Plain and simple, it’s not a good time for anyone in the U.S. economy. And, according to Campbell Brown of CNN, the times are “terrifying.”
Unlike Wall Street executives or the giants of the auto industry, Brown’s show yesterday focused on a group of people we can actually relate to: students.
I’d love for Gotham to continue to take its slice of outsize Wall Street bonuses and throw it at health care, education and police as we did in the good years. Too bad the zeitgeist is elsewhere.
As Greg wrote, the Mayor gets 9% of his revenue from Wall Street, and the Governor relies on financials for 20%. Not to mention, bonuses have helped sustain New York City’s housing market and the not-for-profit community.
But these days America is hungry for a bit-o-vengeance, and Rep. Henry Waxman and Rep. Barney Frank are happy to comply.
Goldman Sachs and UBS have curtailed executive bonuses for the year, and other financial firms are sure to follow.
In fact, the very concept of a bonus has come under attack.
Researchers at the Center for Financial Studies (CFS) at Frankfurt’s Goethe-University released a study accusing bonuses of playing a significant role in leading us off the cliff of the financial crisis.
And Dan Ariely, a professor of behavioral economics at Duke, recently outlined his anti-bonus research on the op-ed page of the Times. Ariely’s subjects, one group from India and one from MIT, were given monetary incentives to complete cognitive tasks. Those offered the biggest bonuses in both groups fared worse than those given medium or small bonuses.
Ariely concluded that money “motivates people, especially when the tasks at hand require only effort and no skill. But it can provide stress, too, and at some point that stress overwhelms the motivating influence.”
The professor presented his results to a group of banking executives but they weren’t interested in examining themselves.
As a New Yorker who knows that the economy of my favorite city is inextricably linked to Wall Street, and therefore to the end of the year, often shockingly large bonuses that do everything from add value to New York City real estate while keeping charities afloat– I do think that bonuses are a valuable part of Wall Street.
Lloyd Blankfein, the CEO of Goldman who went from living in public housing growing up to taking home $68 million in his bonus last year, raised eyebrows (and generated some cheers) a week ago, when he announced that he and six other top execs at Goldman would not take home bonuses this year, as Carl noted in his previous entry.
Although other companies don’t need to consider completely eliminating bonuses for execs, almost all of them will be cutting back significantly back on compensation as firms face daunting write-downs. Compensation is the largest expense on Wall Street, and is often used to keep top performers/talent, with many firms arguing that their employees are their firms’ greatest assets.
When talking about bonuses, it’s important to realize this:
-Year-end pay will be down significantly, but it would be much less if it were not for layoffs (less people to compensate) and the bailout. The latter is particularly controversial- is public money actually boosting the compensation of struggling firms? Well yes, most likely- if government hadn’t helped many firms refinance their debt, many would lack the cash at all to compensate their employees.
-As my other blogging colleagues noted, base pay has always been modest at firms (well, maybe not as modest as waitresses, but modest in comparison to how much in profits firms used to bring in). Any major cuts in compensation will not be offset much by employees’ base salaries.
The bottom line: Taxpayers have definitely lost out by funding expensive bailouts (and bonuses), but most employees in Wall Street will definitely see smaller bonuses this year, if they have even managed to keep their jobs.
Wow. You know this economic crisis is really, really bad when the people actually reporting on it can’t even keep their jobs.
The bad business practices that have swept Wall Street isn’t even beneficial to the companies that it’s helping. In covering the financial meltdown, CNBC has garnered stellar ratings. The channels numbers in September were the best ever (in its 19-year history) and represented a huge increase from last year.
“CNBC in September, which Nielsen Media Research dates from Sept. 1-28, averaged 373,000 viewers during its business-day period. That was up 46% from last September’s 255,000 average and represented the financial news network’s best overall month with the daypart since March 2001.”
CNBC executives tout their prowess in the television business world to a sense of anxiety in the viewer saying, “When there’s an aggressive move to one extreme or the other CNBC engagement surges,” said Mark Hoffman, CNBC’s President. “Through much of this crisis fear has beat greed silly.”
But, now, The New York Observer is reporting that GE’s budget cuts are moving to CNBC. The rumor is that the cut could be as large as 10 percent.
This is one of the first times that CNBC is feeling the cuts of its parent company. Previously, GE kept the cuts to NBC and cable network MSNBC.
“Back in October, NBC Universal chief Jeff Zucker sent an e-mail to employees, informing them that roughly $500 million, or roughly 3 percent of the budget, would be cut across the company, focusing on “reductions in promotion expenses; in discretionary spending, such as travel and entertainment and outside consultants; and in staffing costs.”
Details of the layoffs have not yet been released—so whether or not on-air anchors or reporters are affected is unknown.
