Sunday, November 8, 2009

Wall Street: The New Lake Wobegon

It’s official: all the top brass at the nation’s too-big-to-fail financial institutions are above average. Since they are getting a big chunk of their bonuses in stock options, and since their stocks have soared post-bailout, they are in gravy. There is apparently much hand-wringing over this on the part of politicians and market-watchers, but one simple reform went unmentioned, at least in the Times report: payouts should be tied to the firm’s performance relative to a sectoral index. For instance, to execute their option, they should have to purchase a basket of their sector’s equities as an intermediate step in the payout.

Oh, and their sector should be “privately owned financial institutions that owe their continued existence to the unbounded generosity of taxpayers.”

1 comment:

Jack said...

So again we read that bankers are going to get bonuses worth multiples of millions of dollars for a year's worth of work. First we read of the $16 billion, as I recall, bonus pool at Goldman Sachs. Strange that only one year ago they let go 3,000 employees because of a need for cost containment. Now we're reading about stock options which will cash out at millions for a job not yet done.

Several questions come to mind, the first of which is what the devil are the Bds of Directors at these publicly held corporations up to? What does the phrase fiduciary responsibility mean to these people? At GS the bonus pool is bigger than the total profit on revenues. That seems strange. It appears, from the news reports, that the pool was based on revenues, and it is a goodly chunk of those revenues. Is GS a hedge fund?