In my daily perusal of economic news, I have found myself more than once staring my computer monitor in open-mouthed wonder, occasionally exclaiming, "You've got to be kidding me," or "What's wrong with these people?",or something like that. To do what they've been doing, you'd either have to not be paying attention to what's going on or just not care.
In their case, it's a little of both. And it's diagnosable, if not treatable.
How else do you explain the utterly mystifying payment of $18.4 billion in bonuses to some 80% of Wall Street employees — including employees of firms being bailed out by taxpayers, who are due to shell out another $350 billion? And even as Americans are losing their jobs and their homes, in the midst of a financial crisis largely brought on by the financial sectors arcane shenanigans?
It's nothing new, of course. Sure, Wells Fargo just canceled a party in Vegas after the plans were covered in the media and roundly criticized. As early as February 2008, subprime mortgage giant Countrywide was caught planning a ski trip for lenders. This was after posting a $422 million fourth quarter loss in 2007, and a $1.2 billion loss in the third quarter. At the time, the first waves of subprime tsunami foreclosures were lapping at our shores. Many who thought they were on economic high ground still figured they were safe.
At JPMorgan, which received the first $55 billion bailout serving from the government gravy-train ladle to buy Bear Stearns worthless assets — and another 25$ billion in TARP payouts — the top 15 executives didn't get easy-to-trace cash bonuses, but instead got $111,905,000 in bonuses in the form of Stock Appreciation Rights and Restricted Stock units, unlikely to be reported or even understood by very many outside the finance field.
AIG, after lax oversight led it to make multiple visits to the bailout trough, spent $440,000 on an executive spa retreat at the St. Regis Resort in Monarch Beach, CA. The only thing more jaw-dropping was the itemized invoice.
AIG American General spent:
- $147,302 for banquets
- $139,375 on rooms
- $23,380 for spa services
- $6,939 for golf
- $5,016 at the Stonehill Tavern
- $3,065 for in-room dining and the lobby lounge
- $2,949 for gratuities
- $1,901 at the Monarch Bayclub
- and $1,488 at the resort’s Vogue Salon
The Bloomberg wire service quoted Waxman as saying, “Average Americans are suffering economically Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.”
Just a week earlier, the government had committed $85 billion to bail out the company. That was in October 2008. By December the government had pumped $152 billion into the company in order to keep it from collapsing. It was also in December that AIG gave millions in bonuses to 168 employees, in the form of "retention payments" $96,000 to $4 million per individual. (New York state attorney general Andrew Cuomo was so outraged he sought to confiscate their bonuses.)
Perhaps the Monarch Beach retreat and the bonuses were the executives reward for saving the company with taxpayer's money. Our reward was a phenomenon called "the AIG effect."
Today, "practical" has replaced "memorable" as the buzzword in high-end business circles. Companies are canceling splashy events and lavish business dinners or revamping the way they plan them. The new mood means drastic changes for employees who've come to expect five-star treatment, as well as hoteliers and travel planners who base their businesses on such meetings and incentive travel trips.
They've even coined a new phrase for the trend: "the AIG effect."
It comes from the embarrassing disclosure last fall that struggling insurance giant American International Group had spent about $400,000 on a retreat at a luxurious St. Regis resort and spa after taking an $85 billion federal bailout. After that, hoteliers saw mass cancellations or postponements of previously booked upscale trips and meetings.
The "AIG effect" may have been real, but so was the apparent immunity of some firms.
The government opted not to bail out Lehman Brothers, but CEO Richard Fuld stood out nonetheless as a prime example of what' wrong with Wall Street, as he sat in front of a congressional committee and defended his $484 million in compensation since 2000 — not to mention a mansion in Greenwich, Connecticut; a ski chalet in Idaho; an apartment in Manhattan; an ocean front estate on Jupiter Island, Florida, which the Fulds bought for $13.75 million in 2004, and which he sold to his wife for just $10 (though the final price, after fees and taxes, was closer to $100) in a likely attempt to hide assets due to fear of investor lawsuits.
Fuld has been subpoenaed by prosecutors investigating the collapse of Lehman Brothers, which paid $23 million in parting bonuses to executives days before going in to bankruptcy protection. An article in the December 2008 issue of New York Magazine reported that Fuld told investors one thing about the company's financial health, while the company's books told another story.
Just as Lehman was filing for bankruptcy, Merill Lynch CEO John Thain saw the writing on the wall, and Merrill Lynch — which was facing a fourth quarter loss of $15.3 billion— was sold to Bank of America for $50 billion. But when another $5 billion in losses was discovered, taxpayers (c/o the Treasury Department) ponied up $20 billion to cover what was a losing bet for Bank of America.
