As most of us have heard, Wall Street is announcing bonuses of approximately $20 billion this year. That covers thousands of employees, including CEOs, middle managers and – yes, believe this – secretaries and administrative assistants. If the Wall Street bailout comes in at a whopping $1 trillion, which is not unlikely, the bonuses amount to 2% of the bailout. Let’s not forget that the number includes institutions seeking nothing from the federal government.
These are the guys and gals we love to hate right now but there were plenty of barkeeps, party planners, travel agents, general contractors, private school teachers and lots of other regular people who were quite happy to profit handsomely from selling expensive bottles of wine, booking trips to Tuscany, adding on a custom kitchen and keeping little Johnny’s dream of Harvard alive. They earned some of that Wall Street money and they did so without so much as a whiff of complaint of the “excesses” of Wall Street.
I’m not apologizing for $4,000 shower curtains or Roman Holiday birthday parties. I am convinced as so many others are that much of the executive compensation, especially cash payments that were not tied to stock price performance, was obscene. But don’t we need to separate out those kinds of excesses from what we as a society tolerated – even celebrated – as we lulled ourselves into believing that our houses would continue to see 20% increases in value year-over-year and then using those illusory gains as ATMs to do some of the things (albeit writ small) that these new demons were doing all along? You may not have renovated your perfectly nice kitchen for $250K but a great many people did so for $50K. They probably took out a home equity loan or refinanced their house to do it. Their real estate brokers probably told them – as did every bad HGTV show – that they would get back 80% of what they spent. Check your local Home Depot these days. It sure isn’t the Stainless Steel Appliance Party it once was. That isn’t just because of the credit crisis. It’s because the builder’s colonial that was "worth" $280K in 2008 was always really worth $220K whether it had white melamine cabinets or cherry wood. I’m not financial genius but when folks kept telling me that our place was worth 100% more than we paid for it 5 years ago, I laughed and said it was worth absolutely zero until we tried to sell it. Unless wages are going up by 20% a year, house prices generally ought to follow buyers’ increases in salary. That’s what your grandmother would have told you. She was right.
We all had a role to play in this, except for those unfortunate people who were deprived by our educational system of basic economic knowledge. Maybe one good start is to re-write the curricula of high school Home Economics classes, make the classes mandatory and train the teachers to understand how the credit system really works.
Demonize all you want. Take away all the bonuses so we can get rid of the current crew and hire boneheads willing to work for peanuts and live in studio walk-ups in nasty sections of New York City for the honor of working 14 hour days 6 and even 7 days a week and make even worse mistakes than the smarter guys whose bravado and lack of government understanding or oversight got the better of them. The result won’t be any better. It’ll likely be worse.
It’s time to stop worrying so much about the 2% and focus on the future which, quite frankly, is the 98%. Regulate, regulate, regulate. Curtail the derivatives business. Cut or eliminate the bonuses or fire the men and women who took too much risk and did so without regard to the fundamentals. The financial system is clearly worth saving. Bloviating about bonuses does almost nothing to do that.
If anyone actually reads this, I’m likely to get some really good contrarian opinions. Bring them on. I wouldn’t mind hearing others’ opinions.
