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Leo W. Gerard

By Leo W. Gerard
USW International President

In New York, the oldest and snobbiest financial and advising ventures are called “white shoe” firms.

This, they say, arose from the days when their hoity-toity employees wore white bucks to work. 

These days, white shoe firms bear names notorious outside New York, like Goldman Sachs and Morgan Stanley. That’s because their arrogance, risky investments and confounding dealing in derivatives caused last fall’s Wall Street meltdown, slaughtered white shoe firms like Lehman Brothers, froze credit nationwide, and threw the rest of us into the Great Recession. 

Now unemployment is up to 9.8 percent, a 26-year high. Banks repossessed 88,000 homes in September and filed foreclosure notices on another 344,000, according to RealtyTrac. Suicide hotlines report increases in calls, and a study released in July by researchers at several universities including the University of California documented the connection between unemployment, suicide and murder. Each percent increase in unemployment raised suicide rates by .8 percent and homicide rates by .8 percent, the research team found.

There’s blood on those white bucks. But the guys wearing them don’t seem to notice.

When bankers’ backs were up against the wall, the taxpayers of the United States bailed them out to the tune of $700 billion. Some, like Bank of America, took the welfare then repaid that generosity by doling out billions in bonuses. BofA got $45 billion from taxpayers, then gave $3.6 billion in bonuses to Merrill Lynch workers, just as BofA bought Merrill — which lost $25 billion in 2008. 

Banksters always argue that they must pay massive bonuses to reward and retain their best and brightest. Yet the best and brightest had managed to undermine Wall Street and lose $100 billion at the nine firms that received government welfare in 2008.  Realistically, finding lower-cost replacements for them shouldn’t be a problem since lots of unemployed bankers are pounding New York streets. The New York City Office of Management and Budget determined that Wall Street banks cut 30,000 jobs in 2008.

Still, Wall Street continues to reward incompetence. Morgan Stanley, for example, increased the proportion of its revenues to be paid as compensation and benefits – to total a whopping $6 billion by September — despite three straight losing quarters this year. This is how the London Telegraph characterized the decision in an Oct. 21 story:

“Investment bank Morgan Stanley has more than doubled the share of revenues it will hand out in pay and bonuses to its 62,000-strong army of bankers and brokers despite a 91 pc drop in profits last quarter.”

Right now, they’d each get $96,774, but Morgan Stanley has another quarter to add to that pool of pay.

Investment house Goldman Sachs has set aside $11.4 billion so far for compensation, setting a pace for an average Goldman worker to get $773,000. That would more than double last year’s earnings for the average Goldie.

Contrast that with the U.S. Census report that the typical worker nationwide lost $1,860 for a reduced wage of $50,303. Or compare it to the experience of the woman in the Oct. 21 New York Times story who competed with 500 other applicants for one $13-an-hour clerk job opening at an Indiana trucking company.

When America’s median income workers paid to bail out those white shoe swells, they thought something would change. “There is some failure in the finance industry to appreciate the level of public antagonism toward whatever Wall Street symbolizes,” Orin Kramer, a Democratic fund-raiser who is a partner in an investment firm, told the New York Times’ David D. Kirkpatrick earlier this month.

Dr. Daniel E. Fass, who was chairing a Democratic fundraising event with Kramer, told the Times’ Kirpatrick, “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.”

And, indeed, they’re acting like it never happened. JPMorgan Chase & Co. went out this year and made billions doing exactly what caused the crash last year – trading like crazy in derivatives. 

So a parent figure had to step in. The Obama Administration acted this week. The Federal Reserve announced it would crack down on pay packages at the nation’s 28 largest banking companies in ways intended to discourage risky practices. And the Treasury Department announced that it will order pay cuts and perk limitations for top officials at the firms still on welfare. They are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the automakers’ financing agencies.

This new lifestyle will be devastating for some of those on welfare. Their perks could be limited to $25,000 – only half of a typical American worker’s annual salary. And the cash portion of their salaries could be slashed by 90 percent and replaced by stock that cannot be sold for years. The point is to align their personal interests to the firm’s long-term financial health.  It is an attempt to discourage risky investments that seemed profitable for the purpose of immediate bonus payments but later exploded like the AIG derivatives scandal. 

The white shoe crowd, failing to understand that the president was trying to help them clean up the mess at their feet, immediately started whining and complaining. It just wouldn’t work, they said, because pay-pinched executives would run to firms unrestricted by the government. That’s all for the good because, again, there are 30,000 Wall Streeters searching for jobs.

The pay restrictions will set a proper tone. Perhaps Wall Street will hear it before, as the New York Times described it, “populist animosity toward Wall Street and corporate America” grows too great.

If that happened, the blood on their white bucks might be their own.

