Are Taxpayers Paying for Wall Street Execs’ Bloated Bonuses?

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The news conference of Federal Reserve Chairman Ben Bernanke appears on a television screen at a trading post on the floor of the New York Stock Exchange, Wednesday, Dec. 18, 2013. (AP Photo/Richard Drew)

For the past 40 years, corporate America has spent untold millions convincing lawmakers and the wider public that government intervention in the private sector results in painful unintended consequences that harm us all. At the same time, corporate-backed think tanks and media outlets have advanced the narrative that public benefits create a culture of dependency, and by doing so ultimately do their recipients more harm than good.

The hypocrisy of these claims is becoming increasingly evident as low-wage employers — notably retailers and the fast-food industry — enjoy profits subsidized by their workers’ reliance on public benefits. These firms are the real “welfare queens” in today’s economy.

And that also appears to be the case higher up on the economic ladder — much higher up. This week, Alexis Goldstein noticed a similarity between two headline-grabbing numbers. She writes:

Earlier this year, Bloomberg calculated that the top 10 US banks receive $83 billion a year in subsidies from the government, due to their cheap cost of funding and the preferential treatment creditors give them because they assume the government sees them as TBTF.

In November, a NYT analysis of a Johnson Associates survey found that the top eight US banks set aside $91.44 billion for bonuses in 2013.

You can read more of her research at the Because Finance is Boring Tumbler.

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  • Anonymous

    This won’t end until we become a democracy again, instead of a plutocracy.

  • Anonymous

    Until the parasitic corporate/banking/military/fakesecurity hydra is tackled and shackled and that mindset recognised as shameful and destructive, not much can change. Can it?

  • Anonymous

    See! The number don’t match, do they? If there was a REAL correlation the would be identical, right? Right?

  • JonThomas

    I’m curious… in a Republic specifically such as the U.S., how are the laws enacted? Through dictator mandates?

  • Edward Kirby

    The definition of a republic is: “not a monarchy”. Nothing more.

    A republic can be a democracy, and democracies can — and often do — have the rule of law. A democracy can also guarantee rights by way of the rule of law. [There's also constitutional monarchies, but I won't get into that.]

    The US, as originally composed, was to have the House as the democratic component, with the Senate appointees representing the States, mimicking the British Parliament, with its democratic House of Commons and House of Lords (representing the landowning elites).

    One hundred years ago that changed when the 17th Amendment was ratified, and as a result, Senators are now elected instead of appointed. The 17th Amendment was probably a bad move. Where is the saucer for the passions of the people to cool (to paraphrase George Washington)?

  • JonThomas

    Lol… Well, I really did not require such a lengthy description as I was simply using rhetoric to expose a point, but I must say, you are to be commended for your thoroughness.

    The basic point(s) I was hoping to expose simply referred to similar subjects as you brought out in your previous comment.

    While the U.S. is a Republic, it also utilizes the democratic process to bring about laws. It does so through majority-based elections (though, in concert with, but not directly tied to Popular-Vote styled Democratic Elections,) and through a form of Direct Democracy engaged within each Congressional House (and yes, I understand that ‘simple majority’ has it’s limitations in today’s Congress.)

    To say that Republic vs. Democracy, in nations such as the U.S., is an either/or proposition, is not really an honest portrayal, or complete understanding/characterization of the situation.

    All that said, I am glad you got the chance to expound.

  • Anonymous

    The hypocrisy is staggering. These are the same think tanks fighting against Single Payer while the corporations use part time models and fire people with seniority to extend no benefits. You would think that these corporations would be hot for everyone to have single payer . My old job had people come all the way to work, work them an hour and pull them off the floor as they were about to pop the magic hours worked number for that month. The knew but still had the worker come all they way in and set aside their day, pay baby sitter etc .

    The obvious reason they are not is they are creating an atmosphere of desperation and people willing to work odd hours, without benefits, and for crumbs while having nothing to fight back with and feeling they must put up with anything and everything.

    Personally i will never shop at Walmart again. you might as well go out and vote for slavery.

  • Ric Shorten

    Gods’ chosen people hum…2014 is the year to change!

  • Ric Shorten

    Indentured servants and slavery is alive and well…2014 is the year to stop this!

  • Ric Shorten

    Politically INSIST both the Republicans and Democrats move to a ‘STV – single transferable vote ‘ democracy’. For community move rapidly to buy local and move your accounts to the Credit Union….you’ll see a change by the end of the year.

