If the big banks really had straightened out their balance sheets and posted realistic results, they might be justified in handing out all that cash. But they haven't.
This week's column focuses on "banksters." That's the name recently resurrected by CNBC's Dylan Rattigan for the executives in command of financial institutions who have marched off with huge bonuses.
First, a comment on their perceived ill-gotten gains: This is not to suggest that every person at every one of these companies doesn't deserve a bonus. Nor does it mean that certain organizations might not be far better off than others. It's a broad-brush point that I am making, and there are many exceptions.
One aspect of the bonus controversy no one has really discussed is that the banks' profits are a function of managements' judgments -- essentially the honor system, the same honor system that led the banks to leverage themselves up 40-to-1 or more on worthless or illiquid assets and let them grade themselves on their Level II and III assets, less liquid assets that are difficult or impossible to accurately put a value on.Banksta rap Now, the banksters would have us believe that all their assets are correctly and prudently marked, that their leverage is not excessive and that, given their "rock solid" balance sheets, they intend to bonus out large amounts of money that their organizations will not need for their businesses.
Color me skeptical.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 5876a1bd-6c5f-4c4e-aa3b-3f000c66de3c,787e4df7-e407-48ff-9334-a7b96740281e,694f89cd-3788-44a5-a25e-a77fee50d425,9ed6f6e8-9fed-40b1-b6a5-210487cbdeda", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=5876a1bd-6c5f-4c4e-aa3b-3f000c66de3c,787e4df7-e407-48ff-9334-a7b96740281e,694f89cd-3788-44a5-a25e-a77fee50d425,9ed6f6e8-9fed-40b1-b6a5-210487cbdeda;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');However, if these financial institutions had reduced their leverage to sane, more manageable levels, and if they'd marked to market all of their assets (especially real-estate-related ones) and the securitized products that flowed from those asset classes, then perhaps we could say that, well, you know, these institutions have healed themselves, and they're not going to be a problem for us down the road. So they should feel free to distribute the profits as they see fit.
But they haven't.Just practice abstinence from forbearance As it is, we do know that these financial institutions are practicing forbearance (in this case, letting folks stay in their homes despite their inability to make mortgage payments) and that they are reluctant, in most cases, to modify loans or to recognize losses in general.
Meanwhile, even more people will walk away from their homes. That's the conclusion reached by Waterfall Asset Management's Tom Capasse, who in a recent Wall Street Journal article headlined "Is slashing mortgage principal the answer?" said: "There used to be a scarlet D on your forehead if you defaulted. . . . Now it's a badge of honor."
And that follows a Jan. 7 New York Times Magazine piece ("Walk away from your mortgage!") in which Roger Lowenstein suggested that maybe skipping out on a negative-equity position is the right thing to do. Clearly, defaulting in the wake of the real-estate bubble does not carry the stigma it once might have.
Read more about the bank bonus bonanza
Thus we know that there are markdowns yet to come. And depending on how many people decide to walk away from their negative-equity positions, there will likely be further pressure on the real-estate market (and thus on loan valuations). In other words, a new wave of write-downs may have its sights set on these financial institutions.If the institutions were forced to aggressively mark their positions to where the real-estate market quite likely is now or may be in the not-too-distant future, there'd probably be nowhere near as many profits to disburse.
Continued: A revival of the debacle? More from MSN Money
Why contrarian investors have an edgeHow Obama is failing investorsWall Street, politicians still don't get itAre bonds the next bubble?The Men of the Broken Decade1 | 2 | next >
Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=8.605263; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=228;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalSuperModelsTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesWhy contrarian investors have an edge 01/15/2010Wall Street, politicians still don't get it 01/08/2010The Men of the Broken Decade 12/18/2009More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='ssnwr7kb3cxs7b3hg7a0yvd8u8ej90k3';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 10 of 12PreviousNextThis is where it starts. #1Friday, January 22, 2010 8:22:36 PMYep. It is easy to draw out the feelings of unfairness out of people, especially during tough times. Hitler was the king of using a depression to instill a broad sense of unfairness in the struggling masses.