Robyn E. Blumner

By Robyn E. Blumner,
St. Petersburg Times Columnist

Let’s be frank. There are contracts and then there are contracts. Those retention bonus contracts held by American International Group executives in its financial products division were apparently inviolate. No matter how many smart lawyers Treasury Secretary Tim Geithner consulted, the contracts were bulletproof, and a default could lead to punitive damages.

Then there are the kind of employment contracts that most of the rest of us have. They’re not explicitly spelled out in a sign-on-the-dotted-line kind of way, and there are certainly many fewer zeros, but they are promises made in exchange for one’s labor nonetheless. The difference is that these “contracts” are eminently fluid and disposable.

Here’s the employment contract we all had in mind when joining the work force: Work hard, be loyal and in exchange you can expect job security, steady income gains, health insurance and a dignified retirement.

But those ideas are so nostalgic today as to be naive.  MORE

First Published in the St. Petersburg Times Sunday, March 29, 2009

Leo W. Gerard

By Leo W. Gerard
International President

AIG Chairman Edward M. Liddy gets the Creep of the Week award for his stunning, overwhelming, dumbfounding display of cluelessness.

Liddy not only awarded $165 million in bonuses to the very AIG employees whose risky speculation in credit default swaps bankrupted the once-great insurance giant, forcing it to beg for $170 billion in taxpayer bailouts, he then claimed he was a helpless victim of retention bonus contracts written before he took over in September. Here’s exactly what he said: “Quite frankly, AIG’s hands are tied.”

No other contender for this week’s Creep prize awarded by the USW sunk close to those depths of obtuseness. And in so many diverse areas! Let’s count the ways:

First, there’s Liddy’s claim that he just can’t squirm out of contracts. Boy, he’d be the first CEO on God’s green earth to be too feeble to break a contract. Think about it: Congress insisted that the Big Three auto companies crack open their contracts with the United Auto Workers to qualify for federal bailout money. Union contracts at all sorts of companies across this country have been broken, bent, re-opened and renegotiated by cooperative labor organizations willing to accept a variety of cuts to preserve employment during an economic crisis caused by the likes of, well, let’s face it, reckless speculators at AIG! But, somehow, Liddy couldn’t find a way to break, bend, re-open or renegotiate contracts with the white collar workers who caused the mess taxpayers are both suffering and cleaning up.

Second, there’s Liddy’s claim that he had to honor the bonus contracts or he’d be sued by his employees. With a straight face, Liddy asserted that the employees in AIG’s Financial Products subsidiary who neglected to account for the possibility of a decline in real estate prices would actually list their names on court documents contending they deserved extra money after bankrupting the company. If Liddy thinks there’s a jury in America that would buy that argument and award the bonuses, I’ve got some credit default swaps I’d like to sell him. It’s clear, in fact, even Liddy doesn’t buy the argument since he’s declined to publicly release the names, though he has given a great deal of information – under duress – to New York Attorney General Andrew M. Cuomo who is working on a lawsuit to recover the bonuses for taxpayers.

Third, there’s Liddy’s failure to understand these simple facts: people who caused a company’s demise don’t get bonuses and neither do employees of companies getting bailouts with federal tax dollars. The average AIG bonus payment was $395,000 – though 51 employees got more than $1 million and the winner of the fattest bonus got $6.4 million. Liddy told Congress he has asked some of the 418 recipients to return half of their bumps. If all 418 complied, the average would decline to a mere $197,500. That may be chump change to a Wall Streeter, but it is a life-saving sum to a middle class worker who has lost his job or can’t pay his mortgage because of Wall Street’s greed and  recklessness. In addition, there’s an important reciprocal issue Liddy failed to understand: the fury he has provoked by paying those bonuses has made the middle class even less willing to invest their tax dollars in any future bailouts that Congress may claim AIG or Wall Street banks desperately need.

Fourth, there’s Liddy’s ability to treat with reverence those who caused the financial meltdown while regarding with disdain those who suffer as a result of it. It was Liddy’s contention that his white collar workers were special. He had to give them the bumps, or they would abandon AIG, refusing to clean up the mess they’d made. That didn’t apply to auto workers, though. No one cared what happened to them. They could be furloughed as a result of Wall Street’s misbehavior — and pay taxes to clean it up as their bonus. But what’s worse is the level of continued boldfaced, outright deception from Liddy and his like. The bumps were crucial for retention, he said, right? Wrong. Cuomo discovered that 11 big time bonus beneficiaries – those who got $1 million or more – had already left AIG.

Fifth, Liddy acted as if the American people didn’t already own 80 percent of his company. Earlier this month, after AIG reported a $61.7 billion quarterly loss, the largest in corporate history, the federal government promised to help prop it up by giving it another $30 billion in taxpayer dollars. The solution here is simple, as the Washington Post pointed out in a story last week. If the feds simply insist on a 100 percent share of the company, which, frankly, the American people deserve for that kind of investment, the bonuses stop.

In addition to Creep of the Week, Liddy gets a special bonus award: Clueless of the Week.