November 11th, 2009
09:06 AM GMT
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If you thought that lavish bonuses for the financial industry would be a welcome casualty of the current financial crisis, it is time to think again. The New York-based executive search and compensation consultancy, Options Group, put that notion to rest for us in a new report.

Watch CNN's Ali Velshi explain what underlies the return of big bonuses on Wall Street.

Options Group predicts bonuses at financial firms worldwide will increase by an average 40% this year, just months after many of these firms were teetering on the brink of disaster and begging for bailouts.

The report, released this week, says that managing directors in high-yield credit sales will see the biggest bonuses, along with those in commodity sales units. They’ve apparently had a heck of a year. In fact, it is an incredible turnaround in fortunes which came, of course, thanks to a life raft the size of Manhattan!

Still, how could it have happened so fast: A return so promptly to business and bonuses as usual? Interviewed on Monday’s edition of World Business Today, CNN’s Ali Velshi told me, “It’s unusual given the times we are in. It’s less unusual if you’ve been tracking how this market has been doing. When you look at the money these banks are making, they’ve actually made it on trading…. Buying things cheap and selling them high.”

Velshi also points out that many of the big banks making money now have paid back the taxpayer funds they borrowed, and taxpayers have made a profit on those transactions.

However, seven of the big financial firms doling out bonuses are not off the taxpayer’s hook. Their bonuses will reportedly be less handsome.

Velshi says, “Major profits have been taken at companies that have paid that money back… and they want to be free to pay their people. It’s quite a remarkable situation. You wouldn’t have thought six months ago we’d be talking about bonuses that were bigger than last year.”

Some analysts point out that financial firms will offer more in stock and defer more cash payments because of public pressure, and pressure from regulators to pay tie to long-term results rather than rewarding short term risk. That might placate those who believe excessive rewards for short-term risk helped cause the financial meltdown.

Professor Peter Morici, of the University of Maryland’s Robert H. Smith School of Business, says, “These bonuses show Wall Street is arrogant and insensitive. These bonuses were earned by investing cheap taxpayer funds, and the profits really belong to all Americans. This entire episode is an outrage.”

The U.S. Federal Reserve is planning to review the 28 largest banks to ensure compensation is not rewarding risk; however, global leaders have tried and failed more than once in the past year to agree on what constitutes excessive risk or excessive compensation.

“You only know it,” explained Barack Obama’s pay Czar Kenneth Feinberg a few weeks ago, “Once it’s staring you in the face,” and by then, of course, it’s too late.

So what’s the message here? Let’s just get used to it? The punch bowl is full once again on Wall Street. To paraphrase the much-maligned quotation attributed in London’s Sunday Times to Goldman Sachs chief Lloyd Blankfein, God’s work is being done. Phew!

So let’s just grit our teeth and pretend we haven’t learned a thing in the past year. There’s no need to wonder what’s going on now; no need to worry about what might be laying the groundwork for the next financial crisis. After all, we’ll know it, once we see it.



soundoff (13 Responses)
  1. Daryl

    When are the American people going to wake up and realize that the entire circumstances which brought this nation to its financial knees included the banking industry. They played a major role in allowing millions of people to be duped and bilked out of their investments while the banking, real estate and stock market industry profited billions and billions of dollars.

    As soon as the dust settles, they're right back at it and the reason is power, greed and a total lack of morality. Their actions displaced millions of people from the workforce and many more who lost their entire savings and retirement capital. And the icing on the cake is that the taxpayers are footing the bill for the entire mess.

    They'll stop only when America stands up to it.

    Wake up.

    November 11, 2009 at 12:52 pm |
  2. TomyT

    Pay and bonuses are out of control and the government just sits back and watches while some of these same companies are laying off people. We need to fight this with tax laws limiting the amount of pay and compensation a company can deduct from taxes. A company can deduct 100% of these bisiness expenses. If you can only deduct a maximum of 5 million dollars per employee, see how fast these companies will think twice about paying someone a 100 million dollars with 50 million in bonuses. Most of these guys aren't worth a million, they just are part of a greedy gang.

    November 11, 2009 at 2:26 pm |
  3. Robert

    It really make me feel good that after the banks require the taxpayers to fix their business, they still get to keep pushing the consumer down and freezing the flow of capital. You want to see unemployment go down, tell banks to start lending money. That starts with you Obama!

    November 11, 2009 at 4:14 pm |
  4. Tom

    If the taxpayer monies were paid back in accordance with the agreements made then there is no more government control. HOWEVER, if they used taxpayer money to invest then we should get the lions share. I bet our government didn't plan on this aspect. WHEN they flop again. NO MONEY will be used to bail them out and they will fold like they should have before.

    November 11, 2009 at 4:17 pm |
  5. Andrew - Dearborn

    Hey, here's a thought. Let's NOT lay the groundwork for the next financial crisis. Why are we once again rewarding the very morons that put us in the crisis?

    Would you give your kid an extra 40% in his allowance for not beating up someone in school this week? Same principle. Making money is their job. They should be lucky enough to even get paid for what they do given the recent circumstances. Giving them a bonus for getting the markey back to only somewhat worse than it was 4 years ago is TOO MUCH!

    November 11, 2009 at 4:24 pm |
  6. Loraine Antrim

    The main message here is that this type of compensation will continue as long as the market allows and sanctions it. If we want to change that message, then we need to collectively say, "NO," to these packages. Loraine Antrim

    November 11, 2009 at 8:09 pm |
  7. Jaime Conjun

    People should stop bashing bankers. They are the easiest target for public anger in a financial crisis. It is the government and right wing economics which are to be blamed. What Alan Greenspan did was in effect to leave a piece of meat in front of a hungry dog, by keeping interest rates low. We are basically punishing the dog for eating it.

    November 12, 2009 at 1:45 pm |
  8. Guy P

    Just wondering: do they have the same problem in China?

    November 12, 2009 at 5:02 pm |
  9. gogo

    of course that big bank bonuses are back. and worse thing is that these banks still exist and are still controled by the same people with the same thinking. they were redeemed by american taxpayers . recovery now will be more expensive it will take longer. market and crisis are something like jin and jang, they belong to each other. to fight against crisis makes things worse.

    November 13, 2009 at 8:47 pm |
  10. Per Holmlund

    With a dollar mowing south it’s obvious that bonuses have to increase if Wall Streets wants to shine.

    "What to do with the dollar"? Hide it!

    http://business.blogs.cnn.com/2009/11/09/what-to-do-with-the-dollar/#comment-12597

    November 13, 2009 at 10:13 pm |
  11. Big Country

    I recently sold my business and I am trying to buy a house for my family that Bank of America holds the mortgage on . I can not get an answer from BOA and its been 8 weeks since our offer. If the idiots at BOA think they deserve a bonus, I would give them all a pink slip bonus and that is one that would be wll deserved.

    November 16, 2009 at 8:59 pm |
  12. Jay

    I see absolutely nothing wrong with this. Actually they should be commended for their performance. Investment banking is a unique industry that only requires capital and leverage in order to generate massive profits.

    It is only natural that firms share their success with their employees. Besides the employees having a favorable tax problem to deal with, the recovery of the stock market (ponzi scheme) is good for the psychology of the participants.

    Why the fed is eager to bailout investment banks but not the "average Joe", is a different issue, which has not been answered to my satisfaction.

    November 21, 2009 at 6:44 pm |
  13. Daryl

    Yeah, Jay. We need to commend the performance of the banking industry. You sound like you know one heck of a lot about the investment banking industry. . . .

    what a moron.

    April 14, 2010 at 5:15 pm |

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