Confessions of a Recovering Pharisee

[Bloomberg]

U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don’t want executives’ bonuses reduced. They want them eliminated.

“I may not understand everything, but I do understand common sense, and when you lend money to someone, you don’t want to see them at a new-car dealer the next day,” said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. “The bailout money shouldn’t have been given to them in the first place.”

Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it’s “not unduly rewarding the management of financial firms receiving government assistance.”

While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms’ most productive workers.

“There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,” said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. “Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.”

`Your Jaw Drops’

The companies, which set aside revenue throughout the year to pay bonuses, haven’t commented on plans for year-end awards, typically decided this month or next. A study released last week said the firms are likely to cut bonuses for top executives by as much as 70 percent.

“Even really sober people are saying this is the worst financial crisis since the Depression, and they’re saying bonuses are just going to be reduced?” saidPatrick Amo, a 53-year-old retired merchant marine in Seattle. “Oh my God, you read that and your jaw drops.’‘

Wall Street firms’ pay has traditionally been tied closely to performance of the companies, which is why employees receive most of their compensation at the end of the year after final results are known. Depending on seniority and performance, bonuses for traders, bankers and executives can be a multiple of their salaries, which range from about $80,000 to $600,000.

Read more here.

[From me]

How in the world should people in companies that have been “bailed out” get bonuses? People are losing jobs and foreclosing on houses that actually worked hard.  Others, like myself have cashed out retirement to make ends meet and people who ran our retirement plans in the ground and are “bailed out” with our tax dollars are going to get a bonus!  Something is not right.  The government should make sure no one gets a bonus in any corporation that got “bailed out.”  Those executives should be thankful they still have a job.  Bonuses are not suppose to be expected unless you perform.  Companies that have lost money don’t deserve bonuses.  I respect Philadelphia Mayor Michael Nutte who recently took a pay cut because his city is in a financial crisis. Leaders sacrifice in times of crisis not pad their own accounts!  Come on! If our leaders expect us to sacrifice–they need to do so also.  How about Congress taking a pay cut!

What do you think?

[Money]

After two weeks of contentious and often emotional debate, the federal government’s far-reaching and historic plan to bail out the nation’s financial system was signed into law by President Bush on Friday afternoon.

“By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said less than an hour after the House voted 263 to 171 to pass the bill.

The House vote followed a strong lobbying push by the White House and other supporters of the bill. The House rejected a similar measure on Monday - a defeat that shocked the markets and congressional leaders on both sides of the aisle.

The law, which allows the Treasury Secretary to purchase as much as $700 billion in troubled assets in a bid to kick-start lending, ushers in one of the most far-reaching interventions in the economy since the Great Depression.

Read more here.

[From me]

My history with money has never been good.  So I have no idea if this is a good deal or not. I mean, CEO’s are making record salaries and bonuses when they are losing money! How can that be right?  I tend to think is is a bad deal only because who is going to bail me out if I get in a financial crisis?  Well, I’m in one now. So if I can’t pay my house payment or my house doesn’t sell before we move in December will they bail me out?  :)

What do you think?