Wednesday, February 24, 2010

New York State Comptroller's Wall Street Bonus Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

I attended the February 23rd press conference given by New York State Comptroller Thomas DiNapoli where he announced Wall Street bonuses tallied at least $20.3 billion in 2009 and industry profits could exceed $55 billion for the year - nearly three times the previous record. While a blogger or two from a major political website is occasionally included in such events, this may have been the first time a blogger for an investing/economics site was invited.

The Wall Street bonuses revealed by the comptroller were literally that - compensation paid to employees working in New York City. All of these firms are international in scope so payments made to employees working elsewhere, and these could be considerable, were not included in the totals. Moreover, the bonus numbers were based on cash payments or recognized deferred compensation, options that were cashed in during 2009 for instance. Stock options granted, but still outstanding are not part of the numbers.

The comptroller's office noted that many Wall Street firms delayed cash bonus payments and increased stock and other forms of deferred compensation in 2009. Many top executives received no cash bonuses last year, but got stock options instead. This made the bonus amount for 2009 to appear to grow less than it actually did, keeping the apparent increase to only 17%. Wall Street executives received larger salaries as well as part of their compensation.

In 2008, Wall Street firms lost $42.6 billion and granted at least $17 billion in bonuses according to the comptroller's figures. Never in history has incompetence proved to be so lucrative. If you screwed up at work and almost drove your company out of business would you get a big cash reward for doing so? Yet, the perpetrators of the biggest financial collapse in history were richly rewarded for their efforts. How is this possible and where did the money come from?  Government bailouts are the answer to both questions. Wall Street got money from the Federal Reserve and the U.S. Treasury and then funneled that money into its executive's pockets. The government in turn got that money from your bank account. The other question that needs to be answered is how did Wall Street triple its profits from the previous high in 2007 when U.S. unemployment reached 10% and the GDP was negative in 2009?

The New York State Comptroller is the sole trustee for a $128 billion pension fund. New York State, along with the other major state and city pension funds, is responsible for a huge amount of market investment. While Wall Street knows about what goes on in the nation's comptroller's offices, most of the activity remains unknown and unseen by the investing public.  Investors have a right to know what is going on with public money. Including bloggers, who are the people's press after all, in the news flow is a major step in the right direction. Comptroller DiNapoli deserves credit for opening the process.

Disclosure: No positions.

NEXT: U.S Economy Continues to Deteriorate Despite 'Recovery'

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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