Sunday, January 17, 2010
Big banks will be dolling out their end of year bonuses in the coming weeks and the public reaction will not be pretty. Bonus payouts are as big as they’ve ever been. Average payout at Goldman Sachs is around 600,000, which is similar to their 2007 figures before the financial crisis. So what has changed? During the crash, everyone was concerned about saving the system. Now that the system is stabilizing, the discussion is shifting to questions of fairness, especially when the performance of these banks was partially based on the $700 billion in aid they received from the U.S. government.
After seeing these figures, politicians, watchdogs and taxpayers are up in arms. President Obama suggested Wall Street return the favor to the U.S economy by helping pay down the deficit. New York Attorney General Andrew Cuomo even demanded that banks disclose the distribution of payouts, which revealed that 953 employees at Goldman made more than a million dollars in bonuses in 2008. They will be required to submit the same information this year. Even Congress is getting in on the action. Lawmakers want to know why Wall Street is paying big bonuses while their customers still lack credit liquidity and cannot pay their mortgages.
Should Wall Street be paying these bonuses when their performance was really based on government subsidized loans? One argument, put forth by CNBC’s Larry Kudlow regards the fact that JP Morgan and Goldman Sachs, along with eight other banks all paid back their TARP in June 2009. Shouldn’t they at least be allowed their bonuses for the second half of the year, he asks. Other big banks like Citi, Bank of America and Well Fargo did not pay down their TARP until the end of 2009, so technically, one could argue that those bonuses should go back into the pockets of taxpayers.
Wall Street experts would like to leave the bailouts (which they paid back with interest) behind and move forward. They say that the bonuses are paid to those who make large profits for their employers, and ultimately benefit shareholders. But do they owe something more to the taxpayer?
Banks are contemplating new mechanisms and PR tactics to assuage public outcries. Goldman Sachs is looking to enforce a policy mandating all employees to donate a certain portion of their bonuses to charity. While charitable giving suffered significantly last year, this does not seem like it will produce any sustainable change in Wall Street’s mentality. Further, Goldman has already donated $200 million to its Foundation this year, and matches donations up to $20,000. Perhaps incentivizing employees to donate their time and efforts to causes of their choice, rather than forking over their exorbitant bonus money would have more of an impact on these fat cats.
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Posted by Johanna Hoopes at 9:52 PM