On the heels of my last post, in which I asked if anything has changed on Wall Street, I offer a scathing criticism of Wall Street written by Pulitzer Prize winner Chris Hedges. While Hedges makes gross generalizations about the morality of investment bankers, and perhaps capitalism itself, he does offer some real food for thought. Although, I would argue that perhaps comparing Goldman Sachs to that of al-Qaida is a bit radical.
“No one thinks in groups. And this is the point. The employees who advance are vacant and supine. They are skilled drones, often possessed of a peculiar kind of analytical intelligence and drive, but morally, emotionally and creatively crippled. Their intellect is narrow and inhibited. They rely on the corporation, as they once relied on their high-priced elite universities and their SAT scores, for validation. They demand that they not be treated as individuals but as members of the great collective of Goldman Sachs or AIG or Citibank. They talk together. They exchange information. They make deals. They compromise. They debate. But they do not think.”
…
“This is why firms like Goldman Sachs are more dangerous to the nation than al-Qaida.”
Tuesday, January 12, 2010, 01:24 | posted in musings | no comments »
Last month, Bank of America announced that they were paying back TARP funds, largely to escape the wrath of the so-called pay czar. Kind of hard to hunt for a bank CEO while telling him a bunch of Silicon Valley youngbucks will make more than him/her, eh?
Beyond bringing on Brian Moynihan as their new CEO, BofA is also focusing on employee retention. Company spokesman Robert Stickler has emphasized the need for the bank, whose 2009 investment banking and capital markets fees trailed only J.P. Morgan, to keep their compensation competitive. ”If we don’t do that, we lose our talent.” The NY Times is reporting that bonuses are back at other firms too. Goldman Sachs is reportedly paying out an average of $595,000 per employee and JP Morgan Chase at a rate of $463,000.
So what has changed on Wall Street since the financial collapse? Not much. Bank of America is reportedly paying out bonuses near 2007 levels. 2007 was not a record setting payout year by any means, but still significant. In the wake of the crisis, Bank of America has recorded outsized losses and analysts are still expecting a loss for the last quarter of $0.50 per share. Should shareholders be opposed to the alarming “fat cat” bonus figures?
No.
Bonuses and big pay packages are generally frowned upon politically and popularly in economic situations like the one we are facing. I would argue, however, that keeping bonuses competitive, even while the firmis losing money, is indeed in the interest of shareholders. Investment banking fees generate huge revenues for Goldman, JP Morgan, and BofA. The truth is, bankers work lousy hours under ungodly amounts of stress. Are six- and seven- figure bonuses still excessive for working 80+ hours a week? Well, yes. They are. I am just glad I am not the one doing it.
With the additions of Countrywide and Merrill Lynch to their already capable organization, BofA will most likely end up an even bigger powerhouse in the financial industry. Long-term shareholders do not have that much to worry about. But indeed, it takes money to make money. And as long as there are deals to be made and some other Wall Street firm is paying out ridiculous bonuses, matching the competition dollar for dollar will continue to be a reality, whether we like it as shareholders or as a member of the general public. <sarcasm> Long live the Wall Street bonus. </sarcasm>
Full Disclosure: At the time of publishing, the author held a long position in Bank of America (BAC).
Sunday, January 10, 2010, 23:56 | posted in the markets | 1 comment »
