Wall street’s bankers mock the world with record bonuses

Goldman Sachs is going to pay bonuses between $22 and $23 billion to its employees in 2009. Goldman Sachs' spokesman tries to defend the company on Wednesday’s press conference: “The easiest way to destroy our company would not pay our staff».


One year after Lehman's bankruptcy, Wall Street’s banks are going to pay record bonuses to their staff. We all know that bonuses encourage the risk taking behavior of brokers and analyst. Then why banks are still paying huge bonuses to them employees, knowing that bonuses reward only performances and don’t sanction any kind of high risky activities?

Hidden behind this shocking news that made the headlines for several days last week in most of the financial newspaper, the failure of Obama Administration is obvious. Two weeks ago, I wrote an article over the G20 regulations which was suppose to draw the basis for futures national law in every partaking country. In the United States, Obama Administration struggled against lobbyist to implement those reforms; and the bankers won.

My first reaction while I was reading this news was to smile. But I couldn’t believe that only one year after Lehman’s bankruptcy, Wall Street’s bankers could announce without any complex that they are willing to pay such fortune to their staff; while world’s economy is still struggling in the crisis they started; while American’s families are still struggling to get loan from banks; while so many people lost their jobs and are still unemployed. I couldn’t believe that after G20 reforms of last September Obama Administrations totally failed to avoid that kind of excess.

Moreover, one day later Reuter published on his web site: « Obama wins first financial reform victory in months »: “The Obama Administration scored its first financial regulation reform victory in months on Thursday when a U.S. congressional committee approved new rules for over-the-counter derivatives”. But which victory? I couldn’t understand how this headline could be so positive after such announcement from Wall Street. The regulation of the financial system in the United States takes too much time while the World is waiting for fast answers. From my point of view, there is no victory, only a weak US Administration scared of implementing necessary reforms.

All around the world, some media organizations report the news with shocking headlines, others try to explain/defend bankers’ point of view.

Most the US press was shock Wednesday 15th after Goldman’s announcement, and complain about the excess. However, some of them try to explain the next day these excess.
The New York Times wrote on 15th 2009 “Bonuses Put Goldman in Public Relations Bind” (G. Bowley). In this article, he criticized Goldman Sachs’ decision of paying high bonuses: “While many ordinary Americans are still waiting for an economic recovery, Goldman and its employees are enjoying one of the richest periods in the bank’s 140-year history.. For Goldman employees, it is almost as if the financial crisis never happened..” even if after the author propose a more balance view. One day later, on Thursday 16th2009, they published “Bailout Helps Fuel a New Era of Wall Street Wealth” (G. Bowley) which was more comprehensive with the bank’s decision. They try to explain how it was possible for these banks to pay colossal bonuses starting the article by: “Many Americans wonder how this can possibly be. How can some banks be prospering so soon after a financial collapse, even as legions of people worry about losing their jobs and their homes?”. It also focus more on the current welfare of the company rather focuses on bonuses, trying to minimize these shocking facts. I was really surprise by the subjectivity of these words, because the NY Times was from my point of view a quiet objective newspaper, giving some comments without defending one side.
On the other hand, the Wall Street Journal wrote on 14th 2009 “Wall Street on track to award record pay” (A. Lucchetti & S. Grocer). It was more objective, describing the fact without too many comments around them. They didn’t put the sensational element in their articles.
However, from my point of view, it is interesting to point out that none of them (US press) spoke about any failures of Obama Administrations in the regulation’s process.

In France, Le Monde published on Wednesday 15th: « L'exubérance retrouvée de la finance américaine » and the Belgian newspaper L’echos wrote “Les bonus bancaires en passe de battre des records”.Both newspapers report the news the same way. They gave an objective view of the news quoting the Wall Street Journal for the numbers and figures. During their analyses they also quote Peter Kennen, professor at Princeton University, saying the banks didn’t learn anything from the financial crisis of 2008. They also described Obama Administration failure in the regulation process.

However, while I compare the NY times & the Wall Street Journal with Le Monde & L’echos, I could easily find the two major streams in the modern finance back: The American view and The European view. The American view is based on the shareholders’ wealth maximization model while the European view is base on the stakeholders’ wealth maximization.