  • Anonymous

    I agree with you, Texxtyn. I wish more would read between the lines and see it this way as well.

  • Dude

    This is all just so simple minded.

    Walmart and the US banks are not part of some dark conspiracy. Millions of Americans have pensions that are heavily invested in Wall Street banks and Walmart, P&G and other major corporations. The American economic system benefits from banks and major corporations doing well. That means, in general, Americans benefit when America’s big companies do well. Millions of kids are going to college because their parents work at these companies. Billions of dollars of charity donations are made by the workers of these companies. I bet that many people writing and commenting in this space have been the beneficiaries of having parents who work at these types of organizations.

    If you want Walmart to be forced to raise its pay, vote for people who support
    a higher minimum wage. That’s fair and that’s how the political system here can
    work, but don’t expect Walmart to pay everyone $15 / hr if Target is not. That
    would make Walmart uncompetitive. Either way, just realize there is no free
    lunch. If Walmart pays people more, then you can expect the average consumer
    will have to pay more for the toothpaste and widgets they buy there. Costs get
    passed through. That’s basic business.

    Does everyone here agree they are willing to pay more at MacDonalds and Walmart and the local restaurant to provide everyone with a $15/hr minimum wage? I can tell you your credit card bills going to go up a lot. Can you afford that? These are question people have to ask themselves – with real honesty. It’s where the rubber meets the road. It’s financial reality. Are you willing to give your money to the guy that flips burgers at MacDonalds? It wont be a quarter more. It will be dollars more for your big Mac and fries.

    The mortgage crisis was caused by interest rates being held too low (Mr. Greenspan), foolishness at Freddie Mac, bad home appraisers, irresponsible mortgage brokers, crooks, compromised ratings agencies, irresponsible bank lending, and irresponsible home owners that took out mortgages they could not afford. Not all the home owners that defaulted are victims. This was a conspiracy of self interests and a lack of personal and moral responsibility at many levels.

    If the banks are the beneficiaries of low interest rates by definition the
    borrowers are the beneficiaries of that largess as well. So you could make a
    very good argument that the homeowners were and are the ultimate beneficiaries
    of low mortgage interest rates. If you succeed in making banks pay higher interest
    rates, so will the average homeowner borrowing to buy a house. The cost will
    have to get passed through. Again, there is no free lunch. The banks cant lend at a negative rate of return.

    I am not going to argue that some bankers did not act irresponsibly – they did, but so did many many other people. People have to realize that this was a systemic failure by ALL the parties I indicate above. Including millions of average people that took out loans they could not afford. Nobody forced anyone at gunpoint to take out a loan. You cant just point your finger at the bankers if you want to be realistic and fair.

    I just think the discussion needs to be a whole lot more balanced. Bankers get
    bonuses because they have skills that are in demand. Capitalism is certainly
    not a perfect system, but it does tend to allocate resources in a more
    efficient manner that the alternatives. Do people really want the government to step in and determine what people should make? Do you want the government to step in and decide what you should make? Bankers should no more give back their bonuses to John Q. Public than people making money selling programming to PBS. PBS gets money from the government (albeit less and less – and I do like PBS).

    Class warfare is not going to solve the problems that plague the American
    middle and lower class. The discussion needs to be a lot more grown up, balanced and based on fact. We would all be better served if we took out the emotion and convenient populist rhetoric that sounds good, but lacks substance. There is no free lunch.

    The forgoing does not mean I support the political right’s approach either. I am arguing for a balanced discussion. That is my point.

  • baffled

    “If Walmart pays people more, then you can expect the average consumerwill have to pay more for the toothpaste and widgets they buy there. Costs get passed through. That’s basic business.”

    The decision to pass on the cost of salaries and bonuses is a choice. In most
    cases, the choice is made to reward those at the top of the ladder and increase prices. Another option would be to keep prices competitive (i.e, low) for the sake of consumerockets of the wealthy who will invest it in financial products. Of courss, and increase wages of the employees who interact directly with those consumers, thereby putting more money into the economy rather than the pockets of the wealthy decision-makers. Of course there is little incentive be competitive when you’ve eliminated the competition.

    Having been in business, there were many times when I decided to absorb costs to keep the cost of services to my customers affordable.
    I tried to live by the motto “Live simply that others may simply live.”
    I was able to live within my means without feeling deprived, and my family was better for it.

