A public outcry prompts Barack Obama to take a harder stance on the banks' payments of bonuses.
First shock, then loathing towards Wall Street largesse
NEW YORK // "Ten million dollars? That could do a lot," said Damian, 29, in disbelief as he finished his cigarette at Columbus Circle on Manhattan's Upper West Side. Like most Americans, the father-of-two was shocked to learn that Wall Street firms had set aside tens of billions of dollars to pay bonuses for 2009, with some top executives slated to earn eight figures.
"People are out here struggling right now. They don't have a job, they need money, and you're getting a $10 million bonus? You're good already," he said, before heading back to work at the Whole Foods market where basic salaries start at US$9.89 (Dh36.3) an hour. "The people have nothing to build on, you have money to leave to your kids and you still want more? That's being greedy and I don't like it."
Damian's anger is emblematic of the populist outrage over the size of year-end bonuses at leading Wall Street banks that many Americans not only hold responsible for the financial crisis but also believe their tax dollars rescued. Although 2009 bonuses may not top the record numbers of 2007 as had been expected, figures released throughout the week showed heavy increases in compensation from 2008. On Monday, JP Morgan announced it had set aside $9.3bn in compensation for its investment bank. Two days later, Morgan Stanley released its figures, $14.4bn in salary and bonuses - a 30 per cent increase from a year before.
Most attention, however, was focused on the extremely profitable Goldman Sachs, which has borne the brunt of populist anger following a couple of public relations disasters - one where the company's president, Lloyd Blankfein, said his bankers were "doing God's work" - and a starring role in Michael Moore's film Capitalism: A Love Story. Goldman's figures showed a stellar fourth quarter, but the amount allotted to compensate employees, $16.2bn, was less than expected, perhaps in response to the anticipated public disapproval.
"We are not blind to the economic environment and the pain and suffering still going on around the world," the bank's chief financial officer, David Viniar, told reporters on Thursday. Despite the shaved compensation pool, the average Goldman Sachs salary, including bonus, remained very high, falling just a shade under half a million dollars. According to a Wall Street Journal study, the top 38 financial firms are expected to dish out almost $150bn in pay, even as the country faces 10 per cent unemployment, continuing foreclosures and a skyrocketing federal deficit.
One of the reasons the American public is outraged over this year's Wall Street salaries stems from the fact that Wall Street giants were handed hundreds of billions from the federal government. The Troubled Asset Relief Program (Tarp) of 2008 injected $700bn of public funds in to the collapsing financial sector, including $10bn each to Goldman Sachs and Morgan Stanley, and $25bn to JP Morgan. Billions more were paid to banks through the government rescue of troubled insurance giant AIG.
The US president, Barack Obama, has tried to harness the anger at Wall Street. "The American people - struggling in their own right - were placed in a deeply unfair and unsatisfying position," Mr Obama said of the 2008 bank rescue during a weekly address last Saturday. "We want the taxpayers' money back, and we're going to collect every dime." Leading banks, however, such as Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America have been quick to counter that they have paid back the Tarp money, with interest. Some firms and shareholders even claimed - notably the billionaire investor Warren Buffett - that Tarp funds were forced on banks such as Goldman Sachs.
Moreover, defenders of the banks' compensation system defend the payouts by noting that bonuses are not only tradition but contractual and meritocratic within firms, that they reward long hours and substantial risk. At the historic Waldorf Astoria's aptly named Bull and Bear Bar, many voiced their support for the banks' largesse. A smartly dressed commodities trader, Javier del Castillo, said the bonuses were only natural.
"They're entitled to have the money in my personal opinion," he said. "It's like having a Ferrari in the garage but you don't have the keys." Clayton and Drew, both young, successful and "in real estate", also defended the bonuses. "It's a capitalist economy," said Clayton matter-of-factly. "If their contract said they're getting the bonuses, I mean, you shouldn't take anything away from them for earning that," Drew said. "It's a shame a lot of people are unemployed but those people are hired to do that and they're doing their job. They should be rewarded for that. "You gotta pay for talent," he added.
On the street and away from $18 cocktails, many people seemed to view the situation differently. "Is the talent gonna leave? Where's the talent gonna go?" asked Shannon, 43, a graphic designer who has been unemployed for more than a year. "There's no jobs, there's no where to go. I mean, get over yourself." "It's just unfair," she said as she wove through tourist traffic beneath the Nasdaq MarketSite in Times Square. "They got bailed out, they shouldn't be getting bonuses. Everybody's hurting."
In response to the public furore, Mr Obama has begun to take a harder stance. Last week, he proposed a levy on banks with more than $50bn in assets, which would reportedly bring in $90bn to the government over the next 10 years. And on Thursday, the White House announced a separate initiative to limit the size and risk-taking ability of the big banks, including curbs on such practices as proprietary trading.
The proposal is said to modernise Glass-Steagall - a law passed during the Great Depression and repealed in 1999 that separated investment and commercial banks. The UK and France have already taken proactive steps to respond to this year's big paydays. Last month, the UK treasury head, Alistair Darling, announced a 50-per-cent tax on all bonuses exceeding $40,000. And yesterday, the UK said it could follow US moves to limit the size of the banks.
With a bitterly divided Congress and support for president sliding, however, regulatory legislation may prove difficult to pass here. Outside a Midtown Human Resource office, a shy young woman named Katie had trouble imagining how some could be paid so much during hard times. "You got people out here that don't got no way to live. Instead of giving it back to the community - But that ain't never gonna happen."
* The National