Tone Deaf on Wall Street

Posted by: Matthew Goldstein on January 30

Huge bonuses. Corporate jets. Corporate retreats. Office upgrades. These are all some of the excesses that Wall Street executives have shown an unwillingness to give up, even as their firms are losing billions and crawling to the federal government for help.

It’s easy to understand President Obama’s anger over the news that Wall Street firms paid out nearly $20 billion in bonuses last year. Obama called such payouts in the middle of the worst financial crisis since the Great Depression: “shameful.”

Other payouts Obama might want to slam are the dividends financial firms continued to payout to shareholders, even as banks and brokers posted big losses and depleted what remaing capital they had. Banks kept out paying out dividends to investors, even as they clamped down on lending—making the recession worse.

So what is it with the folks on Wall Street? A big problem is the way compensation is structured on the Street—in that so much of the salary for a trader, banker and broker comes in the way of bonuses and year-end compensation. Going forward that may have to change, with base salary constituting a higher percentage of pay. That may encourage employees to reframe from shooting for the moon in the hopes of a big payoff. After all, that’s how it works for most people.

The excess and tone deafness on Wall Street also is a good argument for the federal government forcing corporate change as part of any future bailouts. In some cases, it may even require changes in the board rooms and corporate suites. That seems like a fair price for taking taxpayer money to save a company.

Reader Comments

Fred Lasher

January 30, 2009 12:08 PM

I think that prison terms for the top people including the chairman of the board would tend to get their attention.
The charge:Actions prejudicial to the National interests of the United States.

Commie Stooge

January 30, 2009 01:44 PM

Ever since Hank Paulson said we needed to bail out Wall Street I've been opposed to the idea.
They have created a shadow banking system which allowed them to leverage their firms capital way in excess of anything prudent.
Finally their house of cards collapsed.
Jim Cramer had it right: a few show trials would go a long way!

Bob

January 30, 2009 02:37 PM

Arrogance, entitlements, and bail outs. Why is it that we continue to believe that Washington can solve this problem? Is it just me or does CHANGE feel a lot like what was booed out of office about 2 weeks ago...perhaps if I were in the 'know' I would know that "we" in D.C. are acting on these problems quickly. If only more people really cared and knew what was going on rather than listened to what they were spoon fed on talk shows and broadcast TV.

joe

January 30, 2009 03:41 PM

Maybe shareholder need more of say so. We put are investment into these companies hoping for a return the only return i see anymore is ceo's and board of directors padding each others pocket. Maybe there should be Federal laws governing public traded company. No more free lunch, jets and cap on salaries. They have taken this country to a new low for there pockets.

Robert

January 30, 2009 06:04 PM

How much was paid for deferred compensation to the crooks that started companies down this road?

BCR

January 31, 2009 06:40 PM

Having a compensation program that is loaded to a bonus side is fine IF THE COMPANY MAKES MONEY. Bonuses are paid from the "thing" at the end of the year called PROFIT. When there are no profits, they should pay no bonuses. No tickee, no laundee...

Nate Riley

February 1, 2009 10:26 AM

Socialism what are we going to have the OBAMA CAR yeah i'm sure that would do good not...GM and Ford are rich for a reason they are private companies. If its private is good and will make money smart people are only smart at private corporations when they are in BIG GOV they are socialist who SUCK

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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