>“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.”
Waaat. I think the government should stop bailing out businesses. Either you let the company go bankrupt or you nationalize.
I work in banking as just another cog. We suffered wage stagnation and no bonuses. The executives on the other hand still got at least a 10% bonus each year, because they had contracts. So, please keep that in mind when it says 'employees'.
Still happening. Especially people working in IT in banks are getting almost nothing in bonus and no pay increase for many years. The number of jobs is significantly reduced also.
Ever since I've started working in IT, the rule has always been if you want a pay raise or a promotion, you go to a different company. Out of the four companies I've worked for in three different Midwest states, I've never worked at a place where the highest raise of anyone on my team has ever exceeded 1.5% per year. 2-3 years then get out and get your raise somewhere else.
I wonder if there's a correlation between the higher turnover of motivated professionals and the rate at which large companies get hit with security breaches. The people who are most able to move employment are the ones who often are the most competent. Even setting that aside, it takes time, familiarity with company systems, as well as competence - and security is unforgiving.
Depends on Skillsets but it's not horrible. It's actually pretty consistent in Charleston, SC. as well. I know many devs over 100k in each field, It's not SF pay, but the cost of living is also not SF prices.
People sitting in high places benefit every where, not just banking. It pays to be higher authority, regardless of your performance. Generally because the definition of good performance is fuzzy you can always twist it to your advantage.
I remember an instance in the past where a executive organized a 'hack day'. All he did was drop in email to the company cafeteria to have a tea and biscuits arranged. The dude didn't even show up to the event. At the end of the quarter I remember him getting a neat cash reward for 'thought leadership' regarding that hack day.
Not to defend the banks, but this reminds me of when a company declares bankruptcy and pays its executives bonuses. The argument is always that, no matter how flawed the executives' judgment is, it's better to have somebody doing the job than to have the executives jump ship.
I'm not sure the argument applies here, since I'm not sure how many companies were hiring executives during the time frame.
No, the real argument is usually that the executive contracts are constructed such that trying to weasel out of "bonuses" for them probably is ill advised.
I work in banking. For trader, M&A and other related positions, the contractual bonus rate is/was(?) often 100%.
A lot were fired, they hired back, then fired again. Not sure what the overall impact had been, but for the ones I know, after the crisis it has been like a continuous Christmas. Lot of cash/cheap money to buy cheap flat/houses all around, kids and early retirement at 32.
This is an excellent point. I would put a system in place that makes it clear that banks have a choice of a) Splitting before they get to big to fail or b) Accepting that if they grow larger, they can always be nationalized if they make a mistake that would cause them to go bankrupt.
The problem is, that currently nationalization is only possible in most countries, if you fully pay the owner. Changing this would in some countries require constitutional changes. I think having a special rule for banks and the option to split would be a feasible change.
Calomiris and Haber ("Fragile By Design") have run the natural experiment between the U.S. and Canada over the 2008 bubble period. The conclusion is the opposite of yours - Canada really just has the one bank, and sailed right through the crisis because they didn't hold as many rotten mortgages.
And in a way, the big banks are effectively nationalized in the U.S. We do maintain parallel governance structures because fully nationalized banks ( like the Bank of England in Britain's Mercantilist heyday ) are ... well, mercantilist.
Is this supposed to be a figure of speech suggesting Canadian banks policies are so similar they are essentially the same bank? The three largest of the Big Five (RBC, TD and Scotia) are so similar in size none of them can even be said to lead the market.
What the taxpayers have payed to keep the bank profitable.
Just, you know, the taxpayers are not the owners, because .
Hm, maybe it doesnt really matter if taxpayers would have become the owners, because in any case they would have payed for their losses but the profits would not magically find their way into taxpayers pockets, instead it would be some new term instead of owners like "facilitators" "workers".
In the end, money doesnt really matter, what matters is which people take decisions concerning all other people, power.
The point is that in the situations where nationalisation - or near nationalisation - to prevent bankruptcy is worthwhile, the effective price is going to be low, however you structure it.
For starters, the government can go to the banks shareholders and tell their shares are going to be worth $X or they won't put money in and the business will go bankrupt.
If the shareholders manage to find another investor, then great.
In the UK, this happened with e.g. Royal Bank of Scotland, where the government gradually acquired a larger proportion of the bank as it provided capital until it owned the vast majority (in 2012 it owned about 82% - I don't know what it stands at now). While nationalisation of RBS was certainly not cheap in terms of pounds, it was firesale prices in terms of the size and turnover of the business, because the government took on massive risk as well.
