'You eat what you kill'
Tom Sullivan
You know, when I saw that headline in the Guardian, I thought I was looking at a decade-late review of the 2004 Vin Diesel film, The Chronicles of Riddick. If you missed Chronicles on cable, the film's Big Bad (h/t to you Buffy fans) is a murderous group of interstellar religious fanatics called the Necromongers. They rampage across the galaxy, like ISIS in space ships, converting or killing everyone in their paths. They also "believe heavily in a philosophy that says 'you keep what you kill', believing that ending another's life entitles you to their property and position." Having screwed investors, thrown families from their homes, brought the planet to its economic knees, and demanded tribute (bailouts) lest they take us all down with them, that pretty much describes Wall Street's philosophy these days, too. Which is why, as Suzanne McGee writes, “'You eat what you kill' is the motto on many a trading desk."
What Wall Street doesn't believe in is its own bullshit, business school catechism about how in a meritocracy pay is a function of celestial mechanics that must not be perturbed lest we offend the Market gods – pay is an elegant function of one's contribution to the enterprise's bottom line. How do we know they don't believe this?
... Wall Street’s profits aren’t what they used to be. Pretax profits fell 4.2% in 2014 to $16 billion, according to New York’s office of the state comptroller. If you think that sounds like a relatively modest decline, consider that 2014 profits were 33% below 2012 levels, and a whopping 74% below 2009, when Wall Street posted record results as markets zoomed back to life after the crisis and banks profited from ultra-low asset values and interest rates.
So what? Well, in spite of the falloff, bonuses rose for the second straight year, with "a 30.1% decline in profitability, and a 15% increase in bonus payments" in 2013, followed by a more modest 2% increase this year.
McGee explains:
Of course, here’s where the fun and games start on Wall Street. Bonuses don’t come out of a bank’s profits, but out of its revenues. It’s only folks like you and I – and, one would hope, at least some of the investors – who might want to take a look at these numbers and tie them to profits. Because what good is it rewarding employees for bringing revenue through the door if it isn’t profitable revenue?
This year, bonus payouts will amount to a whopping 170% of the profits reported by New York stock exchange member firms – profits that continue to be eroded by legal settlements and regulatory expenses. Back in 2009, that figure was slightly more than 36% of profits, and it has crept steadily higher.
Because Wall Street figures bonuses on revenue, not profits, JP Morgan Chase, Goldman Sachs and Morgan Stanley dole out "about 40 to 50 cents out of every dollar of revenue they generate every year in bonuses." That is to say, the Necromonger priests are raiding the grainaries.
But what about the excuse that Wall Street base pay is too low? McGee responds:
It only feels low if you happen to work on Wall Street. If you’re starting out, right out of college, you’ll be making about $85,000, after a wave of raises announced last year.
If they really believed in their own meritocratic gospel, the pharisees wouldn't behave as if bonuses are bestowed by the Market simply as reward for their faith and devotion. And if shareholders weren't such suckers for Wall Street blather, they wouldn't stand for it.