Playing By Wall Street Rules
Jan 31st, 2009 | 7 responses
Most Americans are outraged by the size of Wall Street bonuses, and the fact that they have been paid even when company performances have been sub-ghastly, and while some firms are still only in business because of government bailouts. Wall Streeters nonetheless continue to defend these bonuses with a variety of rationales.
Who’s right in this debate?
Well, it really doesn’t matter, does it. And the reason comes down to The Street’s own prime axiom: The man with the gold makes the rules.
Merrill Lynch wanted to pay its own employees huge bonuses (deserved or undeserved) in the past, fine. That was Merrill’s choice. It was Merrill’s money. It had the gold and it made the rules. But when it’s Uncle’s Sam’s money, my money and yours that is doling out the compensation, Uncle Sam makes the rules.
You don’t like the new rules? Fine. It’s a free country. Quit and find another job. Or stay and get compensation, which on Wall Street averages three or four times the average pay of a typical working American.
Wall Streeters are supposedly tough. So bite it down. Just like the rest of us.
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7 Responses to “Playing By Wall Street Rules”
I also think there is some dishonesty about these bonuses. These would include the bonus the secretary gets, the bond guy who make under 150 thou a year and who plans for that money. It's been promised as part of the salary to attract employees who have budgeted that money. It's not all multi-million dollar bonuses to CEO's and we should stop acting like it is.
Shocked, disappointed, disgusted. See e.g., Claire McCaskill and President Obama. Those are the responses to news of exhorbitant bonuses and astronomical compensation packages, for CEO’s, executives, and others in anti-government, anti-tax, anti-regulation corporations that are gorging mind-numbing amounts of taxpayer funds from the bailout trough. Wronged, self-exculpatory, defensive. See e.g., John Thain and Rudi Giuliani. Those are the responses to the criticisms of the McCaskills and Obamas.
And yet, in retrospect, none of this is surprising. The principle fiction underlying the obscene compensation of those “masters of the universe” is that the market determines their compensation based purely and irreducibly on their value. This fiction becomes, has become, deeply rooted and self-fulfilling (for a time). In their minds, the cause-effect relationship between compensation and value has conveniently shed every other factor: externalities, structural effects, market inefficiencies, personal biases, etc., etc. Stripped of these considerations the compensation logic is circular.
Why is their compensation so high? Because of their value! How do we know they are so valuable? Because they require such high compensation! Such simple positive feedback systems eventually consume all available resources destroying themselves in the process. But From their vantage, and applying this impeccable logic, it appears to the masters, for the time being, that the excesses are those of the mere rabble. How dare they question the value of their economic aristocracy?! The unfortunate history of the world has repeatedly demonstrated that when aristrocracy becomes insensitive to the rabble in this way, their breakthrough understanding is usually delivered through pitchforks, either real or metaphorical. My advice? Invest in pitchforks.
EEllis-
Maybe it’s just me, but I even have a hard time feeling genuinely sympathetic for “the bond guy who make(s) under 150 thou a year and who plans for that money.” As the economy has continued to erode and many have lost their jobs, teachers, construction workers, retail clerks, engineers, waitresses, mechanics, all of whom presumably had plans for the money THEY would have earned in their lost jobs, 145 thou a year bond guy, working for what can only charitably be characterized as a failed enterprise, and slurping the bailout swill that the “masters of the universe” wrested from taxpayers and poured into his trough, still feels unseemly to me.
“Why is their compensation so high? Because of their value! How do we know they are so valuable? Because they require such high compensation! “
Nope, there value is so high because there are limited number of people who can or want to do their jobs. Smae reason football players, actors, singers, artist, make big bucks on the top end.
futz
” I even have a hard time feeling genuinely sympathetic for “
So when your boss cuts your wages you will tell him how grateful you are right? I have a friend in contracts with a firm, makes 45 thou and does a great job and deserves his bonus, which was trotted out to get him to agree to his salary. A year ago he was a temp. And there are the 35 thou a year secretaries, would you feel for them? My point being again It's not all multi-million dollar bonuses to CEO's and we should stop acting like it is.
Well first of all McCaskill's proposal was only about the top CEOs, and second it was to cap it at $400k. I doubt that those people you're talking about would be affected. Everyone is talking about multi-million dollar bonuses actually.
In the long term scheme of things it's not that important though, you're right that overall compensation is the issues, and it's way too high. Part of this is just my bias showing but a lot of it is just in the data.
For an industry that provides marginal utility there is no way they deserve that much.
This post wasn't about McCaskill's proposal it was just about the bonuses. I'm just saying people are not being honest about the situation when describing them. Most of that money is not going to CEO's