But the key part is that by providing the cash infusion in return for shares, the government is also participating in the upside if they manage to turn the bank around, and shareholders took a substantial hit in the form of massive dilution (though they are set to recover quite a bit as the bank recovers).
I don't mean to detract from your point, but you have to keep in mind the fact that those were loans, and the government actually made money on those loans (AFAIK). Also, if the damage to the economy would be greater than the taxpayer loss of the bail-outs, they still make sense, as long as they are accompanied by legislation that makes hem less likely in the future (which, sadly, hasn't happened yet).
> Also I clearly need a job in banking...
If you want to become a good cook, get a cooking job. If you want to earn good money, get a money (banking) job :)
On the fallacy that the U.S. taxpayers made money on the bailouts, note that in finance deals get judged by how much money they make given the risk that had to be assumed to make it. In the case of the bailouts:
$614 billion was disbursed
$667 billion was recouped
For a difference of $53.1 billion, i.e. 8.6%. [1]
8.6% is insultingly low compensation to use taxpayer money that, by the way, could have been spent on more beneficial investments (infrastructure, education, healthcare) to bail out private companies who were the victims of their own greed and poor governance. FWIW the average junk bond yield in 2009 was above 20% [2].
The risk was incredibly low. The banks were rather profitable, but they had cash flow issues from deleveraging. And credit vanished in 2008.
For the government's balance sheet, getting paid back 8.6% is a lot more reliable than your gut instinct of infrastructure or education or (especially!) health care.
If the risk was so low, why couldn't a private entity bail out the banks? Would have been a gangbusters investment, right? 8.6% is a good return for that risk?
How many entities do you know with almost 700bn in the bank ?
The point of the bailout was to throw all the might of the State behind the sector, in a "ye shall not pass" stance that basically stated that either we cut these banks some slack or our current civilization would burn in flames.
It worked, because people got the message and business eventually went back to normal. We can disagree on whether it was "good enough" (I thought the opportunity for deeper changes was ripe, but I'm just an old-school eurosocialist myself), but I don't think any other entity could have done it except Nation-States.
>How many entities do you know with almost 700bn in the bank?
None but no single institution needed that much. Private investors, especially when working together, could have certainly stumped up funds for individual institutions. In fact, in the case of AIG such an overture by Chinese investors was rejected: http://www.nakedcapitalism.com/2014/10/aig-bailout-trial-bom...
That's not "private investors", that's the Chinese government. This would have had clear political implication (the Chinese already hold a lot of US debt etc etc), but regardless, it was Nation-States making moves -- basically the only players in the game, on that size of petty cash.
> or our current civilization would burn in flames.
Wait a minute, just a minute. The way I see it, the US government didn't disarm a nuclear bomb, it just saved Goldman Sachs (and it's creditors AIG) and let Lehman Brothers die. Smart choice by Henry Paulson, I'd expect no less by a former senior GS manager.
It used tax-payer money and I'd be angry if I were an American. I'm angry at the Greek government who did the same thing (among many other things), but then again. I live in Greece, I get a choice (More than 30 parties run in the elections last time I checked...). In the US I get the feeling that you can vote Democrats or Republicans. Largely disputable policies like this, are never going to change.
I'm not saying I agree with that line, I'm saying that this is what the (Bush II) government was signaling at the time. (Which for them was likely true -- losing Lehman, Goldman and AIG in a month would have destroyed a world of wealthy executives.)
Greece is another matter; the problem there was not with the bailout, but with stupid terms imposed by the troika to cover debts. In fact, if the troika had behaved with Greece in the same way the US government did with US banks (putting up cash right away, no questions asked), Greece would not have suffered what it did.
The losses would have to be written off somehow, maybe it could have been done more slowly, but I wouldn't think too much about the trigger for the crisis.
> On the fallacy that the U.S. taxpayers made money on the bailouts
> 8.6% is insultingly low compensation to use taxpayer money
So, money was made?
> could have been spent on more beneficial investments (infrastructure, education, healthcare) to bail out private companies who were the victims of their own greed and poor governance.
Why couldn't it still be used on infrastructure, education, or healthcare?
I don't know the details of when the money was disbursed and when the money was recuperated, but if it were disbursed in 2008, and recouped in, say, 2014, there was a 10% rate of inflation, which devalues the currency to the point that no, money was not made.
If 2013, the rate of inflation was 8.2%, which leaves a .4% "profit", assuming no other costs.
If 2012, the rate of inflation was 6.6%, leaving a 2% profit, etc.
Of course, this assumes the money wouldn't have performed in any way just sitting in the government coffers, and I honestly don't know enough to even begin to evaluate whether it would have.
