OBAMA AND HIS BANKSTERS DOIN’ GOOD!
JANUARY 21, 2011, 9:11 PM
Big Paydays Return With Big Profits at Wall St. Banks
By ERIC DASH and SUSANNE CRAIG
Jin Lee/Bloomberg News Vikram S. Pandit of Citigroup saw his salary raised to $1.75 million, from $1. But James P. Gorman of Morgan Stanley, below, is expected to earn less than the $15 million he got for 2009.
Jin Lee/Bloomberg News
Talk about a raise.
Citigroup’s chief executive, Vikram S. Pandit, after nearly two years of earning a mere $1 in salary while he tried put the bank back on track, has been awarded a $1.75 million salary, according to a regulatory filing on Friday.
The lifting of Mr. Pandit’s symbolic hair shirt came as Morgan Stanley disclosed much, though not all, of the compensation for its leader. James P. Gorman, in his first year as chief executive of Morgan Stanley, will earn less than the $15 million he took home in 2009 when he was the firm’s co-president, according to a person familiar with his compensation but not authorized to speak publicly about it.
Other Wall Street banks — including Goldman Sachs and Bank of America — are still to report what their leaders will be paid. JPMorgan Chase disclosed compensation for some of its senior mangers, but has not yet approved the pay package for its chief executive and chairman, Jamie Dimon. Mr. Dimon is expected to earn as much, if not more, than the $17.5 million he took home in 2009, which made him among the highest-paid Wall Street executives. No decision has been made. But JPMorgan had a banner 2010 — it was the most profitable year in the company’s history — and four of Mr. Dimon’s top lieutenants have already been awarded stock worth more than $10 million each.
Two years since emerging from the financial crisis, Wall Street profits — and big paychecks — appear to be back. But the public uproar that erupted over outsize bonuses that banks awarded, even after accepting a government bailouts, has not yet been tamed. Banks are still trying to balance the need to attract star executives and traders with regulators’ demands to ensure that their pay programs do not create excessive risk. Gone is some of the sensitivity to lawmakers and the broader public, who were angry at seeing such lavish paydays as they were losing their homes and jobs.
As bonus checks were doled out at several big banks earlier this week, it is clear that 2010 is shaping up to be a very good year — although perhaps not as good as a year earlier. Alan Johnson, a longtime Wall Street compensation consultant, said that he expected pay to fall about 10 to 15 percent for 2010, and perhaps more than twice that amount in many trading businesses where the results were much weaker.
Amid greater scrutiny from the public and federal regulators since the financial crisis, the banks have awarded a greater portion of compensation in the form of stock — some even higher than 50 percent — and emphasized the use of deferred pay and policies to claw back ill-gotten bonuses.
Over all, what is remarkable is the wide variation in pay packages among the banking giants. At the industry’s strongest banks, employee compensation, on average, fell markedly from a year ago. At Goldman Sachs, workers earned, on average, about $398,000 in 2010, down 11 percent from a year ago. At JPMorgan’s investment bank, employee pay was, on average, about $370,000 — about 2.4 percent lower than in 2009 and in line with the overall firm’s decline in compensation.
Wall Street’s star bankers and traders, regardless of where they work, will still reap paychecks worth millions of dollars.
Meanwhile, several of the weaker players ratcheted their compensation packages upward. At Morgan Stanley, for example, workers’ paychecks rose about 8 percent, on average, to about $257,000. Citigroup and Bank of America, whose average paychecks are substantially lower because they employ tens of thousands consumer bankers who draw smaller salaries and bonuses, reported increases of about 3 percent and 10 percent, respectively.
Some pay analysts suspect that this divergence may stem, at least in part, from the need of these more troubled firms to offer bigger paydays to attract and retain top talent.
Those occupying offices in the corporate suite continued to score big paydays.
Citigroup’s board had signaled a pay increase for Mr. Pandit last fall when they granted stock awards to several of his top lieutenants and announced that they planned to restore his compensation so that it would be in line with other Wall Street chiefs. Mr. Pandit had vowed at a Congressional hearing in February 2009 that he would accept only $1 until the bank returned to profitability.