  • Dude

    Walmart has 2.2 million full time employees. Lets assume they work 37 hrs a week on average 52 weeks a year. Lets assume 25 pct make minimum wage (550,00 employees). Thats 1924 hrs per year for each employee. lets give them all a 7 dollar / hr raise. That comes to $13,468 / employee each year. That is $7.4 bil per annum of extra costs and I am not including other employee costs like SS, benefits etc.Before taxes Walmart made $25 Billion. Walmart paid approx $8 billion in taxes. $25 bil minus $15.4 bil equals $9.6 bil. OK, you have just crushed the business from a financial perspective. The return on equity is now horrible and the stock price will collapse and they are no longer competitive with Target. They can no longer compete. You have to understand that Walmart’s margins are only approx 5 pct when all is said and done.

    Lets looks at MacDonalds. Most restaurants have labor costs of approx 30 pct of gross sales. Lets assume MacDonald’s are 25 pct. Let’s give everyone an 80 pct raise from $7.50 to $13.50 / hr. Let’s see how that impacts the cost to the customer on a $10 order. Labor costs went from $2.50 to $3.75 for that $10.00 order. The cost to the customer went from $10 to $11.25. That’s a 12.5% increase. Most restaurants operate on a 2 to 6 pct margin. In other words they have to pass the cost through or the business is just not really viable from a financial perspective. If the owner can’t pass the cost through, they would be better off investing their money in something that has a reasonable return and a lot less risk.

    Its not baffling if you look at the numbers and see how wages impact the bottom line and rate of return. Gross profits are not what need to be looked at. Net margins are the key financial factor.

  • Bob Sloan

    I know they are getting rich off of profits make from investors’ money and NOT their own which to me is criminal to say the least. They take no risk for any mismanagement when not their funds then they take a percentage. What a crooked government we have. The crooks are running the government now.

  • NotARedneck

    Probably not. Most Americans worship money and therefore those who possess a lot of it – no matter how they obtained it.

    Those who have what it takes to get elected today, usually have this disease worse than average people. Certainly this is the case, whenever racist, right wing imbecile voters are a significant factor and a politician is forced to attract these voters.

  • NotARedneck

    You miss the obvious. All this created more profits for these companies. Who gets this money? It is the wealthy. They use this money for speculation – not spending on real investment and consumption that would create jobs.

    Understanding this, one then is in a position to understand the downward slide of the US economy over the past 1/3 of a century. (basically since Reagan changed the rules that created the prosperity of the post war era.)

    Reagan was like many wealthy types from his era. He bought a large piece of land (his ranch) and when it was developed into suburban sprawl, he became very wealthy. He confused this with true wealth creation and furthermore, since this “wealth creation” (for people in his class) did not require the government in any substantial way (unlike those who made real investments) he and his friends resented paying taxes. Since then, speculators have had it easy and nobody is serious anymore about making real investment, since speculation is so easy and profitable.

  • Dude

    Not

    I was not and am not a huge RR fan, but buying and developing land and building houses sure sounds like speculation that led to a lot of jobs to me. The house and roads didn’t build themselves.

    People with money do speculate and invest and that does at times lead to jobs being created. In many respects that is what led to companies like Microsoft and Apple and CISCO and Exxon and Walmart and JP Morgan etc. Its the essence of capitalism. The people that started these companies took a lot of risk and made a lot of money. Good for them as far as I am concerned. We should not resent people that are more successful than us.

    And no, speculators do not “have it easy”. They risk their money and often times lose their money. The business world is littered with speculators that lost everything. It is not “easy”. If it was easy everyone would be doing it. Millions of people lost a lot of money in the stock market in 2008 and 2009. Many will never make it back. If anything, it is easy to lose a lot of money speculating.

    I really don’t understand your theory of economics. You comment
    “since the “wealth creation” (for people of his class) did not require the government in any substantial way (unlike those who made real investments)” implies that government should be the driver behind real wealth creation or otherwise its not real? This is a sort of quasi socialist reference. Also, RR didn’t come from money. He was a self made man.

    I think that if you had some exposure to the world of investing, private equity and venture capital it might alter your viewpoint a bit. There is no free lunch.

  • NotARedneck

    “I really don’t understand your theory of economics.”

    The problem is, your voluminous comments indicate clearly that you really don’t understand economics at all. This is typical of those who support measures that support speculation. It is good for them so it must be good.