Between which dates? If I'm reading this correctly, Jan 08 to Jan 14 is 212 to 234, which is about 10%. (This also matches the statistic that I happen to have memorized of 8% inflation between 2010 and 2014.)
The parent asserted that, but did not actually quantify the risk in any way. I could just as easily say that there was no risk at all since the government was obviously not going to allow those institutions to fail.
One way to infer: what's the risk of lending to a company that's facing an existential crisis, that's in such dire straits that no one else would lend to it?
Not sure I understand. The difficulty of lending them out should just increases the risk of lending them out and therefore the need to recoup that risk by a proper margin.
Thats not what happened when the banks regardless of contracts still gave out large bonuses many times more than the return to the taxpayers.
The risk of not lending the banks out is a depression where the currency / global economy may have lost more value.
Example: The gov only made 8.5%, but if the US costs have increased 16% over the same period (because of a depression), the overall return is more like 24.5%, ignoring the additional costs of a depression.
Because it's embracing too big to fail. Unless we want 'too big to fail' to be the rule going forward, and unfortunately it seems that it will be, we should reject the idea that the rest of us are the beneficiary of having to bail out the banks.
Whether we embraced it or not, it was part of the calculus. So was the fact that we'd need continued investment into the economy to work our way out of the financial collapse. That meant that options like nationalizing banks, which might drive investment overseas in the future, could have a direct negative economic impact that needed to be considered.
Sure, I agree that we had no choice at that point but to bail the banks out.
But when reviewing the decision afterwards, I think we need to reject lines of argument that the government did really great on the deal so it's not that bad what happened. We don't want it to happen again, we don't want to be in a no-other-options situation.
I'd suggest that's a much more direct and obvious economic impact than some maybe-perhaps about driving investment overseas. (How, exactly? Do you think money would suddenly stampede out of the US if regulators developed a spine and jailed the delinquent operators who caused the crash?)
Anywway - clearly the decision was political. It was made for the benefit of the banker caste, and not for the general population.
The underlying problem is unearned privilege.
There's no rational reason for these bonuses. But bankers pay themselves these sums because they know they can, irrespective of the incredible damage they cause to the rest of the economy.
No, the state might have got a better return without bonuses (although I cant remember how the deal was structured). Mind you you could argue that getting a sweet deal like that deserves a bonus...
It is certainly a better deal than the Irish bailout, which will never be paid back and amounted to 100% of GDP.
Also, the payment of "bonuses" in the banking industry are essentially an extension of salary. It's not what you'd typically think of as a bonus for hard work during the year. Bonuses are often pre-negotiated and pre-determined, just like a salary is.
Are you referring to investment banking/trading/PE or what? This is definitely not true in IB or trading. Your bonus is a direct function of what you make. This is particularly true for even more senior partners in IB/trading firms. The rainmakers make significantly more money than 'operating' or 'non-money-making' partners.
Right... but if you "punish" a very successful trader by giving him/her a lower-than-agreed-to bonus (for traders, the bonus should be a percentage of their realized PnL) because of actions of some higher-level executives, the only effect that will have is that the trader will go to a different company that will pay him what he is worth.
Not quite. The article is pointing out that the overall level of bonus is not well correlated with the revenue (or profit) of the companies as a whole. The poster is pointing out that that's largely because an individual's bonus, particularly in areas like IB (where most of the bonus pool ends up), is much more of a function of the revenue the individual brings in.
Part of the reason for the discrepancy at the time of the crash is that, until the liquidity crisis gummed everything up, most of the catastrophic losses where in a relatively niche area. A lot of the other parts of the banks did continue to make money.
Then when the liquidity crisis hit, the view was, generally, that significant parts of the businesses were still fundamentally sound so there was no point losing good people as they'd be needed to build things back up again.
I happen to think that all this is sensible up to, but not including, the bit about losing good people. This was fundamentally self serving and tended to define "good" as those who were successful is a overly risky environment.
It would make some sense, perhaps, if employees with no responsibility for the catastrophic losses still received some bonuses -- though the company's ability to pay the full bonus ought to be factored in.
What doesn't make sense is that anyone involved with the losses or in the management chain of anyone who was should still get any bonus at all. That, obviously, includes the CEO. If the CEOs of these companies still received large bonuses -- and my impression is that they did -- that is fucked up.
I believe that most, if not all, of the CEOs of the worst affected companies lost their jobs. Having said that, there would have been a fair few golden handshakes so your point is valid.
To my mind the worst of those was Stan O'Neill. He got kicked out when it was just a disaster but not yet a catastrophe (when the mortgage losses were known but before the liquidity crunch) so he walked away with something heinous like $160mm.