One thing I’m guessing? CNBC won’t be reporting these job cuts during tomorrow’s broadcasts.
If it were my decision, I wouldn’t give a dime to Wall Street to pay for CEO bonuses. But, as we all know, it’s not up to me.
I saw a segment on “The Early Show” this morning that posed this very controversial question to the experts, which made me decide that I really don’t care if these CEOs get their bonuses or how much the bonuses are–the thing I mostly care about is: Where is the money coming from?
The fight is on for retailers this holiday season as the economy continues to wither all across the world. To combat the agony of waiting in long lines, there is one thing that customers can look forward to: Sales. And plenty of them.
Time to rejoice, right? Well, not so fast…
Source: Bloomberg
Barney Frank speaks to reporters
The outrage over Wall Street pay has erupted too late to prevent the ravages of the corrupt financial system. Few workers earning average salaries, and ever fewer politicians, raised objections to spiraling Wall Street salaries when the financial services industry fueled the boom in New York’s and the nation’s economy.
Now that tens of thousands of workers who benefited from the largesse are on the dole or losing their homes, politicians are demanding changes in Wall Street pay. Where were these concerns when times were good? Aside from being disingenuous now, these calls are also moot, because most bonuses this year will be dramatically lower than they have been in the last several years. They are likely to stay that way for some time as capital flows elsewhere.
Henry Waxman could have called hearings years ago when the crisis was festering; to do so now reeks of political opportunism. Even worse, Waxman’s witch hunt is a cowardly sideshow that ignores the fact that he bears responsibility for the crisis as well.
Putting all that aside, investment bankers make tons of money. Perhaps they earn more than they deserve. But how much is too much, and who gets to decide that?
It would be easy if we could ascribe value to the amount of good each profession produced for society. If so, good public school teachers might make a half million dollars a year. But what of the bad ones—how much should they make? Should we dock their pay for poor results in the classroom? This country faces a lot of irresponsibility and not just on the trading floor or the boardroom.
America should get serious about accountability, but let’s not stop at Wall Street. Focusing solely on the financial services industry will only hurt New York, (and maybe Charlotte) which relies disproportionately on this sector to drive its economy and pay its bills.
Greg, Steve and Damian all make good points. I’ll use my own experience to illustrate my take. When I was a waitress at a diner near the U.N., we had a steady trickle of international customers, most of whom were bad tippers (please excuse the broad national stereotypes for the purposes of instructional parable). The most extreme in their penuriousness, it must be said, were Brits, who would often nurse a $2.99 bowl of soup or $1 cup of tea for ages, and then leave a five or 10 percent gratuity.
The Comfort Diner
The reason wasn’t some unresolved resentment toward the colonies, nor do I think it can be attributed entirely to a lack of familiarity with local custom (Yes, tips are much more modest in your country, I wanted to scream, but you’ve got a guidebook – read it!). (more…)
Good bye for now.
Wall Street makes more than almost any other industry as a whole, and the average salary doesn’t do enough to reflect the extremes.
I agree that $360,000 isn’t an exorbitant amount. But what’s the median and mode? I definitely know what the highs are: $1 million, $2 million, $3 million…
And a name like Felix Rohatyn shouldn’t be placed together with Richard Fuld’s, even if they both worked for Lehman Brothers.
Those who can serve our economy beyond serving themselves should be rewarded for their efforts, especially when they take immense pay cuts to do so — Henry Paulson excluded.
But CEOs like Fuld, who made $750,000 with a cash bonus of $4.2 million in 2007, have long been overpaid. So have most of the other top-tier executives and financial officers at banks and brokerage firms.
I’m not implying America should go Socialist. But part of deleveraging is getting used to less money.
Considering the past year’s events, giving Wall Street any bonus at all is a slap in the face to those who have worked just as hard and can barely afford to send their kids to college.
When I think about the journalists and teachers who need to find other jobs to live within their means, and the doctors who make less to work outside private insurance — people who are just as fundamental to preserving our country’s health and integrity — I am forever reminded that Wall Street makes enough off salary.
But as a believer in free market economies, I also believe that salaries, stock options and other rewards should be determined by the markets. Unfortunately, ours is tied down for the moment.
The American flag in the above picture means a lot to me. It’s painted on the building of my former place of employment: A sports bar named Tully’s in Amherst, NY. It was at Tully’s where I met a friend named Eddie…who now works at Goldman Sachs in New York City. Eddie is really my only tangible link to Wall Street, and I’m grateful for that.
So, every time I hear about Wall Street cutting jobs or cutting salaries, all I think of is Eddie. A 25-year-old guy who works his tail off about 50 hours a week–and even more since the financial crisis made its landfall.
Eddie and I never really talk about how much money he makes. And yes, maybe he got into the business to make money. But, who can blame him? (more…)