Finally, Bloomberg published almost the only articles that went deep in the Obama Administration’s failure. They published on 16th “Obama Administration Pushes Back at Bank Lobbying on Regulation”( J. Goldman), an article describing the frustration of White House officials: “We are disappointed by the lobbying of anyone in the financial industry against regulatory reform, considering the obvious need for change on that front,” Valerie Jarrett, a senior adviser to Obama, said. I was happy to read finally about the real news covered by the shocking headlines. They went really deep in the subject, quoting different personalities and thus giving the opinion of the most important protagonist.


Q. Piloy

Sources:

http://www.reuters.com/article/wtUSInvestingNews/idCNN1529956320091016?sp=true

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6arFvXkIf_8

http://www.nytimes.com/2009/10/17/business/economy/17wall.html?em

http://www.nytimes.com/2009/10/16/business/16bonus.html

http://online.wsj.com/article/SB125547830510183749.html

http://abonnes.lemonde.fr/archives/article/2009/10/15/retour-a-l-exuberance-pour-la-finance-americaine_1254197_0.html

http://finance.blog.lemonde.fr/2009/10/15/140000000000-les-bonus-2009-de-wall-street/

http://www.lecho.be/nieuws/archief
/Les_bonus_bancaires_en_passe_de_battre_des_records.8245620-1802.art?highlight=Bonus

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axePKeIA7Xx8

Asia tries to support US$

Without any official announcement, some analyst report on friday morning that Asian central banks are trying to stabilized the plummeting dollar by selling them currencies, or (in the same way) massively buying dollars. South Korea, Indonesia, Thailand and Hongkong steps in the hurry on Thurday.

Reading this news on the FT front page on Friday, I wasn’t really surprise. Like every week, it is easy to find out some kind of element describing the current situation of the new financial world. In my opinion, this is clearly another signal that is financial world is strongly changing, shifting to the East.
Still, I was wondering if Asian counties were strong enough to save the US currency? From my point of view, no yet… and particularly not without China. But then, why are they trying? Another key element to analyse would be how was this story reported around the world?

The first question is a quiet easy one for someone how knows something about international economy. First, South-East Asian economy is strong related with the US economy, and some of the South-East Asian countries’ currency is on a fixed exchange rate with the dollar. Secondly, most of these countries export a lot to the United States. If the dollar is weak, the value they will get for the sold goods will be lower. Therefore the balance of payment of the country will be affected by the falling dollar. Other way around, the balance of payment of the United Stated will be boosted by the falling dollar. That is one of the well know explanation for the current situation of the US dollar, and why the US government didn’t do anything to stop the fall.

However such gross information should normally not be distorted, media organisations this week reported the news with quiet similar headlines. Still the way to report the news could, in my opinion, influenced readers incapable of self analysis.

Starting with American point of view, the New York Times didn't report the news at all. I have been searching through the whole web site without finding anything. Knowing that the NY Times is one of the major newspapers in the country, this fact teaches us lot about the American point of view. Going deeper in my research, I could verify my first impression: American press wrote more the last few months about why it is good for American economy to have a weak dollar than about Asian countries gaining power on the international scene.
The Financial Times, standing in my point of view as an objective western press, was the first to report the news on Thursday. We can find a lot of article on the web site talking about the same subject, with approximately the same facts. Headlines were quiet similar: Asia steps in to slow dollar's fall (Kevin Brown in Singapore, October 8 2009), Asia tries to slow decline of dollar (Kevin Brown in Singapore, October 9 2009), Dollar's slide forces Asian central bank action (Chris Flood, October 9 2009). On the one hand, they explain the dynamics, issues and solution quoting some economist and analyst such as Marco Annunziata, chief economist at UniCredit, but on the other hand they cover the news quiet briefly, without going deeply in the detail of the amount of money that were injected by the central banks and what exactly could happen in the future.
In the same way, the French newspaper Le Monde wrote “Pour enrayer la chute du billet vert, les banques centrales d'Asie interviennent” (To stop the falling US currency, Asian central banks step in). This newspaper could be compare with the Times in the way they report the news. As in the FT, Le Monde didn’t get in deeply in the story. They also reported but this time with more detail the dynamics, issues and solution quoting some economist and analyst. In my point of view, Le Monde is an objective newspaper supposes to hit the intellectual range of the population. However, we don’t get a lot of information about pure economical or financial data.
Although, this article covers what we can call the 2 versions of the story: How the dollar hit the Asian countries and in which way the Asian counties are trying to save the US currency or in which way Asian countries become economically stronger. The Financial Times didn’t cover it.
Going back to my local press in Belgium, the Flemish economical newspapers De Tijd wrote :"Aziatische landen snellen dollar te hulp" (Stijn Demeester, Oct 8 2009). It has an interesting introduction quoting the Financial Times : "the several Asian central banks trying to keep the dollar up". I couldn't really learn more about the story, basically because De Tijd used as source the FT, on which I already red about the story. However, it didn’t really surprise me that local press, with a limited budged, used reliable international press to built up some of there articles.
Finally, I had a look on the Bloomberg web site, which provides a lot of different articles that were each specifically dedicated to one fact with specifics economical and financial data. Knowing exactly what I was looking for, it was really interesting to read about specific data. On the other hand, it can be confusing for a not acute person.

