"A recent report from the New York attorney general's office said nine banks that received government aid paid bonuses of nearly $33 billion last year - including more than $1 million apiece to nearly 5,000 employees." (Wall Street Journal)
"CitiGroup told the U.S. Treasury Department that energy trader Andrew J. Hall, with a pay package of $98 million, and a second unidentified trader who was paid more than $30 million, were exempt from [Pay Czar] review." (Reuters)
"I don't think the American people begrudge that people make big salaries." White House Spokesman Robert Gibbs referring to Wall Street bonuses and salaries. (Wall Street Journal)
Speak for yourself Mr. Gibbs. I got a whole lot of begrudging in me and here's why. We basically own those nine large banks. Without the trillions of dollars of bailouts and loan guarantees we provided, they all would have gone belly-up -- each and every one of them. There would have been no profits, no bonuses, nada.
We saved their butts because at the time it seemed like the only way to stop another Great Depression. Even with the enormous bailouts and stimulus funds, presently over 25 million Americans are unemployed or forced into part time work because of the lack of full-time jobs. I wonder if they are or are not begrudging those "big salaries," which actually are nothing more than welfare checks.
I voted for Obama and hoped he would do the obvious: put a lid on Wall Street's excesses including its sense of entitlement and astronomical salaries. I was hoping against hope that he'd do something sensible like cap all Wall Street salaries at $500,000 at least until the unemployment rate came down to 5 percent. Such an effort would have been a sign of social solidarity. It would have been fair. It would have been just, since it was Wall Street's gluttonous embrace of baseless fantasy finance that set the stage for the recession in the first place. (For a guide to this history and the workings of the casino see The Looting of America .)
Here's what I'll never forget: During the three years leading up to the crash, nine of the largest commercial banks made a whopping $305 billion in profits. Approximately half of that was doled out in bonuses. Since the crash these same institutions lost all of that and more when the world discovered they were raking in profits by selling toxic assets. The bankers and traders, to be sure, didn't pay back any of their gains or make up for the enormous losses. Now that Wall Street is getting on its feet again and we forget that it is doing so because we are bailing it out each and every day. The bonus money they are earning right now is our money. Yes, Mr. Gibbs, I begrudge giving it to those who wrecked the economy. I would rather drop it from an airplane over Detroit.
So why the lack of nerve on the part of such able politicians? First of all, they seem to truly believe that Wall Street profits and high salaries are necessary for our economic survival. Here's how Treasury Secretary Tim Geithner put it: "The fact that the core parts of the U.S. financial system look like they're profitable is overwhelmingly good." It is "a necessary precondition to a stronger economy."
They believe that profitability leads to investor confidence, and the vibrant capital markets needed for a revived economy. But all this assumes that the "core parts of the financial system" don't again turn into a fantasy finance casino.
Second, they worry that the best talent will flee if they don't get the kind of rewards they are accustomed to - which means paying them what they "earned" when they were milking the fantasy finance casino. But the administration has itself to blame for this trap. Had they instituted a wage cap across the board, there would be no place to run to. That would have knocked the living crap out of reckless risk-taking because the rewards would have seemed paltry to our over-privileged bankers and traders.
Finally, the administration seems to believe that its tepid reforms can separate the high salaries earned for necessary banking functions from the high salaries earned for rapacious rip-offs. As Mr. Gibbs says, "The president continues to believe, as he has long before he got here, compensation has to be based ... not on reckless risk-taking , but on value that you're providing and doing so in a way that doesn't jeopardize your firm or taxpayers." That's like believing in the tooth fairy. Please someone tell me how an entire sector that is on taxpayer life-support is creating value that justifies high salaries and bonuses? I'd like Mr. Gibbs to explain to unemployed manufacturing workers how Mr. Allen's $100 million compensation package from Citigroup added value to the U.S. economy.
I too want to believe in the tooth fairy. I want to believe that all of this will work out - that the financial sector will revive, that compensation will be severed from reckless risk-taking, and most importantly, that there will be more than enough decent jobs for the 25 million who are suffering today due to no fault of their own. I want to believe all of this because I worry about a right wing populist revolt catching fire among all those who do begrudge these ridiculously high salaries. I can easily imagine a clever demagogue (or a not-so-clever one like Governor Sarah) going from unemployment office to unemployment office waving a copy of Mr. Allen's $100 million check: "Here's what Obama did for Wall Street. What did he do for you?"
But most of the time, instead of the tooth fairy, I believe in power. And the bankers are strutting their stuff. They're taking our tax dollars and using them to lobbying against all of Obama's reforms. They're selling synthetic derivatives again. They're making the pay Czar look like a wimp. They've even got Mr. Gibbs championing their cause for high salaries.
But Mr. Gibbs, you've got it wrong. The American public does indeed begrudge the bailouts and the lavish salaries going to those who milked the system at our expense. We've got every right to do so. We'd be crazy not to take exception to being ripped off so badly and baldly. It's high time the administration sided with legitimate populist anger rather than with the well-rewarded elites. Unless it does so it a hurry, all of its reforms will crumble at the hands of those with fewer scruples and more determination. We will lose health care reform. We will lose financial reforms. And we will lose the best chance we've had since the Great Depression to make the system work for working people.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.