    Try to understand this:

    A wealthy individual buys a chunk of raw land for say $10,000,000 and later (often only months later) sells it for $15,000,000. What was created?

    My answer is nothing. You still have the land, no more and no less. The only change is that this person now has more money. This gives them more purchasing power and that means that everyone else has less – assuming that there is nothing more to buy.

    Of course, this is not a very large loss of 300+ million people but when this speculation increases the wealth of a tiny minority, over several decades, it has a tremendous effect on everyone else.

    However, when the wealthy do this to the near exclusion of making PRODUCTIVE investment, the average person gets a double negative effect. Not only are they competing to purchase what they need with those getting money for nothing, but their jobs and future are being undermined. Speculators get the funds to pursue these “opportunities” by stripping assets from productive investments, not maintaining what they cannot easily convert to cash and squeezing the workers in these enterprises who actually create wealth.

    This is the legacy of Reagan, Bush and other incompetents who worked for them. If Americans could understand this clearly, they could actually do something about it – electing politicians that promoted real investment. Prior to the Reagan “revolution” this was actually a role of government and it worked quite well. The economy doubled and doubled again in the post war era. Few mega wealthy were “created”, most had a job and only idiots speculated because assets sis not appreciate rapidly.

    Of course, the wealthy don’t want this. Despite what you say, speculation is not only easy for them but because the wealthy can spread their risk around, it is safe and very lucrative.

    It is the poor and lower middle class who don’t have this luxury. Generally they are lucky to be able to own a house and any investments that they make are raided by the rapacious financial services sector.

  • Dude

    No:; Pick up a book on the venture capital business or read about how HP or Apple or Microsoft started or learn about how the IPO process works on Wall Street and then you will be able to discuss this properly. Speculators make and lose money. They allocate money to the economic system. Its been going on for thousands of years. It works. You perception of politicians prior to RR and the lack of speculation prior to RR is factually incorrect.

    The politicians allocated resources in Russia and Cuba and the Eastern block not in the USA. We all can all see how well that worked out for the communist block of old. You are essentially promoting the concept of a state run economy. That concept has worked exactly nowhere and never.

  • Anthony Endres

    //”I think that if you had some exposure to the world of investing, private equity and venture capital it might alter your viewpoint a bit. There is no free lunch.”//

    Actually, it is not too difficult to prove most private equity and the too big to jail investing world are just your regular pyramid scheme, with a lot of free lunch bonuses for clueless but well-organized, finance scam-artists on the tip.

  • Anthony Endres

    //”Speculators make and lose money. They allocate money to the economic system.”//

    Nay. That’s just the bloomy theory: In an ideology- and stupidity-ruled Crony capitalism, what the U.S is sadly, big conspiratorially organized speculators mainly allocate mainly money FROM the economic system and the public into their own pockets, while bankrupting entire U.S. cities, city by city.
    You, are just a well-paid denier of the corporate cronyism.
    A most pitifully unintelligent one evidently, hey dude?

  • Anthony Endres

    //” They can no longer compete. “//

    Oh and that would be oh-so sad if Walmart couldn’t “compete” and would globally even go bankrupt, unable to suck-up governmental funds while creating low-wage “jobs” equivalent only to the old American form of paid slavery? When, “if you can’t compete, you out” IS one of the main rules of the form of Capitalism you and Walmart so love to preach?
    So let me get that correct, if you can’t “compete”, because of higher demand of people who don’t want to be abused any longer as hunger loan-slaves, while some know-nothings (like Romney and the idiots on Fox News) are dolling billions down their throats, why should your business exist in the first place again in a true Capitalistic system of competition, of demand and supply, where the new “demand” is higher income for more?

    Your above calculation for the 2 monopolistic slave-loan corporations were utter nonsensical simplifications btw, not only since your calc dismisses other often far larger sources of revenue and profits of those 2 corporations.

  • Kristen Osgood-Rdesinski

    The goal for corporations is not just profit, the focus has shifted to Potential Profit. This has been happening for quite awhile, to the point where a company will consider not reaching the profit percentage increase goal is considered a loss instead of just making a smaller profit. They are still ending the year on the positive side of the balance sheet, the profits are still quite substantial. The increases are not being passed on to those who help the corporations achieve the goals, with the exception of higher management.

    For those who do not understand the huge gap between the “haves” and the “have nots” this is a link that explains the actual distribution of wealth, as opposed to what we perceive.

  • Dude

    Thanks for the anti intellectual reply.