To conclude, American press still doesn't want to see the world changing and try to put Asia as the cause of their fall, while the European press is more balanced. The FT didn't really get deep in the story while Le Monde covers both side of the story. So did Bloomberg too. But with more data, percentages and details analyses where a non acute person can get lost.

QPiloy

Sources:

FT :
http://www.ft.com/cms/s/0/1c21d6fc-b469-11de-bec8-00144feab49a.html
http://www.ft.com/cms/s/0/7023f75e-b468-11de-bec8-00144feab49a.html
http://www.ft.com/cms/s/0/a697ef1c-b43a-11de-bec8-00144feab49a.html

Le Monde :
http://www.lemonde.fr/la-crise-financiere/article/2009/10/09/pour-enrayer-la-chute-du-billet-vert-les-banques-centrales-d-asie-interviennent_1251690_1101386.html#ens_id=1216746

De Tijd :
http://www.tijd.be/nieuws/economie-financien/Aziatische_landen_snellen_dollar_te_hulp.8242901-600.art

Bloomberg :
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aCpqAvAofcPU

Regulations could led to lower global growth?

This week, we could read in the major newspapers about the G20 new regulatory guidelines of the global financial system and how these will be applied in the United States, United Kingdom and continental Europe.

In Pittburg September 23-24Th, the G20 decided to raise the bank's equity capital level while the bonus of traders and of senior management team will be will be more strictly supervised.

Tuesday October 29Th, Le Monde publish : "G20 : deux banquiers français saluent de « sages » décisions", Anne Michel ( "G20 : Two french banker welcome the wise decisions").
Baudouin Prot, CEO of BNP Paribas, and Frédéric Oudéa, President of Société générale, expressed that on the one hand the leverage ratio has to stay under control to avoid future bankruptcies (Lehman's case & The financial crisis) and on the other hand, the implemtation of international regulations on bonuses and variable incomes was compulsory. French banks have already implemented some of these reforms and will try to apply them fully during the following weeks.
They are pleased to welcome such international decisions but they know that there is still a lot of work to carry out these reforms on the international sceen.

Two days later, the Financial Times publish : "UK banks face tougher bonus curbs than us",K. Guha & P. Jenkins, 01.10.09. "A diver has emerged between Europe and US over how implement new Group of 20 rules on bankers' bonuses..".
As a matter of fact, British government was pleased to announce on Thursday that British five major banks agree to apply the bonus restriction policy of the G20 summit, while Washington tries to explain his reluctance for this new wave of international reforms by a more "balance" view. "The nature of the business involved is so diverse that banks need to be given flexibility to come up with the right package for each type of employee", report the Financial Times.

Today, we could read on Reuters web site (Don't resist reform, G7 policymakers tell banks, Oct 4 2009) as well on the FT web side (Ministers hit back at bankers over regulation, By Krishna Guha, Oct 4 2009) about reluctant bankers during the IMF/World Bank annual meetings in Istanbul.
On the one side, the board of the Institute of International Finance, the global bankers’ association, as well as Josef Ackermann, the IIF chairman and head of Deutsche Bank, warning the world community and politician that these excess of reforms could lead to a lower global growth and less job. On the other side, we have Mario Draghi, governor of the Bank of Italy and head of the Financial Stability Board saying : “I think it is a bit premature to be concerned about the excess of rules at this stage frankly.”.

Honestly, we couldn't say he is wrong. In the past, the financial system and institution were under regulated which cost a lot of money/welfare and created economical insecurity for a year.