The only thing worse than unfairness, is man-imposed fairness.
It starts by singling out individuals that the masses all cry out against, and then it begins to quickly broaden to more and more people. Once those in power find that they can gain power by focusing the anger of the masses against the few, then it becomes a game of who is next on the list.
Maybe we should simply concentrate on protecting the rights of every individual in America - even the rich. I am not one of them, yet I know that my individual liberties will only be protected if I am willing to defend it for others. ESPECIALLY when I defend it to the seemingly undeserving.
It is like free speech. It is only really proven when you defend someone who says the most vile, putred, offensive statements, because you know that their right is directly linked to yours.
You can try to give equal opportunities or equal results, but not both. It is impossible. Resist people against those who would fuel your anger against individuals simply because it makes you feel better. Fueling the anger is easy, but hundreds of millions of lives of our forefathers have died stamping it out once created.
ReplyReport Abuseunremittingness #2Friday, January 22, 2010 8:36:27 PMStick to the point.ReplyReport AbuseGARRS #3Friday, January 22, 2010 8:56:47 PMAfter being injured in a fortune 100 company, and then being handled harshly being beaten out of EVERYTHING, I think the SOBS should pay back every penny of the bailout, plus the damage to the small investors and the economy.
Send them a signal by using alternitive banking, or yanking a CD away from them.
I dont care if they followed the collapse standing on their heads juggling plates. A bonus is a reward. They performed poorly. If it was YOUR buisness they ran in the ground, you would not only fire them, you'd probably beat the **** out of them.
**** is my compensation?. Nowhere right?
ReplyReport Abuseomena1951 #4Friday, January 22, 2010 9:07:28 PMThis is not merely a reason these huge bonuses are not justified, it is one more reason they are not justified. Thisis not about fairness, this is about not allowing a few to profit mightily via actions that are detrimental to our society.
Even if the profits are real, they do not arise from creation of new wealth.
Yes, these bankers are managing huge profits and thusly would be worth the bonuses to their employers. But this is effectively a closed game. Banks are located in the middle of every flow of cash in this nation and have become ever more creative in carving off ever larger slices for their own pockets.
These profits are sucked out of the pockets of every company, saver, investor, 401K, pension plan (etc) in this nation. I estimate the latest round of bonuses to the top banks alone was 1% of GNP.
That is before we account for all the ways this game is rigged. Pile up huge paper bonuses on illusory profits and walk away with a huge bonuses. When the cards come crashing down you get to keep what you skimmed and pass the risk and loss to some one else.
This is so far removed from free market principles it makes me ill. Read "Wealth of Nations". The current actions of the banks represent one of the restraints on free markets that Adam Smith warned about.
