"As long as the music is playing, you've got to get up and dance. We're still dancing."
These now-immortal words of former Citibank President Charles "Chuck" Prince were uttered in July, as Citibank was about to lose billions in everything from mortgages to credit cards. Prince departed with a reported $68 million good-bye package. Stanley O'Neal, who led Merrill Lynch to write off a record $9.9 billion in last quarter, departed with a $161 million severance package.
Now the top five Wall Street banks - three of whom racked up record losses - have announced that they are paying their employees a record $39 billion in year-end bonuses. Hemorrhaging losses, Morgan Stanley, Merrill Lynch and Bear Sterns had to increase the percentage of revenue they devote to pay to ladle out these bonuses. So much for pay for performance.
Bank spokesman were not exactly lining up to justify this, but Jeanne Branthover, managing director of a global search firm, helpfully explained: "It's essential that pay is still there or you're going to lose really good people."
Well. Is she talking about the really good people whose feckless speculation is now pushing the global economy into recession and will cost hundreds of thousands of Americans their homes? The really good people whose "dancing" got so risqué that the somnambulant Federal Reserve just issued new regulations requiring bankers to assess whether the borrowers they are lending money to actually have a blue moon chance at repaying the loan? The wizards who, as Allan Sloan points out in The Washington Post, spent the last couple years buying back their stock at the top of the market, only to be forced to sell it off to foreign investors at the bottom in the desperate effort to keep from going belly-up?
Merrill, Sloan reports, bought back stock at $84 per share earlier in the year, only to sell over $12 billion in common and preferred stock at roughly $49 a share in the last weeks. Citibank, Sloan notes, purchased $20 billion of its own stock over the past two years, paying around $53 bucks a share last year, and just was forced to raise $20 billion from the sovereign funds of Abu Dhabi and Singapore in complicated options that price around $30 a share.
Stock buyback plans do help elevate the stock price. And that, of course, makes executive stock options more valuable. And that is likely the next thing we'll learn about these really good people. They've pushed the economy over the cliff, led their banks to the verge of bankruptcy, fed the folly that will cost families their homes - but they pocketed the stock options at the top, and walked away with bonuses at the bottom.
No wonder Martin Wolf, economics editor and columnist at the establishment Financial Times, is now calling on the U.S. government to regulate banker pay. But don't worry, Congress and the Fed are too busy dealing with the mess to even consider such heresy. Keep dancing, Chuck.