Bonus bash, part II: The rich strike back
A while back, Tom Wolfe wrote an essay for the late Portfolio in which he explored the boorish and often explosively aggressive behavior of New York's hedge fund haute bourgeoisie. Titled "The Pirate Pose," Wolfe's piece roughly sketched a nouveau riche cohort that was, at the time, trying to muscle its way into every segment of New York society and remake the city in its own image.
In March, Jake DeSantis, an executive vice president at AIG propelled himself to the front lines of the executive compensation brouhaha when he simultaneously sent his resignation to Edward M. Liddy and The New York Times. In the letter, which the Times ran as an op-ed, DeSantis laid out much of his resume, painting himself as a moral, fiscally-responsible executive who had dedicated much of his life to AIG, only to be rewarded with betrayal over his paltry $742,006.40 bonus. He ended with a promise to donate his bonus to charity and a comparison between himself and a plumber who is denied compensation because an electrician burned down the house.
Somewhere in the months between Wolfe's portrait of corporate brutishness and DeSantis' wounded yawp, Wall Street seems to have undergone a massive sea change. A year ago, it seemed like New York's financial district was fueled on an equal mix of dollars and hubris; today, once-proud money men are screaming out justifications for obscene compensation packages. While it seems easy to dismiss these claims as the scalded-cat cries of a suddenly de-privileged elite, it seems worthwhile to consider them on their individual merits.
Claim No. 1: Limits on Compensation Punish Ambition
This argument seems to suggest that the pursuit of wealth is the sole reason for any human endeavor, and that Wall Street's testosterone-powered danger junkies are only in it for the bucks. However, in light of the joy that many traders seem to take in their profession, this argument is problematic. Moreover, it's worth asking exactly how much compensation is really necessary to properly encourage ambition. While eight and nine-figure bonuses are certainly a strong motivation, one can't help but think that a five or six-figure bonus could also do the job.
A corollary to this argument is the claim that reducing Wall Street salaries would drive the best and brightest to take their skills elsewhere. However, if the shortsightedness of Dick Fuld and John Thain represents the best of the best, the absolute pinnacle of human evolution, then it might be time to hunt up a few reactionary troglodytes.
Claim No. 2: What About Rich People in Other Professions?
Also known as the athlete and actor argument, as in: since actors and athletes get millions of dollars, Wall Street professionals should make the same. The obvious answer is that actors and athletes bring pleasure to millions, while traders do not. Alternately, it's worth pointing out that beyond the Will Smiths and George Clooneys of the world, few even star actors bring home the top Wall Street levels of money.
Claim No. 3: The High Cost of Life in New York
This one always gets me: that the salaries of financial professionals need to be so high to support the exorbitantly high cost of living in the financial capital. A trader complaining about the high cost of living in New York is like a kid on spring break whining that Panama City Beach is too damn commercial. If New York costs too much -- and it often does -- much of the blame rests on the shoulders of the Wall Street money men who have driven up everything from rents to school costs to the price of shoes.
That having been said, I am walking proof that it is possible to live in New York on a family income of less than $75,000 per year. Granted, I live in the Bronx, in a decidedly unstylish neighborhood. Even so, my wife and I are able to eat out regularly, pay our bills and send our child to a great daycare, all on a fraction of the average Wall Street salary. Then again, the only reason that we can afford to live here is because the rich Wall Street guys haven't discovered that the good old BX is only 45 minutes from the Stock Exchange.
Claim No. 4: Wall Street Keeps Capitalism Going
The ultimate argument that Wall Street always trots out when it runs out of other arguments. This perspective points out that the financial community rushes money to various portions of the economy based upon where it can do the most good. It diverts the flow of cash to help businesses grow, promotes steady returns to help retirees support themselves and generally makes sure that everything runs smoothly. As one person put it, Wall Street's traders are the fighter pilots of capitalism.
Of course, when one cites the less-than-stellar recent track record in these areas, many financial folk are quick to point out that Wall Street is not responsible for the current meltdown, which was caused by greedy house flippers and indigents who took out loans that they couldn't afford and, in doing so, completely undermined mom, America and apple pie.
The scary thing is that, in many ways, Wall Street does keep America running. Until the 1980's, it generated 20 percent of corporate profits in America; at the height of the bubble, that figure rose to 41 percent. However, if we accept that the tendency of traders to create and feed on bubbles has been largely responsible for Wall Street's increasing economic power, then the defender of capitalism argument becomes comparable to a glutton claiming that we must feed him solely because he can eat so much.
The justifications for huge salaries take a variety of forms, ranging from philanthropy to public service to need-based aid. Ultimately, they seem to boil down to an argument for inertia. Wall Street honchos want large salaries to enable lifestyles that their large salaries bought them. Alternately, they say that big money is necessary to attract employees who are attracted to big money, or that huge paychecks promote the sorts of behaviors that justify huge paychecks. In the end, however, the current problem is a product of 20-odd years of doing business as usual. Perhaps it's time to try something new.