Who's to Blame?
Bond trader: $1.5 million, with $240,000 in base pay, $975,000 in cash bonus and $310,000 in long-term bonus.
Hedge fund manager: $1.8 million, split between a salary of $265,000 and $1.5 million bonus.
Just why investment bankers and traders outearn, say, doctors or computer engineers is a question I've never heard convincingly answered. Are they smarter? Unlikely. Do they contribute more to the economy? Questionable. True, Wall Street often performs a vital function. It channels savings into productive investments. It helps provide access to capital and credit. In 2006, U.S. companies raised nearly $4 trillion through new stocks and bonds. Many financial innovations, including mortgage-backed securities, have benefited individuals and companies.
But Wall Street also frequently misallocates capital and credit. The "tech bubble" of the late 1990s was one episode. Now we have subprime mortgages. Why? Well, the herd mentality of financial crazes has a long history. But compensation practices skewed so heavily toward bonuses based on annual profits make matters worse.
"People self-select for careers. On Wall Street they self-select for the money," says pay consultant Alan Johnson. "Wall Street is a sales business—they sell bonds, securities, transactions, ideas … They're not paid to be long-term, philosophical, reflective." The pressure is to do the next merger, sell more stocks and bonds, do more trading—whatever boosts current profits and bonuses, the long-term consequences be damned.
"These are my MBA students, not just mine but MBAs from Harvard, Stanford, Pennsylvania," says economist Allan Meltzer of Carnegie-Mellon University. "They were buying and selling this garbage [subprime mortgage securities]. Are they so stupid? They got compensated for doing it. If they didn't do it they'd lose their jobs."
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Member Comments
Posted By: sharkman @ 04/21/2008 10:37:24 PM
Comment: Every American needs to learn to live without money.Learn to hunt,fish,and plant your own food we will see how rich these thieves are when nobody needs or wants their money.If people reject the system they think we have to live in. If our money system fails the rich theives will have the most to loose.It will be a better world when this occurs.It's not if it is going to happen but when?When will the working class Americans lay down the shovel and climb out of the hole?Soon I hope.
Posted By: sharkman @ 04/21/2008 10:35:39 PM
Comment: Every American needs to learn to live without money.Learn to hunt,fish,and plant your own food we will see how rich these thieves are when nobody needs or wants their money.If people reject the system they think we have to live in. If our money system fails the rich theives will have the most to loose.It will be a better world when this occurs.It's not if it is going to happen but when?When will the working class Americans lay down the shovel and climb out of the hole?Soon I hope.
Posted By: vznuri @ 01/25/2008 8:44:25 PM
Comment: its not "who" to blame, its "what". that "what" is our banking system.
the only candidate who has any idea about this is ron paul.
see a paper I wrote called "fractional reserve banking as economic
parasitism"
http://econpapers.repec.org/paper/wpawuwpma/0203005.htm
endorsed by two phd economists. printed in nexus
magazine, 60k world circulation. #1 top downloaded
economics paper. used by economics
teacher in australia as standard classroom material.
more info on request.
recent supporting material:
The Shock Doctrine: Naomi Klein on the Rise of Disaster Capitalism
http://www.democracynow.org/article.pl?sid=07/09/17/1411235
Confessions of an Economic Hit Man: How the U.S. Uses Globalization to Cheat Poor Countries Out of Trillions
http://www.democracynow.org/article.pl?sid=04/11/09/1526251
John Perkins on "The Secret History of the American Empire: Economic Hit Men, Jackals, and the Truth about Global Corruption"
http://www.democracynow.org/article.pl?sid=07/06/05/149254
Video, senator/pres candidate Dennis Kucinich
at last years 2005 Monetary Reform Conference
http://www.monetary.org/video/kucinich/win_broadband.wmv
Money as Debt, video by Grignon
http://video.google.com/videoplay?docid=-9050474362583451279