Schadenfreude alert: Subprime execs get poor, Wall Street bonuses headed down

Justin
How about a special tax bracket for those those big bonus checks?

We have a long term capital gains rate of 15 pct vs a regular rate of 35 pct. The ratio between these is 1:2.33. Perhaps the rate for short-termers should 2.33 times the 35 pct rate. This rounds up to an 82 pct income tax rate for such bonuses.

Anyone who gets special rewards for large profits should have an 82 pct tax rate on those rewards. A prosective refund against future taxes would be reasonable if the profits stay at at least the same level for 5 or more years.

Then, as pleasant as kicking might seem, we wouldn't have to kick them while they're down. We could let the IRS do it for us. That would be pure pleasure.

"I'm not at all opposed to people getting rich. But I have a big problem with the size of the paychecks on Wall Street and elsewhere in the financial services business, because I think they usually fail to adequately reflect the risks being incurred."

How does this statement make any sense?

The brokers got rich because they made investments that helped other people to make money. If those investments go awry, why should the brokers and the moneymen be penalized? They did their jobs!

People lose money while investing. When the investors were getting lucrative financial rewards, they were not exactly saying things like: "I am making too much money too fast! I am going to stop investing because I do not want to get rich quick. I want to wait until I am 80 years old to get a million bucks." The investors were just as greedy if not more than the moneymen. The investors are just angry that the market fell out from under them. These people didn't give a hoot about the risk until the risk became real. Everyone wants to throw stones at the brokers now that the market is declining.

The brokers should get bonuses no matter how the market turns out!

Yadgyu's got a point in there somewhere, Justin.

Yadgyu has a point, but I don't think Justin is talking about the broker/investor, you, I, or my parent's call on to help buy a few shares of stock. These bonuses are going out to the folks who move so much money that industries can fail - um mortgages anyone - and they benefited in many cases with lower taxes (right on GLD)on the bonuses of some very risky and dubious financial offerings.

I don't think we should begrudge all bonuses, but there is a correlation to the inflated bonuses for that top 5% who make investments on the short term to justify that fat bonus check, and the inevitable damage that is done: the dot com bust, the current mortgage fiasco to name a few.

Just think back to some of the different crises that have occurred and inevitably you see the same 'masters of the universe' pushing obscene amounts of money to make a quick return. Afterwards, the average American worker revives the economy through his own sweat and blood, not them.

Sorry, I know this post is a rant, but I have little sympathy for these individuals that repeatedly create more problems than good.

"Sorry, I know this post is a rant, but I have little sympathy for these individuals that repeatedly create more problems than good."

How did the moneymen create problems? Markets are speculative. Investing is a glorified version of gambling. People want to make a ton money with a low side of risk. But the more money investors can make, the more risk they have to take. All the moneymen do is throw the dice or play the cards for the investors.

Economies crash because too much money is invested and made too rapidly. That money comes from somewhere. It does not appear out of thin air. Money moves from one industry to another. The old industry takes a loss and the new industry gains money. Eventually the new industry will mature and corrections will be made. The new industry will get old and something new will come along. Greedy investors will pour their money into this speculative industry. They will make a great deal of money at first. Suddenly the market will crash becuase it was not stable. It was volatile.

Blaming the moneymen for investing in high-yield products with others' money does not make sense. The moneymen did not rob anyone. They invested the money given to them in products that the investors wanted the moneymen to invest in. If people want to make money without risk, they should only invest in long-term, low-yield investments.

Basically any investment that offers more than 10% or greater return in a year or less is speculative. If you are not sure what to invest in, keep your money in your pocket.

Much as I might like to kick those who rated, securitized and sold (and bought!) subprime mortgages as top-grade investments, there is some truth to the assertion that they were a product of the system. "I was just doing my job" might be a valid defense. The downside is that for some, perhaps many, that job no longer exists. On to the next thing, in a year or two.

If it's any consolation, the $10 million bonus doesn't go very far if you're living in Manhattan. The environment they are in sucks it right up. In many cases, they are building no lasting value in their lives.

Why do I get the feeling that Yadgyu is the reincarnation of Ayn Rand? No offense in that, by the way.

Yes, Yagdyu has a point about the buyer-beware nature of investing. But there's nonetheless something deeply screwy about the incentive structure at too many Wall Street institutions. The risks incurred are long term, but most of the pay is based on short-term metrics.

And yeah, I already spent all of my $10 million bonus on tips at restaurants.

"The risks incurred are long term, but most of the pay is based on short-term metrics."

This is true. The smart money people take that short term gain and move it into long-term, lower yield, less risk investments. The masses leave their short-term gains in the pot, hoping that it grows infinitely larger. But the pot is usually burned to a crisp, destroying the investments.

I do not believe that the moneymen are scrupulous or are innocent people. Their job is not to stop people from making short-term gains on speculative investments. Their job is to get people to invest, period. Moneymen can warn people about risk until they turn blue in the face. But this is how things end up working out:

{If given the choice between a 40% gain over four months vs. a 5% gain over a year, most people are going to invest a majority of their money in the former. Once the the first investment pays off, most people are going to leave their money in that investment, hoping for more. The first investment goes south and investors are ready to shoot the moneymen. The second investment stays stable but only a small number of people moved their gaind from the former investment into the latter investment.}

Moneymen should pay taxes, but they should not be penalized for doing their jobs when things go wrong. This would be like firing a kid's middle school math teacher because he got a B+ in middle school but the kid fails math in 10th grade. The past is not an indication of the future.