There has been a lot of talk in the papers recently about not paying bonuses to the employees of Wall Street firms.
The logic is as follows: Since most of the financial community has been devastated and have been forced to borrow money from the treasury, why should the banks pay out bonuses? The fact is that the money to be paid out in bonuses will be coming from tax payer money. On the surface, it looks like a logical argument.
However in most of these firms the employees of these investment houses didn’t lose money this year. The majority of the losses came from a few areas of the firms : mortgage department, loan market and similar areas. At any Wall Street firm the number of people in these areas is relatively small. There is only so many traders, research and salesman that you need in one product group. So just because the mortgage department wiped out the equity of the firm doesn’t mean the guy trading emerging markets isn’t owed a bonus.
In the case of Bear Stearns and Lehman Brothers, their employees will not be paid because they went bankrupt. In the case of other firms that were saved (AIG) the government decided to step in and honor the firms contracts, hence the bonuses must be paid.
Like any other industry in the U.S, on Wall Street, most of the employees are solid and honest working people. The reason that many of these firms went bankrupt is because the management of these firms decided to take massively large and levered bets on the real estate market and lost. The guys who made these bets were all multimillionaires and if they had won, they would have made even more money. Since the bets didn’t pay off most of these executives were fired but kept all their millions. They made the perfect bet-heads I win tails you lose. The trader on another desk in another area of the firm is now the guy losing his job, through no fault of his own. The sad thing is that he dos not have all the millions to fall back on and now is struggling to survive.
Many of these Wall Street executives ran these firms as private fiefdoms ( see Lehman Brothers) and because of their hubris, many people have lost their jobs, their life savings and their careers. For this reason alone, I don’t believe you can punish someone by not paying them a bonus. They were not the guys who lost the money in the first place.
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