Perhaps seized by the spirit of one of her predecessors as Missouri senator, Harry "Give 'em Hell" Truman who later served as president from 1945 to 1952, she unloaded with both barrels on the Senate floor: "These financial institutions on the brink of extinction come to the American taxpayer for hundreds and billions of dollars at the very same time they think they're going to buy a $50 million corporate jet. They're going to pay out $18 billion in bonuses. They paid an average of $2.6 million to every executive at the first 116 banks that got taxpayer money under TARP. They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses. What planet are these people on? What could they be thinking about?”
I'll leave the astronomical inquiry to others, but I know exactly what they were thinking and it's the same thing all the rest of us think every day. We do today, with perhaps a few variations on the margin, exactly what we did yesterday, and the day before that. For so long have the captains and titans of US finance been so lauded and lionized in the popular press, with the extravagances of their pay packets and the lifestyle these silk satchels financed - so eyed and envied - that eventually they must have forgotten that there was an implied assumption that they had to actually do something, provide some social benefit, in order to earn it.
As Washington barked at Wall Street, Wall Street growled back. Former New York City mayor Rudy Guiliani, The Street's favorite conservative-for-hire, and the man who expected to be president but not for the inconvenience that the voters were given a say in the matter, defended fat financial sector bonuses when he observed "Those bonuses, if they are reversed, are going to cause unemployment in New York." This from the man who cut city payrolls by 20,000 jobs and threw out another 340,000 of public assistance roles. "It means less spending in restaurants, less spending in department stores, so everything has an impact," Guiliani said.
In the New York Times, one unnamed investment banker was indignant at the outrageous slings and arrows of offense being launched at his profession: "People come here because they want to work hard and get paid a lot for working hard."
If this gentleman really thinks that investment banking is such hard work, perhaps he should get off the brutal finance treadmill and seek easier employment in one of the many fine and respectable manual labor avocations. The opportunities are endless. As Judge Elihu Smails advised in the 1980s classic Caddyshack, "Well, the world needs ditch diggers, too."
The bonus culture on Wall Street has developed in order to serve the uniquely American belief that all you need to create a just society is for all its citizens to always have ready and widely available opportunities for rapid social advancement through unending, no-holds-barred competition.
The practice of a year-end bonus started innocuously enough. The Christmas goose that Ebenezer Scrooge gave to the Cratchit family after his experience with the Christmas ghosts was one example.
Around the turn of the century, the bonus tradition morphed from fresh fowl to something a lot more fungible - cash. Year-end bonuses of up to 5% of total compensation became common.
But on Wall Street, the present flap over bonuses is over sums a lot greater than just 5% of salary. Over time, for the vast majority of senior investment house personnel, and for a whole lot of middle management workers as well, bonuses and stock options granted as bonuses, became the overwhelming portion of their total pay, sometimes up to or exceeding 80% of total salary.
This pay structure - a small, or non-existent base salary supplanted by commissions - is common in the real estate or used car sales industry. But sophisticated and cosmopolitan Wall Street, its members welcomed with open doors and open arms in every finance ministry and non-governmental organizations in the world, would be aghast to find its masters of the universe savants compared to those such as the struggling, downwardly mobile realtors of David Mamet's Glengarry Glen Ross. These unfortunates, in a sales contest to see who can sell the most number of questionable home lots, were offered incentives of a Cadillac as first prize, a set of steak knives as second prize, and unemployment as a third prize.
But that is exactly the situation on Wall Street. Base salaries are, by the normal standards of mere mortals very high, frequently in the $300,000-$500,000 a year range. Still, it is almost unheard of for a Wall Street banker to actually live on such a pitiful renumerance; you're not going to be able to finance the shiny Piaget on your wrist or the curvy mistress put up in the $12,000-a-month Upper East side love nest on just base salary. These good things in life, now and since the fall of man out of the Garden of Eden, are in scarcer supply than there is demand for. The Wall Street bonus culture, which in and of itself acts to spur the demand that inflates the prices for the aforementioned goodies, continually spurs the brokers appetites and palettes for all of life's tasty goodies. It keeps the bankers' hands always fully outstretched for the brass, or more likely, the platinum ring.
This, of course, only reflects what has become the core contemporary American ethic - that communal sympathies are a fraud, that a ruthless, Darwinian competition is a cradle-to-grave condition of existence that orders and improves the American way of life in everything from which tots get into the best kindergartens to who gets the best ventilator at the best hospice, and at every life event along the way.
If the only measure of a person's social utility on earth is his company's latest quarterly profit report, and how that profit report hopefully translated into higher stock prices, than, perhaps it can be said that, up until recently, Wall Street did "deserve" its bonuses. For over 20 years now, The Street has been the point of the spear in the battle that transformed America from a place where things got made to a place where paper, especially rectangular green paper with pictures of prominent US personages on it, got shuffled.
Last year, it was reported that there were more financial engineers, manipulators of money, employed in America than there were actual physical engineers. No wonder the nation's physical infrastructure is in such deplorable shape. At its height in 2007, almost one-fourth of the total profits of America's S&P 500 companies were earned in the financial sector.
