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