A bank might make a $20M loss on trader A's strategy but a $10M gain on trader B's strategy, for a net loss of $10M. Then trader B gets a bonus and the company that lost money is giving out bonuses.
You're assuming that their performance is directly proportional to the performance of the market as a whole. My understanding is it's tied to how they perform against an index like the S&P 500. The S&P 500 lost something like 50% over 2008, so even if a trader lost 25%, they outperformed the market by a lot and deserve (according to their contract) the bonus.
Yeah, but when the bank needs loans to stay in business it shouldn't be paying out bonuses. Particularly so if the government (i.e. taxpayers/us) went through giant efforts and took a significant amount of risk to hand out these 'loans'.
EDIT: I believe that the bailout was needed and it did (IMO) prevent significant negative ripples from flowing through our financial system. What I really despise is the lack of discipline and regulatory oversight during the bailout process. This left a very sour taste in many struggling Americans and demonstrated that our political structures are incapable of focused, regulated, and disciplined action.
Those banks had contracts with the executives, saying they would get the bonuses if X metrics were met (likely what it was, maybe it was just a straight bonus every year, and the assumption is that they would be fired if they didn't preform). Those contracts don't go away because of a bailout.
I would be interested in legislation that changes this. If a private bank (I don't think there are many truly private banks anymore) wants to give whatever bonuses it wants, I really don't care.
But once public money is involved, I agree we need some strict controls.
Notice that you're effectively saying "the bailed out banks should renege on contracts". If nothing else, there's enough money on the table that the affected people are likely to litigate, and there's a fair chance you'll just end up paying the bonuses just the same, but now topped off with the expenses of a lawsuit.
Contractual doesn't mean guaranteed. You could have a bonus that's contractually tied to a certain set of conditions being met (e.g. personal objectives). If the employee meets those objectives and the company doesn't pay out, they could be in breach, regardless of their financial situation.
They are bonuses, but the word "bonus" means slightly different things in different industries. In the banking industry, think of it more like a sales commission than a totally optional check for doing a really good job. It's paid out according to a pre-determined formula, not the whim of a manager.
Which makes sense. In the cases of financial institutions needing a bailout while simultaneously paying huge bonuses something must be seriously miscalibrated in their calculations.
How do you think banks work? They are see-saws of money on one big balance sheet.
Also the regulatory situation in Europe is still much more stringent than in the US. In US banking there are a load of utter time wasting rules that provide little sanity to the issues suffered
Not to mention the unquantifiable damage taxpayers took because the economy went bye bye and they were unable to pay their loans and mortgages.
You can make a heck of a lot of money if you kill the economy, get bailed out and get to keep the properties and houses of the little guys that don't get the same benefits.
If you really wanted the economy to recover quickly you would be bailing out taxpayers not big corporations.
Cash is not king in financial markets. Risk is. The government bailed out major banks by assuming the downside risk of major banks when those risks were very large, for minimal compensation. In particular, the government 1) offered regulatory forbearance and tolerated generous valuations; 2) lent to financial institutions at or near risk-free interest rates against sketchy collateral (directly or via guarantee); 3) purchased preferred shares at modest dividend rates under TARP; 4) publicly certified the banks with stress tests and stated “no new Lehmans”. By these actions, the state assumed substantially all of the downside risk of the banking system. The market value of this risk-assumption by the government was more than the entire value of the major banks to their “private shareholders”. On commercial terms, the government paid for and ought to have owned several large banks lock, stock, and barrel. Instead, officials carefully engineered deals to avoid ownership and control.
...
After assuming the banking system’s downside risk, the US government engineered a wide variety of favorable circumstances that helped banks “earn” their way back to quasi-health. The government provided famous and obvious transfers like unwinding AIG swaps at 100¢ on the dollar. It forced short-term yields to zero and created an environment in which medium-term interest rates would be capped for several years, granting banks a near-risk-free arbitrage for a while. It emitted trillions in excess reserves on which it continues to pay interest. It forewent investigations and prosecutions that by law it should actively pursue, and settled what enforcement it could not avoid for token fees. Then there are the things conspiracy theorists and cranks like me suspect but cannot prove: that the government and the Fed have been less than aggressive in minimizing their costs when they or entities they control (AIG, Fannie, Freddie) transact with large banks, that they have left money on the table where doing so could be hidden in arcane accounts or justified as ordinary transaction expenses and trading losses. Large banks have enjoyed some rather extraordinary results for allegedly efficient markets, quarters with large trading profits and no or very few losing days. Government housing policy is pretty overtly subject to a constraint that interventions must not provoke loss realizations for banks carrying bad loans at inflated values, or interfere with servicing revenues. (If you think I am overconspiratorial, I’m still waiting for an innocent explanation of this, from 1991.)
