Bonuses Make a Comeback

Shea Howell

It is hard to believe that Wall Street does not recognize it has failed. Late last month, America’s largest financial firms revealed they have gotten back into the bonus business. 

Wall Street’s inability to reflect on what it has done does not bode well for President Obama’s latest effort to corral greed.

While GM and Chrysler were trying to stave off bankruptcy during the first three months of the year, six of the biggest banks set aside over $36 billion to pay their employees. Analysts predict that workers at many recently bailed-out banks will see their pay exceed what they earned before the crash. Much of this compensation will be in bonuses.

While auto companies renegotiate contracts and reduce healthcare and pension benefits, the wizards of Wall Street say, We’re being realistic. We have to retain our human capital.’ This is the rationale Goldman Sachs invoked to set aside $4.7 billion for pay in the first quarter, positioning itself to provide $569,220 per employee this year, almost the average salary its workforce earned in 2007.

The only difference between the pre- and post-bailout bonuses is public understanding. Most people know that the skewed financial thinking of Wall Street is part of the reason we are in this catastrophe. The only people who seem to have not gotten the message are those running the banks.

Instead of rethinking their approach to business, Wall Street is continuing to follow its traditional formula of paying about 50 cents in compensation for every dollar of revenue. Banks are following this even as they lose money. Morgan Stanley, for example, had a terrible first quarter this year, losing $578 million. Meanwhile, they set aside $2.08 billion for compensation. Banks argue that part of the reason compensation has returned to such high levels is because they have reduced their workforce. Citigroup, for example, has reduced its staff by 65,000 people since the recession began, but says it can pay its remaining workers what they have earned in the past.

The inability of Wall Street bankers to reflect on what they have done and why they did it does not bode well for President Obama’s latest effort to corral greed. Late last month, he met with 13 credit-card company executives to talk about reforming their industry. The days of anytime, any-reason rate hikes and late-fee traps have to end,” he said. No more fine print, no more confusing terms and conditions.”

President Obama pointed out to the assembled executives that when the prime-lending rate is 3.25 percent, double-digit credit card interest rates are hard to defend. In fact, 20 percent of Americans are paying 20 percent interest – or higher – on their credit-card balances. And that debt is massive: The average U.S. household credit-card debt is $10,679.

The fact is, consumer credit cards pushed by banks have transformed the U.S. economy just as much as Wall Street’s securitized sub-prime mortgages and derivatives. 

Our collective consumer debt now stands at $900 billion; that’s a staggering 9000 percent increase over the $10 billion in debt we had 40 years ago. Nearly one-quarter of all Americans spend more than 10 percent of their income on credit-card payments – yet these payments often don’t even reduce the outstanding debt. 

Hidden fees, accounting tricks and fast-changing interest rates can combine to escalate the debt of Americans who faithfully meet their obligations. These practices are enormously profitable; by some estimates, 75 percent of credit-card company profits come from people who make minimum payments every month.

Current efforts in Congress – including the Credit Cardholders’ Bill of Rights,” passed overwhelmingly by the House last week – would likely limit some of the worst banking practices. 

New and enforced regulations may be the only way to stop bankers’ greed. But the rest of us need to do some serious reflection about our own responsibilities to rein in a financial system that is clearly out of control.

[Editor’s note: This article originally appeared, in slightly different form, in The Michigan Citizen.]

Shea Howell is a professor and chair of the Department of Communication and Journalism at Oakland University in Rochester, MI, where she teaches courses on communication theory and multicultural and political communication. Her most recent book is Making Sense of Political Ideology. She is currently researching the rhetoric of globalism.
Subscribe and Save 66%

Less than $1.67 an issue