Saturday, December 23, 2006

The Wall Street Bonus Story Across the Atlantic (And Get A Load of the Punch Line)

Record breaking bonuses have hit the headlines. $40 million for one, $53 million for another CEO of a Wall Street powerhouse. According to an insider, it's because there's too much capital flowing around with no place to go. I believe this, and it confirms my Excess Global Credit theory. (See my article on the subject.)

[Title of this photo from "How to Spot a Rich Guy"]

Here is a translation of parts of a commentary I found in the French press about what's going on in Europe. (Authors: Sabine Limat, Laurent Mauriac)

"Those with the big bonuses, please raise your hand

"The figures are indecent.... For a small handful of finance industry employees, the Christmas bonuses are the evidence. When the stock market explodes, when companies are merging as fast as they can, money floods through the large finance houses. And the amount of the "tips" becomes stratospheric.

"Jackpot. The explanation is as cold and hard as this one from a Wall Street analyst who has requested anonymity: 'The bonuses are a function of profits. Clients of Wall Street businesses have too much money. We are swimming in capital. There is too much capital available and not enough investment possibilities. American companies have restructured over the last five years. They are presently reaping in colossal profits.' And that's how, this year on Wall Street, ... bonuses have increased 17% to reach 23.9 billion dollars, and as much as 30% in the five top financial firms (Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns). The latter will be distributing 36 billion dollars in bonuses to their 173,000 employees around the world.

"Not all will hit the same jackpot. But for certain ones, it's better than the Lottery. Lloyd Blannkfein, nominated in June to head Goldman Sachs, will receive 53.4 million dollars. This is a record. Included in this sum is 27.3 million in cash, 15.7 million in stock and stock-options for a value of 10.5 million. Next to that, his salary of $600,000 looks positively skimpy....

"Symbol. With their Ferraris and their customized Bentleys, their "pied-a-terres" in Holland Park or Chelsea [London] bought for 5 million pounds cash without a flinch, their private jets and their Barbados vacations, the young and not-so-young young go-getters of London have no reason to envy their New York counterparts....

"... [A]ccording to a report published in October by the London Center of Economic and Financial Research, 4,200 of the 335,000 [financial] employees in the city will each receive a bonus this year of more than 1 million pounds (1.5 million euros [or 2 million dollars]).

"That's what life is like in those grand financial circles, even in Paris, where things may be done more discretely**.... Remains the question asked by our Wall Street analyst: 'If you have a good career, you have probably already put 10 to 30 million dollars away. What's the use of 5 million more?' His own answer: 'For these people, it has become a symbol, a confirmation of their professional excellence.'

"The 120 members of the clean-up crew of the London offices of Goldman Sachs will certainly appreciate this logic. They just went on strike last week, to protest against the company's refusal to increase their wages."

**My next post will be another article on the bonuses received by the big five's higher-ups in Paris.


Anonymous Anonymous said...

In the case of London and the story of the bonuses there is another dimension. When considering the rights and wrongs of taxing the large financial bonuses paid out to people of the city of London one must understand why the City of London is so profitable. This stems back to the need to run an empire. Back then we needed to send one person to India to run some large area on his own. It was absolutely essential that this person was honest and had integrity. For over one hundred years the top schools such as Eton and more recently places such as Gordonstoun, instilled in the young ones clever psychological rewards for being honest and telling the truth. I remember myself lying and the Master of Gordonstoun asking me to walk to the town of Elgin but "nobody will check on you", such that I could have stayed in my dormitory and not done it. These psychological sorts of punishments had the effect of instilling honesty in the children. Over 100 years, the lower classes copied the upper classes, so that the only dishonesty we hear about in low classes is the small "fiddle" which pales in comparison to the dishonesty in places such as latin america. Britain is perhaps the only place in the world where you take your change in the shop and do not count it. It turns out that anyone with money anywhere in the world wants to put the money in London, as this place is safe. Consider that the Swiss government cheated the jews out of their money, and more recently (in the 1980s) a large German bank borrowed large sums overnight and declared itself bankrupt in the morning, something no English bank has ever done or ever will do. In our society there is trust and hardly any checking of any sort. In summary, the success of the City is due entirely to the culture of the British people, and the money flows everyday for that reason. These traders, bankers and lawyers simply benefit from this, the money comes into their pockets as commission. Surely, nobody in their right mind will think that the bonuses are actually earned!!? For this reason, these bonueses and profits should be heavily taxed by Gordon Brownn. The Chineses and others are listing their companies in London for this reason of the honesty of the British culture and nothing else. Surely nobody could imagine that these ignorant traders and bankers and lawyers have any knwoledge? Can any of these accountants compare with the engineers and scientists who run silicon valley? of course not. They know nothing but they just happen to have their mouths on this open tap of money that pours into the City and take their 1% commission of it. If more flows in then they make more without any effort. An anecdote might serve to illustrate these points. A reader of my blog mentioned that in his native city of Neath in Wales he once saw a poor youth being nearly kicked to death on a Friday night (a regular occurrence) and some money fell out of his pocket. One of the attackers wanted to help himself but another cried "no, that is stealing". So it was OK to nearly kill this fellow but completely wrong to steal from him. This is an important insight. Although many of the "barrow boys" are employed as traders, the perception is that London is being run still by the elite upper class, the gentlemen who would never cheat you out of your saving or investment, and this is why the bonuses there are particularly big. For this reason I support very large taxation. The bonuses belong to all of the people of Britain for they have created the climate for these investments through their honest behaviour over the centuries. If we tax them these traders cannot go elsewhere. The market is here because of the culture of the country, a superior culture to that of the Italians, French, Germans and others who are comparatively more dishonest nations!

10:10 AM  

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