Wall Street Bonuses. Should we be outraged?

It’s all the rage right now to slam Wall Street bonuses that are about $18 billion.  Is that number, taken out of context, worthy of outrage?

Probably not.

I think $18B is about 3% of the cost of the problem they created, so that’s a pretty low bonus by Wall Street standards.  :-).

Bonuses look bad politically (kind of like taking the company meeting in Hawaii, even if it was cheaper than Cleveland).  It’s a pretty cheap shot for politicians to make.  It’s not going to solve the problems the economy faces to mess with this small stuff.  We should be equally indignant that the regulators allowed the CDS market to balloon to $45.5 Trillion (twice the size of US GDP) and remain entirely unregulated and off the books.  But that doesn’t play in Topeka, as they say.

Still, never wanting to miss an opportunity to wade in over my head, here is some data:

1. Bonuses were down 40%, the largest year of year decline in 30 years (OK, should have been 80 years, but still)
2. With the average employee earning nearly $400k and the number of employees around 165,000, the total salary number for Wall Street is around $65B
3. That means bonuses were about 25% of base salary (versus a historical 50%)

While one wishes that the management of these firms was different on many many levels, I shudder to imagine a world where the government dictates the salary of private employees.  How much would they say you or I were worth?  It approaches socialism’s “a day’s salary for a day’s work”

This sort of fun with large and small numbers always has to be taken in context for me.  The Microfinance argument of “1Billion people make less than a $1 a day” is a great tag line for western ears.  But it is heartening to realize that decent shoes in those countries cost about a dollar.  A decent pair of Nike’s can’t be purchased in the US for a day’s minimum wage, but yet we let lots of youth in America work at McDonalds without (too much) outrage.  If we can get those billion people up to about $4 a day we’ve done a great deed.  They won’t be buying plasma TVs, but they will have drastically improved housing, education, and health.

Another numbers game is to talk about interest rates by MFIs as being egregiously high.  Compartamos’ 80% interest rate sounds high when US credit card rates are 20%, but low in consideration that Prime customers at Mexican banks are charged 30%, and credit card rates were 70% in 2008.  Sure, we’d like to get those rates down, but that’s a challenge for the Mexican economy, not Compartamos.