Tuesday, October 21, 2008
Morons In High Places
As I broached in my prior post Unfreaking Believable - Main Street's Bailout For Wall Street, financial companies HAVE NOT really cut back on staff or bonuses.
Here's an article from the Guardian that discusses this year's $70 billion Wall Street bonus pool.
Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.
The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.
Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.
Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs.
Here's the most incredible excerpt:
At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.
This is why investment banking has always been a horrible investment. When times are good, the i-banks make a ton, but when times are bad, they lose 5 tons. All the while, the employees co-opt the booty for themselves. This is expressly why Bank of America, who's had so much trouble in the investment banking business, SHOULD NEVER have paid $50 billion for Merrill Lynch. Point of fact, only one year ago, a frustrated Ken Lewis said something to the effect that *he's about done with investment banking*. Then of course he runs out and buys Merrill Lynch, with their $55 billion in investment banking losses over the past four quarters.
It was Countrywide Part Deux. After all those years where he swore off *subprime lending*, he turned around and not only bought, but OVERPAID for the biggest junk mortgage originator in the history of this planet (notwithstanding Fannie Mae).
Back to Merrill Lynch. Bank of America SHOULD NEVER have paid that much money for a firm that, in Ken Lewis's own words, might have been bankrupt "on Monday". Watch him in this 60 Minutes clip:
What the heck is it about Ken and his buying firms JUST BEFORE THEY GO BANKRUPT???
I don't know how anyone could watch that video and not conclude that Leslie Stahl is more mentally competent than Ken Lewis. He gloats about the size of his bank; about how he's conquered Wall Street.
Meanwhile shares of Bank of America are mired at a 12-year low.
You watch, when it's all said and done Merrill Lynch will prove a bigger loser than Countrywide.
John Thain, Merrill's CEO, took Lewis for the dope that he is.
He p'wned him!
[Did I use the expression aptly, Taylor?]
(In case you were unaware of how it transpired, John Thain is the one that called Ken Lewis, asking to be bought out - two days before its *Monday bankruptcy*. Dopey Ken said, "Okay, we'll buy you. How much money to you want?")