Wall Street Bonuses, Bank Reform, etc....

[amborin]

"Strong Year for Goldman"

Despite a record 2009, the bank announced that it had set aside only $16.2 billion to reward its employees.

If you have never worked on Wall Street, it is hard to grasp how 11 figures could be anything less than an enormous payday. But for Goldman, the financial and political calculations used to tally that number also added up to an uncharacteristic show of restraint.

In a surprising concession to the public outcry over big Wall Street bonuses, Goldman broke with the longtime industry practice of earmarking roughly half of its annual revenue for compensation. Indeed, the bank did the unthinkable for the final months of 2009: It subtracted about $500 million from its pay pool, rather than add more money to it, even though the bank earned a healthy $4.95 billion for the quarter, above Wall Street expectations.

Granted, Goldman’s employees are still well paid by any measure. If compensation were spread evenly among its 32,500 employees, each would collect about $498,000.

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But after the anger over big bonuses for bankers and, in particular, moves in Washington to clip Wall Street’s wings, Goldman moved to deflect criticism of its resurgent profits and pay. Its bonus pool news was released on the same day that President Obama proposed legislation to limit the scope and size of large financial institutions and declared that banks nearly brought down the economy by taking “huge, reckless risks in pursuit of quick profits and massive bonuses.”

Within Goldman, employees grudgingly accepted the news Thursday, although some said they expected to be rewarded — and soon — for playing along with what they characterized as a temporary public relations exercise. The share of revenue being devoted to bonuses, 35.8 percent, was the lowest since the bank became a public company a decade ago. One employee in the Manhattan office said he believed Goldman would tack on extra money for pay during the first quarter and thus make up the difference.

http://www.nytimes.com/2010/01/22/business/22goldman.html?scp=1&sq=record%20profit%20at%20goldman&st=cse

"Obama's Move to Limit 'Reckless Risks' Has Skeptics"

President Obama wants to cut down to size those too-big-to-fail banks. But his vow on Thursday to rewrite the rules of Wall Street left many questions unanswered, including the big one: Would this really prevent another financial crisis?

The president’s proposals to place new limits on the size and activities of big banks rattled the stock market, but banking executives were perplexed as to how his plan would work. Indeed, many insisted the proposals, if adopted, would do little to change their businesses.

Moreover, it was unclear if the twin proposals — to ban banks with federally insured deposits from casting risky bets in the markets, and to resist further consolidation in the financial industry — would have done much if anything to forestall the crisis that pushed the economic system to the brink of collapse in 2008.

Mr. Obama appeared to be leaving crucial details to be hashed out by Congress, where partisan tussling has already threatened another reform the president supports — the creation of a consumer protection agency that would have oversight over credit cards, mortgages and other lending products.

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The administration wants to ban bank holding companies from owning, investing in or sponsoring hedge funds or private equity funds and from engaging in proprietary trading, or trading on their own accounts, as opposed to the money of their customers.

It was not clear, however, how proprietary trading activities would be defined.

Officials said that banks would not be permitted to use their own capital for “trading unrelated to serving customers.” Such a restriction would most likely compel banks that own hedge funds and private equity funds to dispose of them over time. Officials said, however, that executing trades on a client’s behalf and using bank capital to make a market or to hedge a client’s risk would be permissible.

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The Buckingham Research Group estimated that the new rules would reduce revenue at Citigroup, Bank of America and JPMorgan Chase by less than 3 percent. Goldman Sachs, which typically derives a tenth of its revenue from such trading, said it would be able to contend with the new rules.

“I would say pure walled-off proprietary-trading businesses at Goldman Sachs are not very big in the context of the firm,” David A. Viniar, the firm’s chief financial officer, said in a conference call.

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http://www.nytimes.com/2010/01/22/business/22banks.html?ref=business

"Half-Baked Bank Reform"

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......Wall Street has figured out ways to circumvent the administration's plan, which centers on "proprietary trading"-risky bets the banks make for their own accounts.

The cliff notes from the President's Economic Recovery Advisory Board chief economist Austan Goolsbee on yesterday's press call were: A mandatory ban to prohibit proprietary trading (but not all trading) by firms that own banks. Regulators would prevent commercial banks from owning hedge or private equity funds, and limit non-client related trading. There would remain no limit on investment banks not designated bank or financial holding companies. Regulators could constrain the size of banks, but not break them up. Most important, there would be no return to Glass-Steagall, which divided commercial and investment banks.

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.... touch proprietary trading if you must, and leave everything else alone (i.e., no Glass-Steagall). Prop trading, in other words, would be Wall Street's sacrificial lamb. For a simple reason: They can get around it.

Banks have mucked up their financial disclosures so much that it's already near impossible to tell how much banks are making from risky trading, much less how much trading is uniquely "proprietary," versus how much can be classified as customer-driven or used for hedging purposes, which Obama's rules would allow.

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If "it's not always possible to evaluate positions," the notion of evaluating which ones are customer-driven and which are proprietary goes out the window. These firms will just call everything customer driven and alter book distinctions accordingly.

Bringing back Glass-Steagall would force a distinction of commercial banks with access to federal support from those that just call themselves banks, but are in reality Wall Street gambling parlors. Done right, Goldman Sachs and Morgan Stanley would have to give up their commercial bank status to continue doing the trading-oriented business they do. Bank of America might be forced to spin off Merrill and JPM Chase may have to chuck the Bear business and part of its "leading global" investment bank business to adhere to new restrictions.

Without such a move, these merged institutions will continue to divert their capital--given to it by mom-and-pop depositors and cheap government money--to trade, before using it to lend.....

http://www.commondreams.org/view/2010/01/22-2

The administration has put forward a financial regulatory plan with some very useful components. But it has refused to embrace the bold populist policies we need -- breaking up the banks, taxing financial speculation -- to rein in Wall Street. It has also failed to defend the good positions it has advocated with sufficient vigor and high-level involvement.

The gentle treatment of Wall Street from the outset of the administration has framed subsequent political developments.

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The populist issue of the day is Wall Street's exorbitant bonus payments. Wall Street remains in business only because it has benefited, and continues to benefit, from trillions of dollars in public supports. The billions that Wall Street is now preparing to pay itself in bonuses come, in a very real sense, out of the pockets of We, The People.

Neither we nor our elected officials need to stand by and watch this happen. We can take our money back by imposing a windfall bonus tax, as Representative Dennis Kucinich has proposed.

You can click here to sign a Public Citizen petition supporting a tax on Wall Street's bonuses.

http://action.citizen.org/t/6693/petition.jsp?petition_KEY=2209




http://www.commondreams.org/view/2010/01/21-1

[DJ13]

1. "Only $16.2 BILLION"

Those poor bankers, how are they ever going to survive?