won't do it. Something like a Morgenthau Plan for Wall Street is the only thing that has even half a chance of working.

In the immediate aftermath of the crisis, you heard a lot about how further regulation was unnecessary because Wall Street was severely chastened. We could not do worse to them than they were going to do to themselves, and we shouldn't try. That sure turned out well, at least so far as their compensation goes.

What's weird, too, is that this seems like bad money management. A couple of major firms could have shifted more of their compensation into salaries and away from bonuses and then promised to donate the bonus money to charity so long as America remained in recession. It would have been great press, and done wonders to limit the chances that Congress passes any serious compensation reform. Don't these guys know anything about investing?

Photo credit: Richard Drew/AP.

By Ezra Klein  |  October 14, 2009; 3:35 PM ET
Categories:  Financial Crisis , Financial Regulation , Solutions  
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Next: Reasons for Hope on Cap-and-Trade?

Comments

You seem to be under the impression that the banksters require something less severe than "pour encourager les autres". I am not so sure.

Posted by: pseudonymousinnc | October 14, 2009 3:42 PM | Report abuse

Did I say a bad word?

Posted by: luko | October 14, 2009 3:50 PM | Report abuse

What do you expect? Obama hired Timmy the tax cheat who hired all his buudies that were responsible for the meltdown. Talk about falling up.

Posted by: obrier2 | October 14, 2009 3:52 PM | Report abuse

Low interest rates have made the banking business model insanely profitable. What is the solution to this? Raise interest rates? Keep the money on the corporate balance sheet and pay special dividends to their shareholders? Or keep historical pay ratios constant and pay the money to their employees? These are public companies and the CEO can't just decide to give away billions of dollars of shareholder money to charity, and if they did it would be correctly seen as a shameless PR play.

Posted by: Quant | October 14, 2009 4:07 PM | Report abuse

President Obama is to blame here. He can talk all he wants, but fact of the matter is 'on his watch' Wall Street showered tons and tons of money as bonus, immediately after the collapse which Wall Street had caused and this President has FAILED to stop it. Look for some more 'jaw boning', may be one more speech by the Big Act and that will be the end of it. Big Boys on Wall Street are free to continue their show.

I do not see any intentions of White House what so ever to change this situation.

If Democrats are to lose the next election; this should be the single issue on which GOP should defeat Dems. But they are equally complicit in that. Hence, that is unlikely to happen

So what do we get - bribe of $250/ per Senior by this Administration (AP reports...).

Posted by: umesh409 | October 14, 2009 4:31 PM | Report abuse

The simplest thing is to raise tax rates on high income people. Take some of the fun out of it. I'd say new brackets of +3% above $500,000, another 3% above $1 mil and another 5% above $10 mil (total 46%).

And ditch the preferential rate (15%) for dividends. When I started paying income tax in 1966 there was a $600 exclusion for dividends from US corproations. Partially adjusted for inflationm, that could be $3000 today, making it a middle-class tax cut, at least upper-middle class. Let the rich pay ordinary income rates on their dividends.

And a transaction tax of .05% on stock. ond etc purshases and sales. Making it all less profitable mioght not make much behavioral cvhange, but at least it would help pay for regulation and health care.

These Wall Street types are psychopathic predators who have no regard for keeping the system going let alone any regard for others--just for their sorry selves. The scum of the earth, really.

Posted by: Mimikatz | October 14, 2009 4:36 PM | Report abuse

Quant,

maybe the FED should get out of the "setting interest rates" business so we don't have another crash.


Posted by: visionbrkr | October 14, 2009 5:17 PM | Report abuse

Looking at the current stock and fund prices and their recent rise I have been wondering about exactly the same thing: how is this possible that in this situation where economy is so contracted, many real production and export markets have shrunk considerably, credit risks and unemployment are still so high, stock prices for many enterprises have already returned to the pre-bubbleburst levels? Dow is back to 10000? How? Even accounting for a weaker currency the prices do not justify the current outlook. Technology and finance companies seem to be the most overrated (again?). It seems to signify that one thing: another bust, maybe smaller in size, but still a bust, will be here soon. And how can there be no way to tackle the bonuses problem is beyond my comprehension. If nothing else works, there is always the possibility of a 90% income tax targeted specifically to the receivers of bonuses!
It is so sad to see how a government of such a powerful country as USA is so tied by the financial interests of some corporations that no restraint can be put in place even when there is a severe need for one.

Posted by: maijathornberg | October 14, 2009 6:40 PM | Report abuse

American style capitalism sucks. My firm laid people off in the middle of the recession so they would have money to pay the partners' bonuses. If I'd known how this game was played when I was younger I would have moved abroad, but in truth you can't even get away from it anymore. It's like swine flu.

Posted by: bmull | October 15, 2009 5:48 AM | Report abuse

Mimikatz has the right idea without going nearly far enough. The tax rate on that 10 millionth dollar ought to be 99%. There ought to be no incentives for any company to pay any of its employees more than about $3M/yr.

And yeah, a transaction tax would be a great thing too, for other reasons. The financial system could do with a little more internal friction.

Posted by: wankme | October 15, 2009 1:53 PM | Report abuse

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