Exactly! I'm sure I can find a place to park the money with a semi-decent growth rate for a few years if the US Government gave me a few billion dollars and told me to come up with a modest return at my leisure...
While it's true that banks continue to receive better-than-usual rates from the government, I don't entirely buy this reasoning. Firstly, the liquidity (i.e. "risk") is essentially free for the government/FED (printing money etc.). Secondly, I believe that if the government failed to act to prevent another depression, the loss would be far greater - if nothing else, there would be a huge loss associated with covering of the insured deposits if a commercial bank failed (which would be very likely if any big financial institution failed, because they are so intertwined).
I do think, however, that after having been "bailed out", a business should have a very high tax rate on profits (90 - 99%) for a number of years/decades.
I don't believe making a profit was the government's intention. Stopping a credit freeze was. Would you have the US government behave as a payday loan lender? If not then what's your point?
Why couldn't the government offer those loans directly to main street until the credit freeze subsided? Just take one of the worst banks, nationalize it when it goes bankrupt, sell everything except the lending branch and use it to lend to main street with printed QE money. Divide it into bits and sell it when economy looks good again.
Yep. That worked out pretty well, on the whole; government gets to keep the upside rather than just throwing money at the same management that failed and getting nothing to show for it.
When financial services is a huge part of your GDP, and your country depends on a steady flow of investor dollars to keep the economic engine running, yes, there's a lot of reason not to wipe out equity as part of the deal.
> Either you let the company go bankrupt or you nationalize.
I vaguely agree with that sentiment, but the problem in practice is that government sucks at running things. They introduce layers of infrastructure that business doesn't and turn things into political footballs.
Although thinking about that for a moment, its a big problem on its own...
I've never had any interaction with the government that was even 1/4 as screwed up as the health insurance/hospital pairing. It's astonishingly bad.
I can only conclude that the people saying things like "think healthcare sucks now, wait 'till the government's in charge!" have never actually had to personally deal with the healthcare system.
Actually, the only thing that's hit the "1/4 as bad" mark is the health care exchange, and my problems with it are chiefly attributable to 1) no standard Internet-Age-friendly national ID card or similar, so identity/citizenship issues are still ad-hoc "send us a fax and mail us a copy of your drivers license, social security card, and birth certificate" nonsense, which is a problem with far more than just interactions with government, and 2) private health insurance is still a major part of the picture.
It's like a machine to generate stress and take your money, with treating illness as a side effect. I'd gladly take single-payer over the dubious and mostly not practically available "freedoms" our current system affords me.
"The results are remarkably consistent across all sectors and all forms of privatisation and outsourcing: there is no empirical evidence that the private sector is intrinsically more efficient"
Even if it was more efficient, $31 billion of corrupt bonuses on top = no different from an inefficient government.
> "The results are remarkably consistent across all sectors and all forms of privatisation and outsourcing: there is no empirical evidence that the private sector is intrinsically more efficient"
Exactly this. I've spent years in both sectors. People suck at running things, not governments.
At least those inefficient companies could be disrupted by startups, and at least they don't get to take my money by force (apart from subsidies and bailouts). No such mechanism exists for government. That people suck at running things is the very reason we need this rise-and-fall structure.
I think people tend to conflate government run businesses with government departments.
Government departments will often be more bureaucratic for the simple reason that they have many additional roles to their primary ones: They are subject to openness and audit criteria that no private business is; they're subject to leadership systems that need to be resilient to far more frequent and drastic changes than in most businesses; they're subject to performance measurement across a far wider set of criteria than most private businesses etc.
The UK government nationalised RBS and thus far RBS does not seem to be particularly badly run or more bureaucratic when compared to other banks, so I'm not sure there's any real evidence for this statement.
In fact the UK government is expected to make a tidy profit when it privatises RBS again.
The government hasn't told me anything about RBS. I am very familiar with it as a customer (before and after nationalisation) and know several people who work for it though, so your ideologically-driven snark doesn't really hit its target.
You should either participate in a discussion OR flag it as inappropriate, because the second you agree to engage, you believe the conversation has some merit on this forum.
Edit: I can't reply to you for some reason, but I didn't downvote you. However, saying "downvote" instead of just doing it, and then flaunting your karma score and elevating yourself to the position of de-facto moderator seems much like saying "here is MY political opinion, and now I will work to shut down any further discussion on the subject."
If no one mentions that something is inappropriate, the site will gradually migrate towards politics, because the number of people interested in that is vastly superior to the number interested in "HN" topics.
