Just when you think you've heard it all, you hear more. In the last year, Wall Street -- or more specifically, the brokerage units of New York financial companies -- lost $35 billion. (Worldwide, financial institutions have taken $1 trillion in write-offs of bad assets). Those firms received a large proportion of the $350 billion TARP and persuaded the Treasury to guarantee losses from hundreds of billions worth of their financial toxic waste. Their reward? $18.4 billion in bonuses.
How much of the TARP went to paying for those bonuses? The banks have cleverly neglected to report that. But let's face it -- money is fungible. So if they did not use the money from the deposits they received from the Treasury to pay bonuses, our tax dollars freed up cash they may have had from other sources that did go to paying those $18.4 billion in bonuses.
And, to be fair, some of those bonuses were paid partly in stock -- which in virtually all cases has lost value so far this year. In 2007, bonuses hit a record $32.9 billion on losses of $11.7 billion -- so this years' bonuses were down 44%. But thanks to all the Wall Street job cuts, the average bonus declined a mere 36.7% to $112,000.These figures reveal something important about Wall Street firms. They are run for the benefit of the employees, not shareholders. Without paying those bonuses, Wall Street would have earned a profit in 2007 and its loss for 2008 would have been sliced in half.
But thanks to Wall Street's absolute power over the U.S., the very people who got us into the biggest financial catastrophe in 100 years got rewarded with $18.4 billion of our tax dollars. Maybe it's time for a change. What do you think?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. Portfolio recently published his eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing.