Against the backdrop of heightened public criticism, The U.S. Federal Reserve is trying to encourage banks to take the first step in controlling excessive pay and bonuses. Regulators have established broad guidelines for pay incentives and bonuses. However, they are quite loose and do not nail down any specifics. Regulators are trying to coax compliance before the end of the year.
Britain has taken the lead and mandated that a percentage of bankers' bonuses should be deferred for a number of years.
Why is there such a public outcry to curb excessive bankers' pay and bonuses?
When the banks were in trouble last year, the Fed pledged $11.2 trillion to bail out the financial industry. This $11.2 trillion is taxpayer money. The money was given to stabilize the banks and build up their capital base. However, instead of doing this, they used the money to rack up big profits and are now paying themselves record bonuses. Goldman Sachs Group (NYSE: GS) for example, set aside $16.7 billion, or 43% of earnings, for compensation and bonuses.
What happened is that with the bank bailout, we've had the greatest transfer of wealth from the public sector to the private sector in this nation's history -- an unprecedented $11.2 trillion taxpayer dollars.
Now the public is angry. We have 15 million unemployed persons in this country and the Fed has done nothing to help them. Perhaps, it would have been better to let the banks fail and use the $11.2 trillion to bolster our economy and put people back to work.
Do you believe that bankers should curb their excessive pay and bonuses?
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