Also: I don't really care about your downvotes, because I've accumulated more than enough of this otherwise useless 'karma' that I'm happy to spend in order to make HN better by keeping politics and 'outrage stories' off of it.
I don't see why governments can't nationalise industries such as oil extraction. Seems like a lot simpler of a business model than banking and very lucrative as well.
They can and have - a nice example of this is Norway vs the UK\Scotland. When oil reserves were found in the North Sea both Norway and the UK had claims which were (iirc) roughly similarly sized. They chose completely different paths, with Norway establishing a state owned oil company (Statoil) to handle exploration, extraction and processing with stipulations on what should be done with the windfall. The UK ended up selling licenses to private companies to handle this themselves.
As a result of this Norway now has the largest sovereign wealth fund in the world. It's pretty hard to make direct comparisons given the differences in their populations and economies, but a fairly broad range (i.e. left and right [1][2][3][4]) of people seem to think that this was a wasted opportunity and that if it was managed better they'd have a lot more to show for the last 3 1/2 decades. I'd tend to agree.
edit: A little more digging seems to indicate that I was painting with slightly broad strokes. Norway do indeed operate some sort of licensing scheme according to the "North Sea oil" wiki page (http://en.wikipedia.org/wiki/North_Sea_oil), so it is not entirely operated by Statoil.
Norway certainly does have private exploration too, but note that we also levy massive extra taxes on oil companies, which adds up to something like 70% total, vs. 28% corporation tax on the profits of most other businesses.
I believe the licensing system also takes into account investment and effects on local economy to an extent that creates substantial capital inflow beyond what you'd otherwise see.
It's not the federal government, but my favorite example was a (legal) brothel went bankrupt in Nevada a few years ago. The state of Nevada took it over until they could find a buyer, and lost money on the deal.
Seriously, Nevada's state government couldn't turn a profit running a brothel.
While the data is accurate - the messenger, in this case, is Andrew Cuomo - a politician who aspires to run for President in the near-term. He had very little problem accepting campaign contributions from the financial services industry - they were his second-largest contributor by-sector.
Well, hey if we're just going to ad hominem attack Andrew Cuomo, it'd probably be much more effective to point out the recent scandal where he disbanded an anti-corruption task force because it was too effective and started questioning his friends, and that there's allegedly an active federal investigation into his affairs.
Doesn't have much to do with the bank bailout though.
The criticism usually goes in the other direction: that a politician is too soft on an industry that contributed significant campaign contributions. In the era of the Koch brothers / Super PACs, everybody has contributions from one industry or another. Unless there's something I'm missing, it would seem a positive thing overall that financial industry contributions to Andrew Cuomo's campaign didn't keep him from analyzing and stumping over their bonuses later.
Note: Andrew Cuomo is a name I'm only vaguely aware of. I don't know anything about him outside of what I've learned from the article, and these comments. I have no opinion on whether he should or shouldn't be elected. So the above would apply to any given politician who behaved similarly.
Unless I'm mistaken it is not like the people handing out bonuses and the people who screwed up are completely separate. Also it is safe to assume that any organization of a sufficiently large size will have a fixed amount of incompetent people at any level, simply as a matter of statistics. Maybe the percentage will be less where the people come from field with a (different/harder) selection process like the natural sciences/law/medicine as opposed to business administration. The banking crisis also seems more of an institutional / regulatory failure than a failure of individuals.
The pseudo-democratization of credit availability was something explicitly wanted by the government as a means of stimulating consumption. That this policy was completely misguided wasn't really the fault of the banks themselves who mainly took advantage of the admittedly ridiculous situation.
Most people are there because they got excellent grades at excellent colleges. These criteria objectively select for people who are sharp, though not necessarily geniuses, and have a demonstrated track record of working very hard and paying a lot of attention to detail and deadlines.
In many ways, banking hiring is more "meritocratic" than tech hiring. There is less emphasis on "fit" and "culture" and because new hires are viewed as tabula rasa there is less emphasis on criteria that might be gender-biased (e.g. high-school extra-curricular activities).
1) Why do you want to retain the executive that helped run the business into the ground?
It's not just "executives." Most of the staff gets paid bonuses, essentially as part of their salaries.
And there was a desire to keep these companies as on-going concerns. If you suddenly ax their pay, they quit. You can say "good riddance, they caused the problem!" But you still want to leave these companies as on-going concerns, by definition: they got bailed out.
It's not simply a matter of sweeping out all the old traders and bringing in new traders to decode the books. You need people with direct experience, if for no other reason than to unwind the deals. And you need to pay them market wages. You can point out, correctly, how high those market wages are. That still doesn't mean you can keep the company running by trying to cram down their wages.
