Wall Street firms that figured their lavish pay practices might escape public outrage and scrutiny once they paid back their bailout funds have come in for a rude awakening.
In the wake of revelations that Goldman Sachs, JP Morgan and other big banks plan to distribute a record-breaking $74 billion in bonuses after a prosperous half-year of trading in the financial markets, members of Congress and their constituents are refocusing on what they consider to be overpaid Wall Street employees. The House moved last week on legislation to severely restrict future financial pay.
Wall Street firms sought to head off public opposition by meticulously repaying bailout funds from the Treasury before announcing the bonuses.
Goldman and JP Morgan bought back stock warrants given to the Treasury. By the letter of the law, that freed them from restrictions on executive compensation imposed by Treasury under the federal bailout program.
Still, it didn’t stop a renewed outpouring of criticism from Congress and the American public.
Labor unions and other Democratic groups decried the overcompensation and short memories on Wall Street, and the House approved a bill to prohibit risky financial pay practices through broader regulation and require executives at all corporations to give shareholders a “say on pay” packages.
“As millions of families struggle just to hang on to their homes and get through the next month’s bills, the architects of the economic crisis are using our tax-dollar bailouts on the kind of bonus money that finances glitzy Upper East Side penthouses and glamorous Riviera getaways,” said Andy Stern, president of the Service Employees International Union.
Congress also is honing plans to levy heavy taxes on the rich to pay for an expansion of health care and other government programs, and Wall Street for decades has hosted the world’s wealthiest enclave of millionaires and billionaires.
Robert Shapiro, who was an economic adviser to President Clinton and now heads NDN’s Globalization Initiative, a center-left economic think tank, said giant bonuses on Wall Street were widely thought to have helped cause the financial crisis last year.
“The old practices that got us into this mess still go on,” he said, noting that Goldman Sachs and other Wall Street firms that made big profits trading in stocks, commodities, currencies and other markets this year plan to distribute the bonuses as they have in the past to employees who helped generate such large, short-term profits. The problem is, he said, some of their trading strategies — such as placing big, leveraged bets on rising oil prices or a fall in the dollar — might involve substantial long-term risks and losses as well.
The incentives for taking inordinate risks to reap short-term gains have only increased on Wall Street since last year, Mr. Shapiro said, because the top banks and Wall Street firms know the federal government is ready to bail them out if their trading and investment strategies fail. Should their risky activities result in bailouts, the traders who created the problems likely will have long departed and taken their generous bonuses with them.
“These compensation practices have to go,” Mr. Shapiro said.
Goldman and other Wall Street firms apparently took pains to avoid a backlash after the rage over bonuses at American International Group Inc. earlier this year.
In its rush to be free from federal pay restrictions, Goldman was among the first to repay its bailout funds and may have overpaid Treasury to buy back its stock warrants. Meanwhile, it quietly urged employees to avoid any conspicuous consumption that might attract attention, according to reports circulating on Wall Street.
Goldman trumpeted last week that the taxpayers had made a 23 percent return on their investment in the company — the same as Goldman’s own returns on equity during the second quarter. But that did not prevent a new round of finger-wagging by members of Congress or an investigation into the company’s pay practices by federal regulators, which was disclosed in a Goldman regulatory filing this week.View Entire Story
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