Let them eat cake: Wall Street execs paid themselves $18.4 billion in bonuses in 2008
Both inside and outside of the Capitol, the general feeling about the bailout has been that it was repulsive, but necessary; after all, as much as it might be fun to nail overpaid CEOs to the wall, nobody really wanted a reprise of the Great Depression.
On Wednesday, however, it came to light that Wall Street paid out roughly $18.4 billion in bonuses last year. While a 44% drop from the previous year, 2008 still goes on record as the 6th highest bonus year in history. Worse yet, many of the companies that lavishly rewarded their workers were the same ones that reported massive losses and pestered the government for the infamous $700 billion bailout.
The idea behind Wall Street's end-of-year bonuses is pretty sound: essentially, financial-sector employees who generate huge amounts of money for their companies are rewarded with a nice chunk of cash. In a perfect world, this system would result in highly-motivated workers who would develop innovative, brilliant ways to make money. In reality, it has resulted in highly-motivated workers finding underhanded ways to create short-term profits at the expense of long-term stability. In other words, a large part of the current economic crisis can be laid at the doorstep of Wall Street wizards who over-leveraged their companies to buy risky securities in the hopes of picking up huge bonuses. Ultimately, they didn't create lasting value; rather, they laid the groundwork for an inevitable collapse.
The funny thing is, even in the absence of any actual profit, the bonuses are still coming. In 2006, when massive deals were generating massive profits, it made sense that bonuses would hit their peak, topping the $35 billion mark. In 2008, however, when some of the country's most venerable financial institutions folded or had to go begging for lifeline, it's hard to understand how Wall Street could justify giving its employees $18.4 billion in bonuses. The figure becomes even more disturbing when one considers that many of these bonuses may be funded with bailout money from the federal government.
As with so many other recent disasters, the poster boy for undeserved bonuses may well be Merrill Lynch's John Thain. Thain's shortsighted, incredibly expensive redecoration of his office is already well known, as is the tale of his attempt to grab a $10 million (down from his original demand of $40 million) bonus. However, what is less known is that, in the weeks before Merrill Lynch was taken over by Bank of America, Thain paid out an estimated $3-4 billion in bonuses to the company's top execs. These bonuses went out about a month ahead of schedule; some observers have argued that Thain accelerated the timetable in an attempt to scam Bank of America, which took control of the company on January 1.
Adrianna Huffington recently compared Wall Street to Marie Antoinette, noting the financial service industry's seeming inability to recognize that the last quarter of 2008 was a complete game-changer. While America's new President has talked about a new era of responsibility, and while millions of Americans are scrambling to make ends meet, Wall Street is still loudly proclaiming that huge bonuses are necessary to attract the top financial talent and fuel America's economy. Frankly, if the past few months is a measure of what $18.4 billion buys us, I don't want to give them another penny!