This ESPECIALLY goes for a company that is going out of business. No one wants to work at a company that is going bankrupt; they'd rather look for a new job instead. You need to pay people extra money to stick around while the ship is sinking.
1) Bank bonuses aren't just paid to executives. These losses were from one department of the bank and that one department could have losses so large that it destroyed the whole bank. Even if you got rid of the people who fucked up, you'd have a lot of people left who didn't.
Also, the banks that failed were typically sold off to banks who healthy. The government was strong arming banks into buying weaker banks with gov loans. Goldman, Chase, BoA all didn't get trapped in the subprime mess.
2) Talent will flee to the money. I've seen this in law firms. Firms that don't properly pay their "rainmakers" lose them to firms who will.
Also, the job market for bankers was pretty bad circa 2009 so I am sure bankers would have held up a year or two until business bounced back again. Everyone in the banking industry knew that 2008/2009/2010 were going to be bad years so bonus expectations were low. Bankers/traders find loopholes and opportunities in systems (stock market, real estate, etc.) and exploit them for profit. Of course any poorly orchestrated bailout was going to end in this.
OP here. Given the current story re HSBC's misbehaviour, I thought it worth reminding everyone of the scale of the theft that took place during the bank bailout.
This, HSBC lending money to rouge nations and drug cartels, the LIBOR scandal, and not a single person is in jail.
Not to mention that the Fed made available and lent up to $7T to banks (without telling Congress) right before TARP was rushed through.
Smoke some weed, go to jail.
Do it three times, go to jail for life in CA. MANDATORY. Especially if you're black.
If these and other ongoing similar "crimes" don't convince you that we're living in an oligarchy, and our precious democracy/republic is a farce at best, well, I don't know what will.
California's three-strikes law was supported by a 72-28 vote in a public referendum. At the time of the vote, nation-wide, the public supported keeping marijuana illegal by an over 70-30 margin: http://www.people-press.org/2013/04/04/majority-now-supports....
Our drug and sentencing laws are the result of democracy, not oligarchy.
That doesn't follow. All the oligarchs have to do is carefully pick the referendum topics to achieve their agenda. You sure didn't see any referendum on whether to bail out the banks.
They then also have a working knowledge of the psychological, human, and monetary costs of a never-ending war against our own citizens, the inability to distinguish between crime and addiction and disease, the extremely regressive nature of drug addiction, recidivism rates of minor criminals in to hardened felons, the stifling effect of a felony conviction on upward mobility, and everything else proven to be utterly destructive about the war on drugs.
The majority is rarely well educated about anything. Pretending their support on the war on drugs is somehow more informed than on bank bailouts is silly.
EDIT: My apologies, I didn't realize the comment thread I had posted to was started as a comment about drug laws. I was merely commenting about my general philosophical belief that democracy is not optimal because an uninformed population should not be making decisions it is uninformed about.
I don't understand your comment, friend. I said nothing about the 'war on drugs'. Uninformed participants in a political or economic system should not be making decisions that affect others in any way. Random citizen John Smith will, out of a sense of righteous indignation, decide against any useful regulation for banks because he is upset that they get recapitalized while his mortgage terms do not get favorably renegotiated, irrespective of the intellectual value of his decision.
Banking and financial activities are fundamental to a healthy and growing economy and everything from home mortgages to credit cards to IPOs are driven by a bank's ability to extend credit and deliver banking services to the citizenry of a country. Bonuses are generally speaking a direct function of a bank's PROFITABILITY, not its ability to cater to every individual's whims and desires to become some rockstar 'rich person' or even the populace's desire to remain middle class. Services are provided, and profits are distributed accordingly.
If affecting political policy is beneficial to shareholders, decisions like Citizens United are logical and the exact type of decisions I'd want my board of directors to make, as an investor, and if that contributes to maximal economic growth then it is optimal for human society, with the exception of environmental concerns which need to be taken more seriously then they have been in our immediate past.
But we don't live in a democracy, and expect better from the Republic bound by the Constitution, which is pretty clear about unjust punishment.
If a democracy and majority rule were the true rule of the land, we may still have segregation, slavery, illegal mixed-race marriages, and so on, and so on...
Now look at what class our electorate is largely made up of. Mix that with a little Citizens United and it becomes clear again that money controls government (and now rather blatantly) and it's not often that decisions are made that benefit the weakest among us - drug policy and the war on drugs being just one example.
You're trying to tie-together two narratives that make no sense in conjunction. Do we have the drug war because of tyranny of the majority, or Citizens United money overriding the will of the majority? I'd posit the evidence shows that the majority strongly supported making drugs illegal and meting out harsh sentences, at least at the time the laws were put into place. If that's the case, the whole "oligarchy" narrative is superfluous.
