Posted October 23, 2009 at 10:55 am, in From the USW International President
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.