Gambling Wall Street Style
Greed continues unabated and unapologetically on Wall Street.
Wall Street bonuses are skyrocketing. The rate increased to a staggering 31% at Goldman Sachs, JPMorgan Chase announced $9.3 billion in bonuses. Bank of America has joined in the fun too; dishing out $4.4 billion – yes billion – to investment banking employees, with top employees receiving $5 million a pop. In total for 2009, New York City bank employees were paid a whopping 20.3 billion.
How bout a box of chocolates or simply a thank you for Main Street? They made it possible with a no strings attached bailout just last year. Think what America could do with $20.3 billion. Schools, a new bridge or two, heck let’s pay off some of that mounting debt to the Chinese.
As troubling as the sheer size of these bonuses, is their source. The fancy name for it is proprietary trading. Most of us would call it gambling. Yes trading is gambling. But generally when you are Goldman Sachs or JPMorganChase, you don’t lose. Others do though – the fellas on the other side of the trade – that’s why they call it a trade.
All this “proprietary trading” can be an unstable and a risky way to run a bank. Eventually the music stops and someone loses. Those losses are multiplied by derivatives upon derivatives and those tidy trading profits can soon vanish turning into colossal losses. But fear not, Main Street can be scared into at least one or two more bailouts.
Perhaps more troubling though is when the major Banks are busy at the poker table, with all their chips deployed, little attention is paid to innovative financing for existing and new companies trying to compete in the world economy. Face it, proprietary trading does not produce value outside of Wall Street; the only beneficiaries are the banking employees themselves. This circular system keeps billions of dollars in the hands of Wall Street bankers, and none of it in the hands of the American people.
The services offered on Wall Street are vital to all Americans, and the work that employees do should be fully compensated. But right now, Wall Street rewards its employees for engaging in selfish transactions that benefit none but their own.
So what do we propose?
Let’s restructure Wall Street bonuses to incentivize banking employees to produce profit on transactions that create jobs, build infrastructure, and reward innovation: not financial innovation but real world innovation. How about putting some of that creativity and energy into financing clean coal plants or schools designed to retrain our work force. Those endeavors deserve a bonus.
Assisted by Jessica Begen
Steven N. Berk has over twenty years of litigation experience spanning both the private and public sectors. His practice ranges from representing Fortune 500 Companies, to consumers. Steven is based in Washington, D.C. and founded Berk Law in May 2009....