On Tuesday, Citigroup posted an annual profit in 2010, the first time it had done so since the financial crisis struck. Richard D. Parsons, Citigroup’s chairman, said that the board was “very pleased with the progress the company has made under Vikram’s leadership” and that he merited the raise for the coming year. Citigroup’s board could also choose to award him additional stock and options when it reviews his 2011 compensation later this year. Of course, Mr. Pandit still holds about $79.7 million in cash from the sale of his investment fund, Old Lane Partners, to Citigroup in April 2007.
At JPMorgan Chase, Jes Staley, the head of its investment bank, was awarded more than $14.5 million in stock and options, according to Equilar, a compensation research firm. His total compensation may be even higher when his salary and bonus are disclosed. Ina R. Drew, the bank’s chief investment officer, and Mary Callahan Erdoes, the head of its asset management division, each received stock and options worth more than $11 million. That poises them to be among the highest-paid women on Wall Street.
On Friday, Morgan Stanley’s board awarded Mr. Gorman stock and options valued at $7.4 million, according to Equilar. But this represents only the equity portion of Mr. Gorman’s pay package; the cash component will be announced later this year.
Morgan Stanley also released details of more than $32 million in stock awards for 10 other top executives.
Simon Johnson reviews Too Big to Fail by Andrew Sorkin and other books on the financial crisis
Sunday, December 27, 2009; B01
TOO BIG TO FAIL
The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves
By Andrew Ross Sorkin
Viking. 600 pp. $32.95
LAST MAN STANDING
The Ascent of Jamie Dimon and JPMorgan Chase
By Duff McDonald
Simon & Schuster. 340 pp. $28
The End of Easy Money And the Renewal of the American Economy
By Peter S. Goodman
Times. 336 pp. $25
At 6:30 a.m. on June 6, 1944, U.S. forces began their assault on Omaha Beach as part of the Normandy landings. Casualties among the first wave were horrendous as infantry struggled out of their landing crafts, known as Higgins boats, under intense fire. Incredible acts of individual heroism and great leadership on the spur of the moment eventually saved the day, but not before chaos and death swept the sand. Combat historian S.L.A Marshall described Omaha Beach as "an epic human tragedy which in the early hours bordered on total disaster."
At 11 a.m. on Sept. 15, 2008, Lloyd Blankfein pulled up in front of a Manhattan office building to continue working on a way to save his firm, Goldman Sachs. "I don't think I can take another day of this," one of his employees remarked. Blankfein shot back, "You're getting out of a Mercedes to go to the New York Federal Reserve. You're not getting out of a Higgins boat on Omaha Beach."
Blankfein was right: Being a Wall Street banker in 2008 was nothing like being a soldier during the Normandy invasion. The financial crisis may have been a once-in-a-lifetime struggle for a group of very well-paid banking executives, but the hardships they endured were long hours, uncomfortable phone calls, and mediocre takeout food. The only thing that JPMorgan Chase and Goldman Sachs had in common with the U.S. forces was that, ultimately, they won: The Wall Street executives kept their jobs, their bonuses and their pensions; they benefited from unprecedented rule changes and unlimited monetary and fiscal support; and their firms became even bigger and more dangerous to the economic health of society.
Stephen Ambrose retold the human dimensions of World War II in convincing and excruciating detail. Andrew Ross Sorkin is the Stephen Ambrose for our financial crisis, with the blow-by-blow story of how rich bankers fought to save the Wall Street they knew and loved. The details in "Too Big To Fail" will turn your stomach. The arrogance, lack of self-awareness, and overweening pride are astonishing.
Sorkin puts you there -- you see events unfold moment by moment, you hear the conversations, you can sense the hubris. The executives of our largest banks ran their firms into the ground, taking excessive risks that even now they fail to understand fully. But, as these individuals saw it, unless they personally were saved on incredibly generous terms, the world's economy would grind to a halt. This is as compelling as it is appalling.
Jamie Dimon, the astute, well-connected and ultimately victorious head of JPMorgan Chase -- a character whose development is revealed meticulously in Duff McDonald's "Last Man Standing" -- told his shareholders' meeting earlier this year that 2008 was probably the company's "finest year ever." He was talking about what you and I call the worst financial crisis since the Great Depression.
Sorkin in his general narrative and McDonald in his biography are sympathetic to their protagonists, but the portraits that emerge are not encouraging. Perhaps for this reason, both shy away somewhat from a key point: You can blame the bankers all you want, but it is the government's job to prevent the financial sector (and anyone else) from holding or exercising this kind of power over us. Where was the government?
