It’s Not Just Bonus Abuse, It’s The Whole Economy
There comes a time when the Obama Administration has to show it’s really serious about changing the way Wall Street operates. That time has arrived. And the key decision in this regard involves a new wave of bonuses that banks are planning to give their best “producers” — on top of the $1 million-plus bonuses that more than 5,000 of these Wall Streeters got last year during the great market meltdown.
A federal official has the right to challenge this new round of bonuses because the government gave companies awarding them bailout money. On the surface the issue here seems to hinge on A) do such contracts have to be honored even if their pay out is big when producer production isn’t, and B) in political terms, will it tick off the public too much if firms that got public money for bail outs can still get away with laying big bucks to their own while the rest of us are doing so poorly.
Neither A nor B is the real issue with these bonuses, however. Contractual obligations and public relations here are irrelevant. The real issue is how Wall Street operates in the future.
Bonuses paid in the past weren’t a symptom of a flawed market. They were the primary cause of a flawed market. Paying deal makers, paying traders, big bucks for the shakier, riskier, short-term, bubble-generating profits that generate huge bonuses is exactly what the Obama Administration said it was going to change just a few months ago. We were told this Administration would give Wall Street a longer term orientation rather than the pig-out-now orientation that very nearly dragged us into economic oblivion.
We know for a fact that giving Wall Streeters the incentive to think short in order to earn big and they will. And the economy, after a time, will suffer an horrendous jolt in consequence. Unless the big bonus culture of paying big for short-term performance is stopped in its tracks, unless the interests of the many aren’t protected against the greed of the few, the next plunge will be too deep to even contemplate.
Call me a pessimist. But when this particular blast of smoke and mirrors clears, amid official cheers for the sanctity of contracts, we’re going to get screwed again. Very, very badly.
2 Responses to “It’s Not Just Bonus Abuse, It’s The Whole Economy”
The best solution is to enact a new marginal income tax rate. As the Bush tax cuts expire, the top rate will go up from 36 to 39 percent for most incomes over $250K. I suggest adding a higher marginal income tax rate applying to annual incomes over $1 mill of 49%. Limiting pay of any private organization is a constitutionally dicey issue and if we consider such incomes excessive, then higher taxes are in order – but not too much. Fortunately most of those high earners live in Democratically-controlled areas along the East and West Coasts and a few gated communities in between. For those who perpetuate the myth that no one wants higher taxes on the wealthy because they believe they may someday be wealthy too, that is just a cover-up by some well-paid Media spokepersons to preserve their own high incomes. Most people do not exceed the standards of living of their parents unless through higher education or luck they do better. Many people today are actually falling below their parents' standards of living. I find it amazing that there is such stupid viceral fear of raising taxes when we really have to pay for the government we want and need. We can't blame our public figures from failing to tell the truth when the U.S. population is generally to stupid, short-sighted, and greedy to admit the obvious. I always enjoy your posts – from another blogger in Phoenix – MP
Why not bring back tax averaging. These bonuses would then have to be spread out over, say five years. And if the derivatives don't perform, the bonus disappears…