Bank Bonuses

Until about now I have had little opinion of the bonuses banks pay out to the people who make money for them. In fact, with respect to Merrill Lynch, I felt the "retail brokers" should get whatever performance bonuses they deserved as long as the cash was in the bank, if for only the reason they had little to do with the risky undertakings of the firm's high profile traders who gambled with the firms own and borrowed capital and lost miserably.

Now, however, I am inclined to get very pissed off when thinking about not only the bonuses being paid by these financial firms but at the exceptional trading profits being made on the backs of the taxpayer through our direct support of financial firms through TARP and the indirect but just as risky support through the FDIC backed loans (TALF) companies are floating at dramatically subsidized interest rates that taxpayers are ultimate responsible for.

To have had the Fed and Treasury spend and allocate several (one estimate is $12 Trillion) trillion taxpayer dollars to "shore up" what is essentially a pool of financial firms that are technically insolvent and then to see the folks running these firms still with the mindset to rake out as much cash from the system as they can, while they can, is an insult to their profession, shows a complete lack of respect for the trauma they caused not only the global financial system but to the lives of at least a billion people who have been financially crushed by their reckless, unregulated activities over the past 10 years (well the latest 10 years in this case),is a travesty.

If I were in any decision making power, I would gather some economists together and apply "market reality" metrics to each one of these firms. I would invite them to a nice lunch where I would spell out in no uncertain terms, they are insolvent, they are not making any money above the losses still on their books and will not likely to be truly "profitable" for 2-3 years as they work off the dead assets. If they have "profitable" divisions (like Citi owning a trading arm that made a killing) they will make it clear to the folks that work there, they work for a government subsidized failed banking firm and they will not be paid bonuses until the entire firm can show "real" profits overall in the firm.

If this does not work for these folks, then those people should leave the bank or the division split off so those folks can continue to run their little profitable firm with the bank holding a minority stake.

The bottom line is the model of large conglomerate banking enterprise does not work. This was sorted out in 1934 and the reason they do not work is you CANNOT HAVE TAXPAYERS BAILING OUT LARGE UNWIELDY FIRMS JUST BECAUSE ONE COMPONENT OF THE FIRM IS RETAIL BANKING. Retail banking, with its FDIC assurances should NOT be combined with other kinds of investment banking, finance, insurance etc. This is well known.

Just like the Enron disaster, where a few guys get together to take over a large regulated (at the time) firm with stable cash flows they could heavily leverage and turn it into a crazy speculative monster and lead it to bankruptcy, the same folks that run investment banks and other financial gambling oriented firms love to get their hands on retail banks for their stable deposits, fee income and seemingly unlimited access to cheap capital.

This should not be allowed. Period. We need to go back to Glass-Steagall Act and separate the various financial businesses for GOOD!

See latest story on banking bonuses from EU remarks today.