By 2008, our executive and legislative branches had long been deep in bipartisan slumber, allowing vulnerabilities to build up in the form of overspending, rising consumer debt levels and lax (or nonexistent) protection for consumers against outrageous practices by the financial sector. This bigger picture is missing from Sorkin's and McDonald's blow-by-blow accounts, but it is a recurrent theme in "Past Due," by journalist Peter S. Goodman.
We can quibble about the relative importance of some details -- such as the role of China's high savings rate in lowering global interest rates and feeding the American credit boom -- in Goodman's highly informative account. But there is no question that politicians either believed that crazy "financial engineering" created a sound basis for sustainable growth or just loved what the financial system could do for them at election time.
And, as Sorkin relates, it is hard to escape the conclusion that the rhetoric regarding our supposedly free markets without government intervention just masks the reality -- that there is a revolving door between Wall Street and Washington, and powerful people bend the rules to help each other out. In an illustration of Wall Street clubbiness, Sorkin documents a meeting in Moscow between Hank Paulson, secretary of the treasury (and former head of Goldman Sachs), and the board of Goldman Sachs. As the storm clouds gathered at the end of June 2008, Paulson spent an evening talking substance with the board -- while agreeing not to record this "social" meeting in his official calendar. We do not know the content of the conversation, but the appearance of this kind of exclusive interaction shows how little our top officials care about public perceptions of favoritism.
In saner times, this would constitute a major scandal. At moments of deep crisis, understanding what influences policymakers and having access to them can help a firm survive on advantageous terms. Goldman Sachs was saved, in large part, by suddenly being allowed to become a bank holding company on Sept. 21, 2008. Our most senior government officials determined that the United States must allow Goldman to keep its risky portfolio of assets, while offering it essentially unfettered access to cheap credit from the Federal Reserve. In rescuing a crippled investment bank, the Treasury created the world's largest government-backed hedge fund.
In the face of these developments, Andrew Haldane, head of financial stability at the Bank of England, has become blunt about the way our banking system interacts with (and rips off) taxpayers. In a recent paper that represents the straightest talk heard from the official sector in a long while, Haldane puts it this way: The government may say "never again" to bailouts, but when faced with the choice to either "rescue big banks or allow the world economy to collapse," it will reasonably choose the route of rescue. But, knowing this, the people running our biggest banks have an incentive to take more risk -- if things go well, bank executives get the upside, and if there's a problem, the taxpayer will pick up the check. If a financial sector boss wants greater assurance of a bailout, he or she should make bigger and potentially more dangerous bets -- so the government simply cannot afford to let that bank fail.
This, Haldane argues, is our "doom loop" -- big banks know they can get away with the same behavior (and more) again, and we are doomed to repeat the same boom-bust-bailout cycle. A long time ago, President Andrew Jackson's private secretary, Nicholas Trist, described the Second Bank of the United States, the last financial institution to seriously challenge the power of the president, thus: "Independently of its misdeeds, the mere power, -- the bare existence of such a power -- is a thing irreconcilable with the nature and spirit of our institutions." Unless and until we break the political power of our largest banks, the middle class will be hammered down. Whose taxes do you think will be raised to reflect the costs of repeated financial shenanigans? The financial sector will become even richer and more powerful. If you didn't like where inequality in the United States was already heading, wait until you see the effects of this recession.
The most significant result of the financial crisis is the emergence of six large banks that are undoubtedly too big to fail and therefore enjoy a strengthened government guarantee; Goldman, JPMorgan, Citigroup, Bank of America, Wells Fargo and Morgan Stanley are the beneficiaries of the doom loop. The most significant non-result is the fact that no comprehensive legislation has yet been passed to reform the financial sector. Without really serious reform, we have every reason to start counting down to the next financial crisis, and to the next fleet of Mercedes lining up before the New York Fed.
Simon Johnson is co-founder of the blog BaselineScenario, co-author of "13 Bankers," to be published in April, and a professor at MIT's Sloan School of Management.
Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses
BY TIMOTHY P CARNEY
Obama Is Making You Poorer—But Who’s Getting Rich?
