How much did the major U.S. banks and securities firms pay their people for 2009? How about $145 billion? That is the estimate by The Wall Street Journal.
The Journal calculates that the total payout in salaries and bonuses for the executives, traders, investment bankers, money managers and others will come 18 percent more than they made in 2008.
Those are the winners. The losers, still hurting while the biggest banks are thriving, are the ordinary folks. Many have been laid off by firms trying to make ends meet. Many who still have jobs must work longer hours, have lost overtime and worry whether they, too, will be laid off. Part-time workers need two or three jobs to survive. And loss of health care and failure to make mortgage payments are driving many into bankruptcy and homelessness.
What’s more, these winners were the risk-takers whose leveraged bets on derivatives and subprime mortgages led to the meltdown and the great recession that is still with us.
No wonder that a public outcry has erupted over the huge levels of executive pay for the winners. And no wonder that President Barack Obama is responding by proposing a tax on these giant payouts. His proposal is a tax on banks, insurance companies and brokerages with more than $50 billion in assets aimed at collecting $90 billion over 10 years to recoup losses in the bailout that saved them from collapse.
Wall Street’s lobbyists are plotting to attack the proposal as unconstitutional on the ground that it would be a punitive and arbitrary tax on one industry. Anticipating this move, President Obama suggested that the big banks roll back the huge bonuses instead of marshaling “a phalanx of lobbyists” and “an army of lawyers and accountants” to fight the proposal.
The planned tax raises the question of whether it can change the big banks’ behavior. The lavish pay and bonus packages must be approved by boards of directors, which, in turn, should be monitored by the shareholders. The Securities and Exchange Commission is changing its rules to help shareholders learn the complex details of the compensation arrangements.
But, shareholders benefit from the enormous profits that come from a win-win situation. The financial institutions that are deemed too big to fail can make risky bets. If the result is big profits, they win. If it’s a big loss, they can count on a bailout.
It sounds as if “too big to fail” is at the heart of the problem of huge profits and huge compensation. That’s why some analysts are thinking it would have been better to let Bear Sterns and A.I.G. and Merrill Lynch go under than to use taxpayer’s money to bail them out.