“Shameful,” said President Obama, upon learning that banks in TARP (the Troubled Asset Relief Program) had paid out $18.4 billion in employee bonuses. What were they thinking?
America’s financial sector is in dire straits. Wall Street has shed 240,000 jobs. New York City’s suicide hotlines logged 54,000 calls in 2008. But reality hasn’t dawned everywhere.
Bank of America received a $45 billion government bailout, then hosted a five-day Super Bowl carnival. Morgan Stanley, recipient of $10 billion, held a conference at a swank Palm Beach hotel. AIG, the failed insurance giant, was granted $85 billion, but spent $440,000 on spa services for its executives. Stress is a killer, you know.
Annual salaries for big bank chief executive officers average $11 million. But benefits are the real goodies. Stock grants and options, dining rooms with chefs and chauffeurs are all part of “total compensation.”
What comp did banking CEOs “earn”? At Goldman Sachs, $68.5 million (2007); at Bank of America, $24.8 million; at Morgan Stanley $40 million; at J.P Morgan Chase, $27.8 million; at
Lehman Brothers, $480 million (over eight years).
John Thain, head of Merrill Lynch in 2007, spent $1.2 million to redo his office. Good to be comfy at work. After Merrill’s fourth-quarter $15.3 billion loss, Thain approved bonuses, entertaining one for himself, too, of $40 million. To hire two executives, he paid $64 million. Thain is now jobless, joining 3.6 million Americans.
Lehman Brothers, which owes $150 billion to creditors, set the bar for living large. It acquired $30 million in art, six corporate jets worth $164 million, $53 million in jet ownership shares, and a helicopter. The Friday warm muffins perk is gone. Lehman is defunct.
Citigroup lost $19 billion in one year, laid off 53,000 workers, and received a $45 billion bailout. Citi thought it prudent to cancel its new $50 million jet. The $400 million committed to naming the “CitiField” stadium is pending.
To some, bankers earn chump change. In 2007, the top 50 hedge fund managers paid themselves a collective $29 billion. They received a tax break, too, paying the low 15- percent dividend rate. And why not defer earnings? Easy to do, since hedge funds are unregulated. Tax-free works for some, except average working Americans.
To educate hedge top dogs in lavish spending, magazines such as Dealmaker and Private Air emerged.
Merit and innovation deserve reward. Financiers claim that bonuses are deferred salaries. But whatever the pay, what value was created for shareholders and investors in the last few years? What did hedge funds “hedge” against?
No one time to question the metrics of risk models, the calculus of securitized debt, or the sustainability of real estate speculation. Many public company directors, attorneys and accountants ignored notions of due diligence and fiduciary duty. Congress? Out for a long de-regulated lunch. Taypayers will pick up the tab for it all.
Many argue that the proposed $500,000 salary cap for CEOs of TARP firms is too low to attract talent. But if we are enjoying what “talent” has wrought, bring on mediocrity.
The salary cap should be retroactive, for all TARP recipients. Bonuses should be clawed back. Congress should school itself in the nuances of corporate governance and securities markets, and should revamp the
Securities and Exchange Commission, a do-nothing cabal of career bureaucrats.
We are suffering economic terrorism, wrought by “Masters of the Universe’’ unchecked in hubris and greed. Wall Street needs intelligent people now, with the courage to question complex concepts and pie-in-the-sky projections. And salaries must be, finally, earned.
Common sense has been gone for too long.
J.R. Rosskamp is an investor, entrepreneur, and managing director of Veritas Partners, Inc., a business consulting firm.