Back in 2007, it was apparent that the top brass of financial institutions were more concerned about their own bonuses than doing the prudent thing for their shareholders. Dilutive equity issuances would have hurt many of these executives at comp time. Thus they did not do the proper thing and make modestly dilutive stock issuances. These could have been done at far higher prices which would have created the liquidity necessary to work through the issues. I felt then,as I do today ,that this whole crisis could have been averted or at minimum substantially lessened. For example, deals could have been done with C at 46, BAC at 49, MS at 63, etc.
For political reasons, the new President pointed out yesterday that significant bonuses where still paid out last year. While I am generally opposed to grandstanding of this type, the political class is now doing something that the institutional investors should have done years ago. They are saying "enough is enough". The Wall Street leadership did not pay attention to the old rubric of bulls get a little, bears get a little, and hogs get slaughtered. Now their comp committee will have its meetings in Washington DC....
In my view Wall Street has been overpaid for decades. I have never subscribed to the notion that you have to pay these individuals or they will go someplace else. It is ridiculous. Even in the best of times that was a myth. A large percentage of these guys are professional Charlatans. Obviously the darkly comic John Thain interview earlier this week showed how out of touch these individuals are. It is truly an industry that, to say the least, is grossly out of touch with reality.
The reality is that most of these multi-million dollar investment bankers and traders are only as good as the name on their business card and the balance sheet they have access too. Yes,there are a few rainmakers. However,they are few and far between. As for the traders ,the system is totally skewed in terms of them taking excess risk. They win if the trades work and the firm loses if they don't.
This year was a once in a lifetime chance for the Street to get realistic on compensation. In my view there should have been zero bonuses paid across the board at all of the major firms with the sole exception being the profitable boutiques.
The argument frequently forwarded is what about the guys who did their jobs and were profitable in their business units. My view toward that is, yes that may be the case. However,their extra compensation is a function of the "bonus pool" and also the "franchise" and balance sheet. If the firms are losing money hand over fist and issuing stock to stay afloat there should be no bonus pool at all. Individual retail producers are different. They have lived off the land for years and have my complete respect for that.
At the end of the day it has now been shown that the world would be better off without about 90% of these people.