Lame Defense for $18.4 Billion in Wall Street Bonuses

By: Roshawn Watson

It is tremendously disappointing to hear of companies taking bailout funds and then using our money to pay for bonuses. After all, where is the bailout for the typical American worker whose tax dollars are being used to support these bonuses? Even without a bonus, the average Wall Street worker still makes 3-4 times what the average American makes, yet in the midst of a deep recession, Wall Street employees are taking home a whopping $18.4 billion in bonuses. In fact, according to MSN money bonusfest 2008 was the 6th largest payout on record even though Wall Street was a disaster by almost any estimate. President Obama called it the “height of irresponsibility” and “shameful,” and I agree. What I find even more nauseating is the lame defense put forth by the recipients (see video below) and the fact that
46% of Wall Street workers were dissatified with their bonuses.

Don’t Cut My Salary
One argument put forth is that since the majority of wall street employees’ pay comes from bonuses, slashing bonuses is like forcing them to take a huge pay cut.

One Wall Street worker quipped, “My bonus is ‘shameful’ — but I worked hard to get it”

Another argument was that without the bonuses, the economy would be hurt. The decline in bonuses this year will likely cost New York state $1 billion in income tax revenue and New York city $275 million. However, for some reason, I suspect that the fate of the overall US economy is not decided by whether Wall Street employees stop spending ridiculous sums of money on luxuries because they did not receive their bonuses. Even though they have a concentration of wealth, there are so many more direct and relevant factors impacting our overall economy than bonus income, this argument is somewhat laughable.

Some argue that bonuses are required to keep good talent. Sure you must pay to secure and maintain talent. Presumably that is one of the reasons the average Wall Street worker makes 3-4 times what the average American worker (perhaps greed is another reason). Note even with a 36.7% decrease in pay, the average Wall Street worker makes $112,000. Regardless, I don’t have a problem with highly skilled professionals who consistently perform well being rewarded for their success. However, being rewarded during failure is a different issue altogether. I love the old quote that one reason they call these guys “brokers” is because they make you broker. In many cases, it is sadly very true. If you compared the long-term performance of actively managed funds versus passively managed funds, many times these professionals are just not worth the money. Nonetheless, they still are getting huge bonuses.

Unfair to penalize them – Economic crunch is not their fault
Perhaps the most insulting argument is that Wall Street employees are being used as scapegoats for the world’s financial problems. Now, I would never argue that some American consumers did not over-extend themselves into a big financial pickle. About 40 percent of American homeowners are financially over-extended, and it took us a very long time to finally save. We have a culture of debt, and the current financial mess is the result of overly optimistic or uninformed borrowers and dishonorable or uninformed lenders, amongst other culprits. However, placing blame does not negate the fact that hemorrhaging companies are spending billions of bailout money on bonuses. Perhaps no amount of moral posturing and rationalizing will justify that. There is no good defense when it is just plain wrong.