Cash bonuses paid by Wall Street firms to their New York City employees declined by 44 percent in 2008 to $18.4 billion, in response to record losses suffered by the securities industry, according to an estimate released today by the New York State Comptroller Thomas P. DiNapoli. DiNapoli noted that the federal Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees. The 2008 bonuses were the sixth-largest haul on record.

“A 44 percent decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues,” DiNapoli said.“The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It’s painfully obvious that 2009 will probably be another difficult year for the industry.”

“Taxpayers have invested billions of dollars to stabilize the nation’s banks and financial institutions and there are plans to make additional investments to shore up the banking system. There needs to be greater transparency and accountability in the use of these funds. Every dime counts, especially when they’re taxpayer dimes and taxpayers ought to know if these funds were used to buy corporate jets, pay dividends or bonuses.”

DiNapoli’s office estimates that the bonus pool paid by the securities industry to its employees in New York City totaled $18.4 billion in 2008 based on personal income tax collections and other factors, including industry revenue and expense trends. This represents a decline of 44 percent compared with the $32.9 billion paid in 2007. The decline is the largest on record in absolute dollars and the largest percentage decline in more than 30 years, but the size of the bonus pool is still the sixth largest on record.

DiNapoli also estimated that the traditional broker/dealer operations of the member firms of the New York Stock Exchange lost more than $35 billion in 2008—more than three times the record loss in 2007. Industry losses were actually much greater when other business services, such as mergers and acquisitions, were factored in.

For the past decade, the Comptroller’s office has released its estimate of bonuses paid to securities industry employees who work in New York City (whether they are City residents or commuters). Bonuses paid by New York City-based firms to their employees outside of the City (whether in domestic or international locations) are not included. DiNapoli’s estimate also does not include stock options that have not yet been exercised, which could increase the value of bonuses realized.

• The average bonus declined by 36.7 percent to $112,000 in 2008. The decline in the average bonus was smaller than the decline in the bonus pool because the pool was shared among fewer workers as the industry shed jobs.

• The reduction in Wall Street bonuses will cost nearly $1 billion in personal income tax revenues for New York State and another $275 million for New York City. Before the start of the financial crisis, business and personal income tax collections from Wall Street activities accounted for up to 20 percent of State tax revenues and 12 percent of City tax revenues.

• Employment in the securities industry in New York City declined from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2 percent.

• At the beginning of 2008, there were seven major financial firms headquartered in New York City. Since then, two have been acquired, one failed, and two converted into commercial banks.

• A review of the 2008 year-end statements of the major financial firms headquartered in New York City (the Merrill Lynch acquisition was completed in 2009) showed a tax credit of $31.3 billion for 2008, which will reduce the firms’ future tax payments for years to come.

79% of Wall Street workers received bonuses, according to a study by employment Web site efinancialscareer.com.

"Following one of the most tumultuous years in financial history, smart people who did good work deserve to be recognized," said John Benson, the site's founder. "The future of the financial services industrymay be opaque, but the industry has a vital role to play in the global economy--and that requires talent."

What about the lives of thousands of people - - workers and shareholders  - - including "smart" ones, ruined by the recklessness and greed on Wall Street?

The Austin American-Statesman writes in an editorial today:

Wall Street's boundless greed and self-indulgence

AIG, Merrill Lynch reward abject failure will million dollar bonuses.

Thursday, January 29, 2009

The overweening sense of entitlement and shocking lack of common sense among Wall Street executives is simply incomprehensible to most Americans. It seems no amount of shame and outrage can change their behavior.

Giant insurer AIG was blasted around the world last year for spending half a million dollars on a retreat for its executives who had managed to drive the company to the edge of bankruptcy. The government had bailed out the struggling company with a total of $150 billion — that's with a B — in loans, and AIG was still jetting its top folks around the world for spa treatments and hunting trips on the taxpayers' dollar.

This week AIG acknowledged that it was going ahead with $450 million in bonuses for 400 employees who had sold the credit default swaps that put the company in the red. That's more than $1 million for each of those valuable employees who managed to lose $11 billion last quarter.

AIG, the country's largest insurer, said it needs to give the "retention bonuses" to keep the employees from leaving. Where does the company think they'll go? The landscape is littered with dead investment banks, and those still surviving are bleeding red ink. Why does the company want to keep them, anyway? AIG is estimated to have spent $1 billion to retain employees in a year that saw 2.6 million Americans lose their jobs.

One would think the government's Troubled Assets Relief Program that oversees the bailouts could do something about this and other outrages. But so far, Wall Street greed has stomped all over oversight and common sense. For instance:

Former Merrill Lynch chief John Thain spent $1.22 million redecorating his office while the company was in the process of losing billions. That redo included $28,000 curtains, $87,000 for two chairs and $35,000 for an antique commode. You get a picture of someone completely out of touch with the real world.

Just before the failing brokerage was to be rescued by the Bank of America, Thain gave out $4 billion in bonuses to the executives. The company then reported losses totalling $37 billion in 15 months. Those bonuses are being investigated by the New York attorney general's office.

Citigroup was about to take possession of a $50 million corporate jet it ordered several years ago until President Barack Obama and other outraged politicians stepped in. Citigroup got a $45 billion bailout from the government, and spending that money on another expensive corporate jet — the company already owns five — was too much for Washington to swallow.

After Bank of America announced it would absorb Merrill Lynch, the bank received a $25 billion bailout from the government. It got another $20 billion this month. During that time, Merrill Lynch executive Peter Krause left with a $25 million golden parachute and bought a $37 million luxury apartment in New York City.

There is palpable and justified outrage around the country about the greed and arrogance permeating Wall Street. No one can justify the obvious disconnect between the culture of entitlement and actual performance.

Americans are right to worry about the president's push for another $825 billion stimulus when the country's business leaders are still so out of touch with reality that they reward abject failure with million dollar bonuses.