Enough Wall Street, Enough

"Even as I write I am watching the eunuchs now posing as Wall Street CEOs bend over backward before some congressional committee…We at Morgan Stanley are pleased by your investment. Now, if you ever want to see a dime of it back, go away. We’ll call you if we need you." — Michael Lewis

It boggles my mind how many articles I am reading that defend the short-sighted land grabs at our banks & insurance companies. Does Wall Street get it?  If you lose so much money from stupid & greedy activities that your firm is insolvent, you don't get to stick your hand in the piggy bank for bonuses. Show contrition, not indignation. The way that the rest of the world operates is you get to the end of the year, you look at your profits and your cash balances. If you have the cash to pay the bonuses, you pay them. If you don't have the cash, you don't. So, Wall Street, if your performance has been so strong that it deserves bonuses, pay them out of your cash. Oh, wait, you don't have the cash…

Some of the Wall Street crowd claim that their divisions were highly profitable and, therefore, their groups deserve bonuses. Sounds good to me. You just need to have the groups that hemorrhaged all the losses pay back that capital to the firm. If you can't get this money back, guess what…no bonuses. If you feel that this isn't fair, join the crowd. You are part of a single firm. You rise and fall together as a single firm. You can't keep the positives and ignore the negatives. With hedge funds, buyout funds, real estate funds, venture capital funds and commodity funds, if one partner's deal is a huge hit but another partner's deal tanks and wipes out the profit, no one gets a bonus (carry). This is because the fund's management team rises and falls together. Is it a bummer for the partner who delivered the big win? Yes. Does this mean he/she is owed a bonus? No.

If you don't have the money to pay the bonuses, why not just borrow the money? Isn't this the fundamentally sound way to run a business? Bankrupt your firm and borrow money to pay your bonuses.  Also, make certain that you go to the bank and tell them to give you the money but leave you alone to do whatever you want. Why do they insist on silly things like covenants, coverage ratios and sound business practices? Sorry to burst your balloon but lenders (including the government) have a voice.

If you've dug yourself so deep into a hole that no private sector firm will (or can) lend you money, sounds to me like you need to really tighten your belt, get real or go under. If the government is the only one who will give you money, even more so. Actually, this usually means that your firm is toast and existing contracts are voidable. I don't believe that the term "bonus" ever makes it into the dialog.

I agree that it took an entire nation to get us into this mess. I also agree that we should not make Wall Street the scapegoat for everything. However, Wall Street seems to be one of the few insistent that they should get rewarded. The other culprits are enjoying having their homes repossessed or investment portfolios cut in half. So, Wall Street, grow a pair (to quote Mr. Lewis) and do the right thing. Don't extort excessive compensation from a vulnerable country because you think you have leverage. And to everyone else, please stop the parade of articles and op ed's trying to take the offensive on this issue. It will only get worse over time.

Some very rational people, people that I respect, seem to be jumping on the band wagon to justify all of this behavior. They are indignant that a populist witch hunt is descending upon Wall Street. Unfortunately, unless Wall Street wakes up and smells the coffee, this will get worse and worse. Actions have equal and opposite reactions. When J&J had its issues with the Tylenol scare, it didn't tell people to stop complaining and go back to buying Tylenol. It took the financial hit and aggressively addressed the issue. In fact, it went beyond what most people expected.

Somehow, finding ways to sneak additional cash out of the system while continuing to ask for more loans does not strike me as an effective show of contrition. Furthermore, being vocal and indignant in your response does not seem to advance the cause much either. Worse, it really angers an already volatile population. Put gas on this fire and I will guarantee you that you will get the Populist Revolution that you fear. And, everyone earning more than minimum wage is going to get dragged into your Class Warfare if you keep this up. 

One last, tangental thing. Unless we rebalance things here in the US, we are in a lot of trouble. When we reward financiers significantly above entrepreneurs (not to mention doctors or teacher or…the usual list), we will end up with a nation of arbitragers versus engineers, manufacturers or founders. Our best and brightest will go where the money/bonuses are. Not so good in the long run…