Goldman Sachs, GE, Pfizer, the United Auto Workers—the same “special interests” Barack Obama was supposed to chase from the temple—are profiting handsomely from Obama’s Big Government policies that crush taxpayers, small businesses, and consumers. In Obamanomics, investigative reporter Timothy P. Carney digs up the dirt the mainstream media ignores and the White House wishes you wouldn’t see. Rather than Hope and Change, Obama is delivering corporate socialism to America, all while claiming he’s battling corporate America. It’s corporate welfare and regulatory robbery—it’s Obamanomics.
Congressman Ron Paul says, “Every libertarian and free-market conservative needs to read Obamanomics.” And Johan Goldberg, columnist and bestselling author says, “Obamanomics is conservative muckraking at its best and an indispensable field guide to the Obama years.”
If you’ve wondered what’s happening to America, as the federal government swallows up the financial sector, the auto industry, and healthcare, and enacts deficit exploding “stimulus packages,” this book makes it all clear—it’s a big scam. Ultimately, Obamanomics boils down to this: every time government gets bigger, somebody’s getting rich, and those somebodies are friends of Barack. This book names the names—and it will make your blood boil.
Obama Is Making You Poorer—But Who’s Getting Rich?
Goldman Sachs, GE, Pfizer, the United Auto Workers—the same “special interests” Barack Obama was supposed to chase from the temple—are profiting handsomely from Obama’s Big Government policies that crush taxpayers, small businesses, and consumers.
Investigative reporter Timothy P. Carney digs up the dirt the mainstream media ignores and the White House wishes you wouldn’t see. Rather than Hope and Change, Obama is delivering corporate socialism to America, all while claiming he’s battling corporate America. It’s corporate welfare and regulatory robbery—it’s Obamanomics. In this explosive book, Carney reveals:
* The Great Health Care Scam—Obama’s backroom deals with drug companies spell corporate profits and more government control
* The Global Warming Hoax—Obama has bought off industries with a pork-filled bill that will drain your wallet for Al Gore’s agenda
* Obama and Wall Street—“Change” means more bailouts and a heavy Goldman Sachs presence in the West Wing (including Rahm Emanuel)
* Stimulating K Street—The largest spending bill in history gave pork to the well-connected and created a feeding frenzy for lobbyists
* How the GOP needs to change its tune—drastically—to battle Obamanomics
If you’ve wondered what’s happening to our country, as the federal government swallows up the financial sector, the auto industry, and healthcare, and enacts deficit exploding “stimulus packages” that create make-work government jobs, this book makes it all clear—it’s a big scam. Ultimately, Obamanomics boils down to this: every time government gets bigger, somebody’s getting rich, and those somebodies are friends of Barack. This book names the names—and it will make your blood boil.
Praise for Obamanomics
“The notion that ‘big business’ is on the side of the free market is one of progressivism’s most valuable myths. It allows them to demonize corporations by day and get in bed with them by night. Obamanomics is conservative muckraking at its best. It reveals how President Obama is exploiting the big business mythology to undermine the free market and stick it to entrepreneurs, taxpayers, and consumers. It’s an indispensable field guide to the Obama years.”
—Jonha Goldberg, LA Times columnist and best-selling author
“‘Every time government gets bigger, somebody’s getting rich.’ With this astute observation, Tim Carney begins his task of laying bare the Obama administration’s corporatist governing strategy, hidden behind the president’s populist veneer. This meticulously researched book is a must-read for anyone who wants to understand how Washington really works.”
—David Freddoso, best-selling author of The Case Against Barack Obama
“Every libertarian and free-market conservative who still believes that large corporations are trusted allies in the battle for economic liberty needs to read this book, as does every well-meaning liberal who believes that expansions of the welfare-regulatory state are done to benefit the common people.”
—Congressman Ron Paul
“It’s understandable for critics to condemn President Obama for his ‘socialism.’ But as Tim Carney shows, the real situation is at once more subtle and more sinister. Obamanomics favors big business while disproportionately punishing everyone else. So-called progressives are too clueless to notice, as usual, which is why we have Tim Carney and this book.”
—Thomas E. Woods, Jr., best-selling author of Meltdown and The Politically Incorrect Guide™ to American History
• Hardcover: 256 pages
• Publisher: Regnery Press (November 30, 2009)
• Language: English
• ISBN-10: 1596986123
• ISBN-13: 978-1596986121