With Financial Reform most likely coming, it makes you think of what Wall Street will do next to game the system and feed their greed.
No, I’m not going to pile on Goldman Sachs. The probability that they were the only investment bank structuring shady deals like the one the SEC is accusing them of right now is unlikely. Actually, I was planning on writing about this subject before this news, but the recent issue is just another example of Wall Street at its best.
But I need to pay my $20 Million mortgage…
The huge bonuses investment banks continue to pay themselves are impressive. Are these guys priceless or what? Think about it. First, they take too much risk and blow themselves up. Next, the government comes in to bail them out with taxpayer money, and now the Federal Reserve has basically been lending them money at zero interest so they can get back on their feet.
So one might think that with all this assistance to keep them from going under, the investment banks would either wait a little while before paying big bonuses again or significantly lower the bonuses for the time being. But instead of trying to fly under the radar, they act as if almost nothing has happened. They use their free money from the Fed to trade on their proprietary desks, making huge profits again and reward themselves to ensure they can continue to afford the extravagant lifestyles they have grown accustomed to throughout the years. When asked about it, the most common argument I hear is these firms would lose their “talent” if they didn’t pay them.
Normally, you might think “well just how talented could they be”?
But let’s not be naïve. Most of the “talent” these companies are referring to are very sharp people. There is no denying that. On the other hand, it seems clear to me that financial instruments have gotten so complex combined with lax regulation and pay incentives that encourage risk taking, that these super smart people are out of their league and they themselves don’t fully understand what they’re doing.
For the financial crisis to happen, they either knew what they were doing and looked the other way because they were making so much money or they didn’t fully comprehend the risks associated with certain investments. My guess is it was mostly the latter but probably a combination of both.
When the “talent” doesn’t get it, things need to change. Unfortunately for Wall Street, some of these changes might cut into their profits and bonuses.