ReplyReport AbuseBrendaSueBob #5Friday, January 22, 2010 9:48:58 PMYou know what? The problem with all of this is not the fact that they're receiving a bonus, but that the bonus' that they are receiving is our money. Another, is that the bonus' that they receive is a gross amt of money, (our money) that they get for doing what???? And what ever they are doing, is it enough to receive the amt of bonus' that they receive????I am a productive person, who works hard everyday, pays my taxes, went to college, have raised my children, (without state help) and now raising a grandchild,(without state help) pay my bills, contributes to society in a positive manor, salutes my God and my Country, and the biggest bonus I have ever received was $300.00. Which I should mention; my bonus was a result of profit generated by business and by MY hard work, and not by my (OUR) money being put into a bank, or from my money being put into that bank so my money could be making that bank money to pay the bonus' of the bank presidents etc. Sorry, couldn't stomach reading the article all the way thru, because I am so tired of all of the bull crap of the"who and why", because, bottom line, it is my (our) money that is paying the bonus' of these people. There is absoluty no sacrifice in our Government, High Profile Business People. Movie Stars etc. It is "Me "and "Us" that are making all of the "elites" their money because of "our hard earned wages" that pay for their life style. They take it all, take credit for "all" and we pay for it all. I have vented and thank you, ReplyReport Abuseonlyobserving #6Saturday, January 23, 2010 3:10:16 AMI have seen companies fail before, and taking money as fast as possible out of a struggling company only indicates that management is not very optimistic about said company's future. In the case of the large banks, I just don't see the commitment to restore the company's integrity and balance sheet, but rather an aggressive preparation to abandon a "sinking ship." Investors, be careful! You don't want to end up holding the bag.ReplyReport Abuse1man1vote1taxrate #7Saturday, January 23, 2010 3:24:56 PMunearned bonuses and unearned salaries - and these are the smartest guys & gals in the room???ReplyReport Abusewilliam523 #8Saturday, January 23, 2010 5:14:03 PMabout 15 years ago I joined a credit union, I left Bank of America mainly because they said I had to keep a certain amount of money in my checking account. It was over $500.00. That was my money that I was penalized if I went under that amount by even one penny. The credit union provides the same services as any bank , they were excellent in taking care of all my needs. If more people went to credit unions and left the banking system, there would not be any money for a bonus. How many credit union did you hear about that needed a bail-out.ReplyReport Abuse45jake.E_ #9Saturday, January 23, 2010 7:52:03 PMThe bonuses are necessary to retain top employees in the financial industry. Where would these institutions be without those crucial employees whose unparalleled talents and decisive action kept said institutions from becoming embroiled in the recent financial crisis . Those with such foresight, the best and the brightest, deserve bonuses.
Unfortunately, those employees were either on leave for a few years or had been muted by corporate brass who wished to reap obscene profits while they could.
ReplyReport Abusegardener3333 #10Sunday, January 24, 2010 7:35:08 AMFirst differentiate between banks and investment houses. The investment houses use some of their leverage to lend to upstart companies, something a regular bank would be leery of. Also, our "Let's look forward" president is stuck in Vendetta mode. He extended open arms to our murdering enemies and attacks our banks. Using this methodology is going to create a giant rift in this country between the wealthy and the poor.
A large portion of bonus checks become taxes. Not all investors had to take irrational risks to make money, as the market is up 70% from its lows of less than a year ago. Why aren't we angry that baseball players make $20 million a year playing in a stadium that taxpayers pay for and then charge outrageous ticket prices that these same taxpayers cannot afford.
Perhaps, the government needs to wag this dog using the banks to replace BinLaden who is missing in action or as I believe, already dead. In any event the President better get a little more friendly as his tough ghetto talk isn't going to cut it with the middle class. The college kids that got him elected, had their fun and now are back to playing nintendo and partying.
ReplyReport Abuse1 - 10 of 12PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/why-bankers-havent-earned-bonuses.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*But they haven't.Just practice abstinence from forbearance As it is, we do know that these financial institutions are practicing forbearance (in this case, letting folks stay in their homes despite their inability to make mortgage payments) and that they are reluctant, in most cases, to modify loans or to recognize losses in general.
Meanwhile, even more people will walk away from their homes. That's the conclusion reached by Waterfall Asset Management's Tom Capasse, who in a recent Wall Street Journal article headlined "Is slashing mortgage principal the answer?" said: "There used to be a scarlet D on your forehead if you defaulted. . . . Now it's a badge of honor."
And that follows a Jan. 7 New York Times Magazine piece ("Walk away from your mortgage!") in which Roger Lowenstein suggested that maybe skipping out on a negative-equity position is the right thing to do. Clearly, defaulting in the wake of the real-estate bubble does not carry the stigma it once might have.
Read more about the bank bonus bonanza
If the institutions were forced to aggressively mark their positions to where the real-estate market quite likely is now or may be in the not-too-distant future, there'd probably be nowhere near as many profits to disburse.