In December, Thain "accelerated" bonus payments, and handed out $3 million to $4 million in bonuses to Merill employees — money that appeared to come right out of the TARP money Bank of America and Merrill Lynch had gotten from taxpayers — before Bank of America took over. But he wasn't done yet. Thain also demanded a $10 million severance bonus (down from $30 to $40 million), which he gave up pursuing after public outcry finally made a dent in Wall Street's protective bubble.
And by now, the world knows of Thain's expensive tastes when it comes to redecorating, as he spent about $1.2 million redecorating his Merrill Lynch office suite. The list of items (and their costs) is rather astounding (especially read in the context of an economy that has more and more people selling their stuff to pawn shops).
• Area Rug $87,784
• Mahogany Pedestal Table $25,713
• 19th Century Credenza $68,179
• Pendant Light Furniture $19,751
• 4 Pairs of Curtains $28,091
• Pair of Guest Chairs $87,784
• George IV Chair $18,468
• 6 Wall Sconces $2,741
• Parchment Waste Can $1,405
• Roman Shade Fabric $10,967
• Roman Shades $7,315
• Coffee Table $5,852
• Commode on Legs $35,115
Really. What's wrong with Staples, anyway? (I wish I could find pictures of this stuff, but this slideshow at least shows how to reproduce Thain's decorating spree for much, much less.)
Thain's excess isn't an isolated event, either. Even after Detroit executives were excoriated for flying to Washington in corporate jets to seek help for an industry whose employees actually make something — and something that people can actually use — rather than crawling from Detroit to D.C. executives from at least six financial firms that received bailout funds were still flying around in corporate jets as of mid-December.
This is a list that could, and likely will go on and on. But just the above was enough to make me ask "What's wrong the people?" And, is it at least diagnosable, if not treatable.
I couldn't escape a sneaking suspicion that Barney Frank and Claire McCaskill were right and wrong about the titans of Wall Street. They weren't and aren't necessarily "stupid" as Frank said, or "idiots" as McCaskill called them. But it's true that they just don't get it.
One day after President Obama ripped Wall Street executives for their "shameful" decision to hand out $18 billion in bonuses in 2008, Congress may finally have had enough.
An angry U.S. senator introduced legislation Friday to cap compensation for employees of any company that accepts federal bailout money.
Under the terms of a bill introduced by Sen. Claire McCaskill, D-Missouri, no employee would be allowed to make more than the president of the United States.
Obama's current annual salary is $400,000.
"We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer," an enraged McCaskill said on the floor of the Senate. "They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses."
Actually, it's bullies that kick sand your face. But that's OK. Not all idiots are bullies, and not all bullies are idiots. But some idiots are bullies and some bullies are idiots. It's when bullies and idiots team up — with the latter doing the former's bidding — that we're in real trouble. I'd say hold on to your lunch money, but they've already got it.
How better to describe the way we were herded, cajoled and threatened into coughing up a bailout package. Remember it had to be passed now, now, now? Or else something terrible would happen to us? As a result, we're paying their bonuses.
If, as Sen. McCaskill said, congress had no idea that these firms would turn around hand out bonuses, buy jets, schedule junkets, etc. after receiving bailout funds, it's because they didn't know who they were dealing with anti-socials and narcissists will turnaround and do just that. Because it's true that they don't get it, and they don't care.
With so many media people manifesting amazement at the revelations about political corruption and Wall Street scams, one wonders if the media are really amazed or is the surprise just one more example of the fakery endemic in American society.
Is the apparent surprise merely a device to maintain the myth that we're all such wonderful people living in a free-market paradise where scams against the public are so rare nothing needs to be regulated?
The roots of all of this are deep and troubling. Aside from the general American ethic of "money talks"--net worth more important than personal worth--there's a real psychiatric problem.
Psychologists and psychiatrists have learned a few things about what they call "social cognition"--our awareness of our connections to the people around us. People with normally developed social cognition appear to have attributes that foster social understanding. For example, they have what psychologists call a "theory of mind"--the ability to recognize what some person may be thinking from that person's facial expression or from cues related to what that person is doing or saying. Those with normally developed social cognition also have an attribute called "empathy"--the ability to imagine or feel the emotions of another person.
Unfortunately, either as a consequence of variant genes or very early environment or an interaction of both genes and environment, not everyone is operating with a full deck in the social cognition domain.
This may very well be the problem with the Wall Streeters and why they "don't get it." They have an utter lack of awareness about any connections to the rest of us, even when the rest of us are suffering an economic downturn brought on by the very sector that so richly rewards them even as many of us are hurting.
And when confronted with it, they blink with wonder and ask "What does that have to do with me?"
And when confronted with their outsize compensations juxtaposed against the painful economic reality most Americans are living with, they blink with wonder and say "But I deserve it." And mean it.
And when confronted by the above, we give it to them.
Now, what does that say about what's wrong with them? And what's wrong with us?