On a recent overseas trip, I read most of Andrew Sorkin’s Too Big to Fail. Despite its length, the book is a page-turner and is worth reading to understand the background of the financial crisis.
The more I read, the more it became clear to me that the crisis was not just about bad banking and poor judgments; it’s also about greed and self-interest.
As President Obama said in his biting criticism of the bankers last week, in light of the fact that the government (i.e., U.S. taxpayers) shelled out $700 billion for the Troubled Asset Relief Program that was launched to bail out foundering firms like AIG at the height of the financial crisis, the profits and bonuses bankers are paying to themselves are “obscene.”
A few figures help drive this home:
Goldman and other large financial firms will hand out an estimated $140 billion in 2009 bonuses. Goldman alone is expected to enrich its employees by $18 billion. The large bonuses have drawn scrutiny because they are being paid at a time when the unemployment rate is 10% and many Americans are suffering financially. What’s more, many Americans believe Goldman and others only survived because of taxpayer support, and now are unfairly profiting from the government bailouts.
The news from JP Morgan looks much the same:
JPMorgan’s cheery figures for 2009 were accompanied by news that it had earmarked $26.9 billion to compensate its workers, much of which will be paid out as bonuses. That is up about 18 percent, with employees, on average, earning about $129,000. Workers in JPMorgan’s investment bank, on average, earned roughly $380,000 each. Top producers, however, expect to collect multimillion-dollar paychecks.
Meanwhile, Goldman, worried about its public image, restructured the way top executives receive bonuses. But even if top Goldman executives forgo immediate cash bonuses, they are still profiting from the failures they ultimately caused and that have ruined the livelihood of many thousands.
Here’s some food for thought: According to John Vandeventer, the entire GDP of Haiti is less than half of JP Morgan’s bonus payout this year. Vandeventer muses about some alternatives for all that cash:
- JP Morgan executives could give $9,000.00 in aid to every single man, woman, and child affected by the earthquake in Haiti.
- As an alternative, they could provide an entire month’s severance pay for 847,860 laid-off workers.
- Less than half of their bonuses could fund an in-state college education for every single student in the state of California.
- They could use the other half to fund health insurance coverage for every uninsured person in the state of New York.
Or what about helping to foot the bill for the massive relief in Haiti? What do you think?