Continued: A revival of the debacle? More from MSN Money
1 | 2 | next >
Yep. It is easy to draw out the feelings of unfairness out of people, especially during tough times. Hitler was the king of using a depression to instill a broad sense of unfairness in the struggling masses.
The only thing worse than unfairness, is man-imposed fairness.
It starts by singling out individuals that the masses all cry out against, and then it begins to quickly broaden to more and more people. Once those in power find that they can gain power by focusing the anger of the masses against the few, then it becomes a game of who is next on the list.
Maybe we should simply concentrate on protecting the rights of every individual in America - even the rich. I am not one of them, yet I know that my individual liberties will only be protected if I am willing to defend it for others. ESPECIALLY when I defend it to the seemingly undeserving.
It is like free speech. It is only really proven when you defend someone who says the most vile, putred, offensive statements, because you know that their right is directly linked to yours.
You can try to give equal opportunities or equal results, but not both. It is impossible. Resist people against those who would fuel your anger against individuals simply because it makes you feel better. Fueling the anger is easy, but hundreds of millions of lives of our forefathers have died stamping it out once created.
After being injured in a fortune 100 company, and then being handled harshly being beaten out of EVERYTHING, I think the SOBS should pay back every penny of the bailout, plus the damage to the small investors and the economy.
Send them a signal by using alternitive banking, or yanking a CD away from them.
I dont care if they followed the collapse standing on their heads juggling plates. A bonus is a reward. They performed poorly. If it was YOUR buisness they ran in the ground, you would not only fire them, you'd probably beat the **** out of them.
**** is my compensation?. Nowhere right?
This is not merely a reason these huge bonuses are not justified, it is one more reason they are not justified. Thisis not about fairness, this is about not allowing a few to profit mightily via actions that are detrimental to our society.
Even if the profits are real, they do not arise from creation of new wealth.
Yes, these bankers are managing huge profits and thusly would be worth the bonuses to their employers. But this is effectively a closed game. Banks are located in the middle of every flow of cash in this nation and have become ever more creative in carving off ever larger slices for their own pockets.
These profits are sucked out of the pockets of every company, saver, investor, 401K, pension plan (etc) in this nation. I estimate the latest round of bonuses to the top banks alone was 1% of GNP.
That is before we account for all the ways this game is rigged. Pile up huge paper bonuses on illusory profits and walk away with a huge bonuses. When the cards come crashing down you get to keep what you skimmed and pass the risk and loss to some one else.
This is so far removed from free market principles it makes me ill. Read "Wealth of Nations". The current actions of the banks represent one of the restraints on free markets that Adam Smith warned about.
The bonuses are necessary to retain top employees in the financial industry. Where would these institutions be without those crucial employees whose unparalleled talents and decisive action kept said institutions from becoming embroiled in the recent financial crisis . Those with such foresight, the best and the brightest, deserve bonuses.
Unfortunately, those employees were either on leave for a few years or had been muted by corporate brass who wished to reap obscene profits while they could.
First differentiate between banks and investment houses. The investment houses use some of their leverage to lend to upstart companies, something a regular bank would be leery of. Also, our "Let's look forward" president is stuck in Vendetta mode. He extended open arms to our murdering enemies and attacks our banks. Using this methodology is going to create a giant rift in this country between the wealthy and the poor.
A large portion of bonus checks become taxes. Not all investors had to take irrational risks to make money, as the market is up 70% from its lows of less than a year ago. Why aren't we angry that baseball players make $20 million a year playing in a stadium that taxpayers pay for and then charge outrageous ticket prices that these same taxpayers cannot afford.
Perhaps, the government needs to wag this dog using the banks to replace BinLaden who is missing in action or as I believe, already dead. In any event the President better get a little more friendly as his tough ghetto talk isn't going to cut it with the middle class. The college kids that got him elected, had their fun and now are back to playing nintendo and partying.
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