For all of pay czar Kenneth Feinberg’s efforts, bonuses on Wall Street show no signs of slowing. Goldman Sachs, Morgan Stanley, and JP Morgan Chase & Co. (all of which have paid back their TARP obligations) are reportedly paying $30 billion in bonuses this year.
There is a very simple reason that people on Wall Street are making so much money and will continue to do so, no matter what pay cuts are imposed. It is because there is still so much money to be made.
Over the last few decades, the too-smart-for-their-own-good set on Wall Street has become incredibly good at using money to make money through a devil’s dictionary of obscure trading strategies, as well as a rough fee structure for clients. In both areas, they have taken advantage of lax regulation and even laxer enforcement.
Consider: In the 2000s, the finance sector accounted for an absurdly high 41 percent of domestic corporate profits. Between 1973 and 1985, it never accounted for more than 16 percent; it has risen steadily since. In other words: an absurd amount of the wealth in this country is going to the bankers.
As long as this is the case, bonuses will continue to be absurd. Pay is a consequence of this distended economy-wide profit pie, not a cause. As long as there is money on the table (and there is), the clever folks in investment banking and hedge funds will find a way to make sure they’re the ones pocketing it.
The financial services regulation moving through the House and Senate will take some of this money off the table (though probably not enough), and may close some opportunities for making money out of the global economy through gouging and speculation (though, as I suggested in an earlier post, a financial transaction tax would make this more effective). But the important thing is that a Wall Street with a smaller place in the economy is also a Wall Street that will simply have less to pay its people.
Tags: Banking, Economy, Executive pay, Financial reform
