With Wall Street set to pay the biggest bonuses in its history, some recipients are still complaining that not enough will be in cash, leaving them to face a “liquidity” squeeze.
I’ve been wondering just what kind of squeeze that might be. Let’s consider the burdensome bills a typical banker might be facing. Housing? Say there’s a 10-room apartment overlooking Central Park ($10.5 million, plus $5,000 a month maintenance) and that shingle-style mansion in East Hampton (not even on the beach) for $6.5 million. Transportation? Count on a private-jet fractional share ($400,000 or so plus monthly charges and hourly operating fees) and two Mercedes SUVs for the Hamptons ($120,000). Education? Private school for three kids could hit $150,000 per year. And these are just the basics.
To just about anyone else, this reeks of wretched excess, especially now, with unemployment at 10%. Add to that the fact that many Wall Street bonuses have been made possible by taxpayer largesse in the form of Troubled Asset Relief Program bailouts. Is it any wonder so many people are furious? How dare these richly paid bankers complain that they’re not getting enough?
To put it mildly, it would not be a catastrophe if some of these people had to downsize, a fate they so readily inflict on companies they take private. They might even discover some advantages to smaller homes, public schools, and lives that are less preoccupied with managing their pilots, drivers, housekeepers, nannies, caretakers, gardeners, decorators and party planners. But let’s be realistic: They’re not going to do it voluntarily. Obama administration officials can go on the talk shows all they want to lament the excesses of Wall Street pay, but it’s not going to result in any lasting changes.
There are only three entities that have real power over how financial industry employees are compensated: the government, shareholders and customers.
Public outrage is reaching the point that government action may finally become a reality, especially if bonus recipients keep making such tone-deaf remarks. Reform proposals currently under consideration in Washington attempt to address structural issues that contributed to the recent financial crisis, but do almost nothing about Wall Street pay. I’ve written before about steps that, in my view, would address the worst sources of outrage (for example, banning guaranteed bonuses) while preserving incentives and competition. (See “Putting Sanity in Wall Street Pay.”) So far, even this seems more than the Obama administration wants to pursue.
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