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October 22nd, 2009

Update1: “Bank Crisis, What Bank Crisis?”



Update1: It seems the answer to that question isn’t lost on the administration, and many taxpayers are likely to be thankful for that.

Reapplying their leverage spawned by the billions upon billions given out to save big-time banks, insurers, and automakers, the White House is once again tightening their grip on several of the TARP recipients. Roughly one week after we reported that certain Wall Street firms were “on track to pay employees their highest amounts in years,” President Obama’s pay czar announced that some TARP receipients would now be under strict pay restrictions:

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.

Some executives, like the top traders at A.I.G., will face tight limits on their pay. In addition, the top-paid employees at all the affected companies will face new limits on their perks.

Readers: In your opinion, are the pay cuts and restrictions justly warranted? When should the White House back off these firms? Leave a comment, let us know.

Original post, “Bank Crisis, What Bank Crisis?,” published on 10/14/09: According to a recent study conducted by the Wall Street Journal, the major players on Wall Street are on track to pay employees their highest amounts in years. As Eli Hoffmann of Seeking Alpha puts it, “Bank crisis, what bank crisis?”

From the WSJ:

Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street’s pay culture.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year’s $117 billion — and to top 2007’s $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

The Journal’s analysis includes banking giants J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.; securities firms such as Goldman Sachs Group Inc. and Morgan Stanley; asset managers BlackRock Inc. and Franklin Resources Inc.; online brokerage firms Charles Schwab Corp. and Ameritrade Holding Corp.; and exchange operators CME Group Inc. and NYSE Euronext Inc.

Financial firms have consistently defended that pay raises are an essential tool to attract and retain the best talent in the industry. What we want to know is are you buying that reasoning anymore? Some, not all, of the above-mentioned firms were supported by taxpayer dollars. While the Journal says that the pay raises have been made possible by increased revenue, other contributing factors include an improving stock market as well as government assistance.

This debate has been raging for over a year now: is it “right” that firms that have received government assistance issue bonuses and/or pay increases?

The compensation packages at some firms that received significant bailout money (Citi, AIG, Bank of America) will come before the eyes of the Treasury’s Pay Czar Kenneth Feinberg later this month. If you’re of the opinion that certain executives don’t deserve their millions, you’re not alone:

“What infuriates people is when bosses at bailed out companies … continue to rake in millions,” oversight committee Chairman Edolphus Towns said at a hearing to examine AIG’s bonuses. “It doesn’t seem right that the people who caused this tragedy should be so richly rewarded.”

Is it too soon after the financial meltdown for Wall Street to be doling out bonuses, or is Washington over-stepping its bounds in its attempts to curtail pay raises?

For more on this subject, be sure to read:

Can Congress Limit Executive Salaries?
2008 Capitol Hill Bonuses Highest in Years
The danger of vilifying Wall Street

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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