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Our Take: I'm Cinna the Poet. Don't Kill Me!

Maybe, just maybe, America's historic elevation of Barack Obama to president-elect will take the edge off the blood-lust that's being directed against just about anyone working in the financial services industry.

Or maybe it won't.

Both economically and spiritually, it's ugly out there, and it's going to get uglier. People seized between the jaws called pain and fear rarely act from their best impulses. Instead, they tend to lash out at the nearest target - even if it happens to be a fellow victim. In today's marketplace of ideas, the capacity for reasoned contemplation of laboriously gathered facts resembles an exotic, illiquid asset, trading at a steep discount.

Consider the burgeoning movement to block financial services firms from paying the year-end portion of employees' compensation packages. eFinancialCareers unwittingly gave that movement a boost when we released a survey finding that most financial market professionals still expect a bonus this year, and one-third expect more than they received last year. Populist politicians responded the way a bull responds to a red flag.

At least two powerful House committees, and several states including New York, are demanding institutions participating in the industry-wide bailout program provide proof they won't use taxpayer funds to support bonus payouts. Since money is fungible, it's hard to see how anyone could prove bailout funds will or won't influence an institution's bonus decisions. It's worth noting, though, that before the bailout, nine of the biggest banks had already accrued $108 billion for compensation expense for the first nine months of 2008, slightly above the same period a year ago. The rescue legislation wasn't enacted until October, and was voted down as late as Sept. 29 - strong evidence that none of those accruals reflected anticipation of a rescue. What's more, the government had to pressure several recipients, Goldman Sachs among them, into accepting any bailout money.

That's Your Bonus They Aim to Confiscate

In last week's column we warned that officials such as New York Attorney General Andrew Cuomo were targeting bonuses earned by every Wall Street employee - not just top executives. Some observers are closing their eyes to this fact, which is clearly stated in documents like Cuomo's Oct. 29 letter demanding detailed company-wide bonus data from nine large banks.

It's also clear that both lawmakers and the general public hold two major misconceptions about bonuses. First, they believe executives are the only people who receive substantial year-end awards. In fact, I've seen more than one supposedly respectable media outlet automatically insert the word, "executive" in front of the word "bonuses," even when writing about compensation of ordinary employees.

Second, lawmakers and the public mistakenly view these year-end amounts as "extra" pay - an arbitrary, unearned privilege for folks they consider overpaid and overprivileged to begin with.

In finance, bonuses aren't for executives. They're for everyone. Far from icing on the cake, they constitute the meat of most banking professionals' compensation packages. Almost no one on Wall Street is working for the salary (what's called "base" - a word that perfectly describes how people in the business view it). So if a banker, trader or support staffer performed their work properly, they've earned their bonus at least in a moral sense - and possibly in a legal sense as well. For an operations worker whose pay comprises $75,000 base and an expected 20 to 30 percent bonus, that final $20,000 or so may bridge the gap to owning an apartment, or sending his or her child to private school.

The Mob Screams For Blood

Watching the debate over Wall Street bonuses play out in various online forums, I am awestruck by the degree of unthinking fury and willful blindness exhibited by so many of the industry's critics. It reminds me of a scene from Shakespeare's Julius Caesar that I read back in middle school. After Marc Antony eulogizes the slain emperor in words that whip up his audience into a mob hell-bent on vengeance, the crowd seizes some poor soul who happens to have the same name as one of Caesar's assassins. "I'm Cinna the Poet!" he protests. "Not Cinna the Conspirator! Cinna the Poet!"

It matters not: The crowd beats him to death.

AUTHORJon Jacobs Insider Comment
  • Ra
    Randy Miller
    31 January 2009

    To Frederick M,

    If you work for a company that would have gone Chapter 7 without federal dollars, and the creditors of that company only got 10 cents on the dollar would you still get your entire bonus. I doubt it. You would either get nothing or 10 cents on the dollar.

    Short sellers are speculators, and since speculators have played a major role in financial and commodity market chaos this year, don't expect a lot of sympathy for your position. Just putting more money in the corporate coffers does not mean you created value for the economy at large. I am convinced that before all is said and done, the facts will show that short sellers and speculators manipulated the market for their own financial gain. Now, that is stealing.

  • re
    14 November 2008

    To Federick M:

    I applaud your performance. The thing is 10% of 65 MM is $6.5 MM, which is alot more than the auditors (or certainly the cleaning staff) make. You appear a great portfolio manager, but make really bad analogies.

    Question for you: Is your 65MM profit in cold, hard realized cash? Or is it MTM? Because, as we now all know, MTM means jack-all.

    Incidently, what happens next year when you might (god forbid) lose 65MM on your ABS and financials bets? Does it mean you give $6.5 MM back?

  • Fr
    Fredrick M
    13 November 2008

    I am a portfolio manager.
    I was short ABX and financial co's
    I made over 65MM for my firm this year while the larger firm lost money.
    My comp consists of a relatively modest base plus 10% of what I make.
    If I am not paid, my firm is STEALING, plain and simple.

    You wouldnt argue if the firm had to pay it's auditors or its cleaning staff would you?

  • Jo
    Jon Jacobs
    13 November 2008

    Thanks for all your comments, and for those yet to arrive. I will revisit this issue in tomorrow's weekly (Fri. Nov. 14) column, in which I'll outline how I think the compensation system should be changed. -- Jon Jacobs, eFinancialCareers News staff

  • XM
    13 November 2008

    You are completely divorced from reality if you are still employed in this industry and believe that you somehow have earned a bonus. Let's face it gang, you've lost trillions of dollars of shareholder wealth through greed and ignorance. So sorry you won't be able to heat the McMansion this winter or that your arm-candy botoxed wife won't be able to keep up appearances anymore. A new set of playing rules has been handed out - too bad you're still holding cards from the last game. I should know, I was caught in the last wave in June. Look over your shoulder dudes, surf's up and you're in the break zone. Incoming.

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