The Reasoned Review

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The Wall Street Journal reports in today’s issue that our financial apparatus stands poised to dispense the largest package of executive bonuses ever. All told, more than $140 Billion will be dispersed among those wizards of finance. They recieve their multi-million dollar paychecks at a time of extreme economic privation for the rest of the US. Unemployment still surges upward to an astonishing 18% of the working-age population, while median incomes have remained stagnant for the past fifteen years.

According to The Economist, the top 1% of earners in America receive almost 25% of the total income generated. This puts income inequality at a level not seen since 1928. But in the midst of such a wide gap between rich and not-so, it is impossible to have any reaction but gaping awe to the figures quoted above. For what does it truly mean that 1% of the population can amass more than a quarter of the country’s wealth?

What it means, unfortunately, is that the consequences of the stock market meltdown have been completely lost on those who perpetrated it. Members of our financial industry haven’t found themselves thrown on the street from foreclosure. A few have heard those bitter words:  “I’m sorry, but we’re going to have to let you go,” but they weren’t exactly living paycheck-to-paycheck before, and most handily found new jobs in a matter of weeks. They have not seen their paychecks shrink – indeed, most of their checks have expanded, if The Journal can be taken at its word. In short, then, the crisis represents to its architects little more than an abstract concept: a set of numbers and figures on charts or a grim human-interest piece on the nightly news. The actual effects of their malfeasance (economic privation, anxiety, fear, hopelessness) are as far away to Wall Street as the moon.

All this is dismal news for those of us who would like to avoid a repeat of last September’s performance. Indeed, these reports – for instance, of JP Morgan Chase’s record profit this year – belie the essential divestment between Wall Street and the rest of the economy. Not only do they make money when times are good, they also make it when times are rough, the people be damned. Given that the reckless lending and casino-like practices of these firms caused the economic devastation we see today, these bonuses represent the ultimate “moral hazard”. Financial executives and their employees now have literally zero incentive to act in the interests of the greater economy. They make money either way.

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Written by pavanvan

October 14, 2009 at 10:36 pm

6 Responses

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  1. We chatted about this briefly the other day and there is certainly plenty of blame and outrage to be directed at lax government oversight and wall street chicanery, but… every article I see seems to take the tone of “poor middle class, we got duped again”.

    The pitiable middle class, that threw their retirement savings at the JP Morgan Chase’s and Goldman Sach’s of the world during the good times, didn’t divest and put their money in T-Bills or CDs or ag futures or precious metals last year when $100+ billion in bonuses were handed out.

    If its legal and the John and Jane Does of the world don’t care enough to move their money elsewhere… why would we expect them to change?

    PJA

    October 14, 2009 at 11:18 pm

  2. Well, I think the point is that such large-scale swindles really shouldn’t be legal. We must have a government which creates laws in the public interest. If we had that (as we did before Glass-Stegall and other safeguards were repealed) we wouldn’t be talking about this right now.

    pavanvan

    October 14, 2009 at 11:20 pm

  3. Yes, for the “large-scale swindle” (giant derivatives swapping backfire), there should’ve real consequences. I would’ve liked to see the Feds cuff and haul away a few dozen (or hundred) bankers for that one. I probably wouldn’t shed any tears if a few were strung up from the gallows (as Bill Maher joked about a few months ago).

    But as far as bonuses, unless their customers raise a stink, I don’t see why they would change.

    PJA

    October 14, 2009 at 11:27 pm

  4. Considering that these bonus are coming directly from US taxpayers, I think this affects a few more people than just the bank’s customers. Also these bonuses contribute enormously to income inequality, which has deleterious effects for the economy as a whole. When a CEO makes 319 times the national average salary, something is dreadfully wrong. (Historically, that figure has remained between 30-40 times the national average.) These are real problems, and not just for a few executives and their shareholders.

    pavanvan

    October 14, 2009 at 11:34 pm

  5. I don’t disagree with any of that.

    Yes, CEO compensation is ridiculous (but it is hardly relegated to the financial sector*)

    Yes, the current bonuses are coming from federal bailout dollars. To which I would say (1) shame on the government for not having a few strings attached to the $2 trillion dollars they handed over and (2) bonuses came from from their investors’ pockets before the bailout, no one seemed to care then.

    I don’t want the government or financial sector to go blameless, I just want to point out that in many ways, we (the middle class) are just reaping what we sow.

    * http://www.forbes.com/lists/2008/12/lead_bestbosses08_CEO-Compensation_Rank.html

    top CEO salaries range from retail to software to aerospace…

    PJA

    October 14, 2009 at 11:47 pm

  6. I guess it all has to do with whether or not you think “predatory lending” is a valid idea. I would argue that a lot of these middle class (mostly lower-middle-class) dupes gave the banks an incentive to saddle them with unreasonable loans.

    To their mind, it didn’t matter whether these people could actually pay the loan back or not – once it was put into a security it stopped being the lending bank’s problem. So I think more blame should be put upon the banks and credit agencies (who are getting paid to make sure these things don’t happen), rather than the victims of this whole scandal. These were definitely not scrupulous, good-faith loans on the part of these institutions.

    pavanvan

    October 15, 2009 at 2:03 am


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