If it was all paid back though, what was the magnitude of the theft? If we say 8% return was too low given the risk, the value that was stolen from the public is the marginal interest the public missed out on.
So what was the right rate of return? If it was 10%, that's 2% marginal rate not captured. How long was the term of the loans? 5 years? That works out to roughly $70B over 5 years.
I'm not claiming that's a small number (!) but if we are calling it theft, we should qualify the theft more concretely.
I don't think the bonuses is a problem per se. Companies should be allowed to pay their employee however they want, being true to the contract the employee signed, of course.
The bailout is the problem. If there was no bailout, these banks would have totally reduced the payout. They would feel the hit and have to adjust accordingly to keep the company afloat. Bailout gave them the go ahead to disregard all the losses.
It is extremely cynical for the same players to be crying for free enterprise, woe is regulation and the market always work its magic. But hey it's not their problem. We just had to be the sucker, pony up and bail them out.
IIRC, The official narrative from politicians, news anchors and think-tanks was that:
- If the bailouts didn't happen, it would be mayhem, "too big to fail", etc.
- You got your money back with interest. It was all payed back (disregard economic theory and value of money in hand).
- Why are you complaining, you banjo-playing hippie? You can't be in OWS if you have an iphone! (In Erin Burnett's voice)
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Many people will talk situations that forced the banks to hand out these bonuses and maybe they're right but the deeper problem is that when companies/banks/people suffer no consequence (and even worse, benefit from) doing illegal/harmful things then they're going to keep up doing them. profit vs "cost of infraction".
Funny, that's about the same amount of money as the budget for the NIH. Sadly, their research budget has remained stagnant for years as inflation has gone up.
Its simple. People in the money chain-of-custody always take some. Corporation board members vote one another stock. Company executives (originally normal positions like secretary and treasurer, paid a normal salary) pay one another exorbitant sums. And bank employees always get paid.
Banks are a collection of loosely related business that are only tied together by their participation in the capital markets. The equities derivatives desk has little to do with the mortgage desk which has little to do with the health care investment banking group.
As such, front office Wall Street bonuses are primarily based on personal and desk performance. In 2008 a handful of desks 'blew up' which took down the entire firm. Meanwhile equity and govie desks had a banner year. Does every desk deserve to get shafted? Do the back-office developers deserve to get shafted? I'm not here to defend the banks, but I can understand both sides of the argument. The Government should have just nationalized the banks if they wanted to control this.
I don't really think that this is that surprising or the worst thing about the recent financial crisis.
One thing about financial markets is that if everybody thinks you're doing badly suddenly they don't want to lend you money and this might do you in even if your problems had been survivable. And Lehman Brothers waited until the very last moment before telling the Fed they had a problem. So the Fed insisted on throwing money at every financial institution - even the ones that were hugely profitable during the crisis.
And if your company is short on money or dying the last thing you want to cut is bonuses. If your employees smell blood they'll be thinking about jumping ship. If you stop paying salary but leave bonuses intact you'll do better at keeping people at their desks until until they've finished wrapping the company up. And if somebody screwed up in a way that contributed to the crisis they should be fired and replaced, not have their bonus cut.
THere were a lot of things that should have been done differently in the crisis. Investors in insolvent companies really needed to be wiped out to encourage them to take better care in the future. Interest On Reserves was really not needed to prevent the economy from overheating the way the Fed feared (the Fed works with numbers months out of date and they still thought the larger economy was fine and that inflation has highish when the crisis hit). The bonuses are at best a distraction but one that's easy for politicians to make sound bites out of.
an industry driven by greed is greedy... why am i not surprised.
that stuff needs some regulating. its all well and good making everyone richer and deregulating to encourage it, but if the gap widens, because of how the economy works, the poor get poorer in real terms :(
>Until people go to jail for the crimes (see Iceland) nothing will get fixed.
This is such a bizarre argument. You don't think there were/are oodles of prosecutors frothing at the mouth to throw some bankers in jail? Look around the internet! They'd be heroes! The public would rejoice, yet it hasn't happened, because proving that some of the perceived corruption and missteps are actual crimes is, apparently, more difficult than you think. And I don't want to live in a country when the government can decide, willy-nilly, to throw corporate executives in the slammer.
Second, tthrowing here are far more effective means of "punishment" than some low-ranking employee in white-collar prison (which costs us MORE money). Fines have been used, which punish earnings, executive pay, and shareholders.
Waaat. I think the government should stop bailing out businesses. Either you let the company go bankrupt or you nationalize.
Also I clearly need a job in banking...