

Myths about Wall Street pay days - cwan
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/23/AR2009102302414.html?referrer=facebook

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rauljara
This article doesn't really seem to acknowledge the fact that many executives
have, and continue to be, compensated incredibly well for very incredibly poor
performance. If the system that most companies have right now were working,
that wouldn't be the case. Compensation is so high that people latch on to any
reason they can find to justify it, otherwise they have to admit that they are
giving people millions of dollars they don't need to.

The argument the argument makes that companies need to pay so much money to
maintain top talent seems like an argument in favor of regulation. If
compensation were capped and merely exorbitant levels, perhaps it would be
easier for companies to retain their talent. But a bigger benefit would be
that companies would have an easier time telling who their top talent is,
because they would not have to go through the psychologically painful process
of admitting that they could have found another talented person for
significantly less.

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byrneseyeview
If Wall Street executives are truly overpaid for the profit they produce, you
don't have to complain -- you can just profit from it! Simply short Goldman
Sachs (which pays its employees far more than anyone else) and buy shares of a
smaller bank.

That way, instead of feeling like the world is unjust, you can feel like there
are popular misconceptions which you can simultaneously profit from (when
Goldman's price drops because it's overpaying employees) and alleviate
(Goldman drops when you short it; the bank whose shares you buy goes up).

And of course, you get a boost to your argument. It's going to sound less like
"I resent people who can make more money than me," and more like "I think
there's an economic inefficiency here -- and I'm prepared to stake money on
whether or not I'm right."

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bokonist
The problem is that Wall St. makes money by taking big risks and passing the
losses on to the taxpayers. What would Goldman's profits be without the TARP
bailout and the AIG bailout? I suspect Goldman would not have survived.

Of course, the solution is not to regulate pay, but to allow the big banks to
fail ( I think the whole too big to fail argument is a lot of hooey, there a
lot of ways to allow a bank to fail without causing contagious destruction).

~~~
byrneseyeview
At that point, you should be complaining about the bailout money (which you've
identified as the actual problem), not the bonuses (which you now seem to be
claiming are a _result_ of the problem). Arguing against bonuses due to TARP
amounts to saying "The mortgage bubble -- propelled by massive government
intervention -- has popped. The bailout, another massive government
intervention, has had disastrous consequences. The obvious solution is more
massive government intervention."

At some point, it has to stop. So I agree -- let the banks fail.

~~~
rdtsc
Most people seem to regard corporations as moral entities.

These companies screwed up. We bailed them out. We expect them to lower their
heads in shame, tighten up their belts, ask forgiveness, and promise to not do
it again.

When they don't act according to our "moral" expectations, we turn everything
into a public spectacle, articles start pouring in, blogs are on fire with
outrage etc etc..

The problem is that we screwed up at the first step -- companies are not moral
entities. They like to present themselves as such (ex. Google's "Do no evil,
except when you have to turn in a couple of Chinese dissents over to their
government to be imprisoned for life...")

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kp212
What a joke. I can't believe someone would actually go out and say, "In a
number of cases, however, these risk-management systems were totally
inadequate in the face of the market tsunami that enveloped mortgage-backed
securities after home prices began to drop in 2006. The storm carried away
several firms, but others performed well despite the difficulties. It wasn't
the bonuses that brought everything down; it was a combination of many things,
some sloppy or foolish, and most far more important than bonus checks. " as a
justification for the bonuses. __*Guess he forgot the fact we bailed out Citi
and AIG, I guess he forgot the fact we are on the hook for that, not the firms
who had the so called," these risk-management systems were totally inadequate
in the face of the market tsunami". The people that built these inadequate
systems still for the most part have a job, and from what I read last month
the bonuses are back.

Update - Just checked out his bio, Harvard MBA, career at Goldman Sachs,
definitely not part of the boys club, riiight.

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wynand
"With the job market like it is, Wall Street doesn't need to pay huge bonuses
to retain key people."

Excuse the trollish appearance of this remark, but it's something that I've
been wondering about for a long time...

The world to me seems to be brimming with talented people - more than enough
to fill trading firms many times over.

What makes these individuals so special to warrant such huge salaries? If it's
not survivorship bias, then what is it?

It could be that I just don't want to admit the reality, but if it is, please
tell me why I'm wrong (preferably if you're impartial to the financial world).

~~~
dtap
While there a lot of talented people, there are few extremely talented people.
It is these extremely talented people who make the huge salaries. I am at a
top 5 business school now and you can definitely see the future millionaires.

Generally, there are a lot of people who go into finance and will make $65-70k
and never get into the extreme. But there are people who are going to make
$200k+ out of undergrad and likely earn millions someday. They are worth it,
many already manage their own money in excess of half a mil.

In a class of 300 top students, I think there are 2-3 of these people.

~~~
thetrumanshow
I kind of see the value of raw talent/intelligence as approaching a limit.
Like this graph: [http://www.mar.dfo-
mpo.gc.ca/science/acon/GIFs/data_dialog3_...](http://www.mar.dfo-
mpo.gc.ca/science/acon/GIFs/data_dialog3_XYgraph2.png)

The commenter's idea seems to sync with this notion, as the really talented
people kind of group near the top of the curve. This would mean that they are
all intelligent/talented enough to master eachother's job.

I bet there is a great deal of luck involved in the outlier cases... which you
seem to be attributing to talent alone.

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jfoutz
1\. The Wall Street bonus culture led to the financial crisis. "The crisis was
caused by a combination of lax monetary policy, loose regulation..., ...
institutional investors ... global banking industry..."

Aside from lax monetary policy, these causes are only exacerbated by huge
bonuses.

2\. Wall Street is totally indifferent to Main Street.

Yeah... looking down main street I don't see a lot of large corporations or
financial institutions ready to trade. Swing by BofA and pick up a small
business loan. Not that they should be. and investor's job is to find the best
possible deal. maybe it's no main street, maybe not. but technically you
_ought_ to be indifferent if you're good at investing.

3\. With the job market like it is, Wall Street doesn't need to pay huge
bonuses to retain key people.

If you can't figure out what <key person> does to make all that money, you are
not smart enough to keep that money. Since you are not smart enough, why don't
the taxpayers just fund <key person> instead? What are you bringing to the
table? phones and bloomberg terminals?

4\. Wall Street will never restrict its own pay. Yes, clearly with all the
laws and contracts requiring it, wall street will restrict its own pay.

5\. Wall Street pay is so out of line, only the government can fix it.

The first goddamn argument was "lax regulation" WTF?