It was in the last twenty years that the financial sector finally came upon a more modern variant of the old alchemists' trick from the Sorcerer's Apprentice - not to make gold from dross, but to make money out of thin air - or "leverage". While average citizens were always carefully warned to "use credit wisely" and to "never borrow more than one can pay back", the financial sector's genius was to do just the opposite. They borrowed and leveraged and then borrowed some more, and until the music stopped with the volcanic eruption of Mount Cramer in the Summer of 2007. Oh, how it was grand.
In case you haven't noticed, things are a bit different now.
In the past 18 months, the entire leveraged edifice has collapsed, is now collapsing, and looks set to collapse ever further. Over one trillion dollars of mortgage-backed and mortgage-related securities have had to be "written down" by the banks-in the final analysis. What that means is that the banks were unable to exchange the funny money of the mortgage debt at anything near what they wanted to value it at.
The argument that the bonuses enhance shareholder value would probably not be very well received with actual financial sector shareholders, not with share prices in the financial sector down 90% or more from their highs - assuming the shares still have a value as something other than e-Bay financial memorabilia.
But has this inconvenient truth spoiled the bonus party? Not really. At $18.4 billion bonuses have only fallen back to 2004 levels, back when the leverage machine was very definitely still firing on all cylinders.
The public relations juggernaut has been working overtime defending the recent bonuses. Just imagine how many underemployed recent English literature MAs you can hire to write press releases for $18 billion. First, it is said that the banks are forced to pay high salaries to keep the top talent. One wonders that, if $18 billion buys you a one trillion dollar loss, you can just imagine the oceans of red ink that would have accrued had the banks gone bargain basement with just $9 billion of bonuses, or maybe no bonuses at all. Along a similar vein is the banks' argument that, without high compensation, they'll lose the talent to other industries.
I can just see it now, as Mr Wall Street Superstar interviews with "other industries".
"Tell me, Mr Wall Street Superstar," asks the hiring officer for Other Industries. "Were there any problems or difficulties with your previous employment that influenced your decision to leave?"
"No, everything was fine - except for the one trillion dollars I lost."
This is all like an ancient custom that has gone on so long that those who respect it have come to forget what once was its underlying rationalization. The tradition of the Wall Street financial, indeed, of all of America's commercial and industrial, elite, living lives so far removed and above those of the common populace has become so ingrained that, at least among those who savored its sweetness, it is expected to continue notwithstanding the fact that its supposed rationale has evaporated.
All those glossy "money-porn" magazine covers, like those showing Wall Street in love and at war, canoodling with some starlet while captaining the Perini Navi sloop along the Sound, or surveying the trading floor with their strong, surgically enhanced jawline, have gone to their head. They actually believe they deserved all that purple prose they paid for, when in actuality they were all just monkeys in a cage, furiously whaling away on the bar that said "leverage" to get another treat.
But, even as things seem the bleakest for the poor, oppressed masses, there is a new ray of hope. A new superhero takes flight to avenge these outrageous calumnies and restore a righteous justice to the people. His name is ... clawback.
An emerging theory of law has it that, if it can be proven that some profit or gain has accrued to a party through some manner of deliberate deception or fraud, the government and/or private victims can seek to seize, to claw back, the ill gotten gains through the courts.
The theory recently got dusted off when some theorized that if any of those who sold and cashed out of the Madoff Ponzi scheme before it collapsed had known of its existence, and maybe even if they had not, they could be held liable and forced to disgorge their profits in an effort to at least try to make the victims whole. (I wrote about the Madoff scandal in my Asia Times Online article Madoff and the folly of blind faith, December 23, 2008.)
Where and when would this concept be more applicable than here and now? For what has the past decade or more been but a deliberate deception and fraud, as Wall Street tried to pull the wool over the world's eyes by claiming that the wealth it was creating was real when, in actuality, it was nothing but the most ephemeral chimera of all time, with the whole rotten, lying edifice now collapsing into nothing with but the most gentle of zephyrs blowing through the edifices of the unfinished condominiums of South Florida?
Not long ago, my credit card company denied me the use of my card when I tried to use it to purchase a fried chicken dinner at a Seattle establishment so renowned for this unique American delicacy that Oprah Winfrey has said that it's her personal favorite.
"No, sir, no!" came the emphatic denials from the Mumbai call center. "We do not racially profile. No, sir, no!"
Wouldn't it be great if, following the revolution that Obama promised but is now deferring in the name of bipartisanship, and after the successful storming of the South Dakota Bastille where the credit card computer mainframes are housed, the people, not the elite, controlled these ultimate centers of power?
We could deny all charges for $12,000 Hugo Boss suits, $5,000 bottles of Perrier-Jouet, $60 million for the odd Gulfstream G550.
From our current ongoing maladies and misfortunes, we know well full who makes those types of purchases. You know, the wrong kind of people.
Julian Delasantellis is a management consultant, private investor and educator in international business in the US state of Washington. He can be reached at juliandelasantellis@yahoo.com.
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