Slate's editors squabble about whether Wall Street deserved its bonuses.
News that Wall Street firms recently paid $18 billion in bonuses inspired an e-mail argument among Slate editors. Usually we try to wait until our ideas are fully developed before we publish them, but in this case, we thought the half-baked arguments might interest readers.
David Plotz: I wonder, almost as an intellectual experiment, whether we could even find someone who would go on the record saying that the 2008 Wall Street bonuses are justified. I would love to read such a piece, just to see the gumption of the author, and to hear the argument. I am sure there is some case to be made that would be interesting to hear.
James Ledbetter: I suspect you can find it. The question will be whether you can find a qualified person who wants to make the argument who can also write. Happy to help with the search, but ... you really want to do this?
Rachael Larimore: If a bunch of guys who are already worth $200 million or $300 million kept their $30 million bonuses, no, I wouldn't say it's justified. But if the companies limited bonuses to the lower-level employees, I could see a case being made for it. Also, there was a wire story a while back about how much the lack of bonuses was going to cost New York state in tax revenues.
Julia Turner: A banker friend was just making the case to me. The argument is about retaining talent and thus having a shot at actually fixing the mess they're in and paying back the government. But it overlooks the fact that other banks aren't in a poaching frame of mind.
James Ledbetter: And that will always be the argument that Wall Street makes. The obvious rejoinder to which is: If you paid your "talent" half as much, is there a possibility they would have fucked this up half as much? I suspect that a company like, for example, AIG—now a wholly-owned subsidiary of taxpayers' money—is still paying massive salaries to people who not only brought the company into ruin, but are now recipients of Wall Street welfare.
I come back to my question: You can find someone to make the argument, but who among us really respects the argument enough to publish it?
James Ledbetter: Correction: When I said that AIG is a "wholly-owned subsidiary" of the U.S. government, I should have said "79.9 percent-owned subsidiary." Crossing the 80 percent line would make the government liable for debts and taxes, which it smartly avoided.
Dan Gross: Last night I was at a dinner with the co-chair of an investment bank, who took pains to say his firm wasn't in the financial capital business but was rather in the intellectual capital business. And that's the only possible line of defense. Sure, all the big investment banks had jillions in assets, buildings, all sorts of physical stuff. But it's an old and somewhat true cliché that a Wall Street firm's assets all go home every night. And you never know which ones will return—or which will decide to jump, or start a hedge fund, or go sailing. And since they only respond to money, the only way to keep them coming back is the prospect of a bonus. Of course this is an argument for paying bonuses in January 2008 on 2007 results. By January 2009 there was nowhere else for most people to go.
James Ledbetter: But again, it's like the Bush administration: If everyone left the investment banks, would they really have done a worse job? Those "assets" were the problem. Bring in interns, cap salaries at $50,000, and they'd lose less! The idea of rewarding people for massive failure is not only morally offensive, it's also bad business (or this year, welfare). The bonuses are a function of greed, pure and simple, the rest is just rationalization.
John Dickerson: Has anyone ever returned a bonus? And at a personal level, how does a banker accept the bonus? What's the rationalization at the personal level? Presumably, "I worked hard and all this bad market stuff had nothing to do with me?"
Dan Gross: The rationalization is that the bonus is the salary. The paycheck they get every week, which might add up to $150,000, is nothing. Without the bonus, [they get] no private school tuition, no mortgage, no nothing. Not getting a bonus is like getting fired. It's as if you've worked all year for nothing.
James Ledbetter: Right, and if they fired a bunch of those folks, they would have lost less money, and there would be fewer people on the government dole. The bonus system is rational that way. Paying it when companies have created hundreds of billions of dollars in losses is irrational, even if it might have ancillary economic benefits. Paying pedophiles billions of dollars in bonuses would also have ancillary economic benefits—that doesn't make it a good idea.
Dan Gross: Right. I'm not saying it's right, just providing a window into the mind-set of the typical managing director.
Chadwick Matlin: Instead of coming down on one side or another on the current bonus question, isn't it more useful to re-imagine it and provide a viable solution going forward? Via this conversation, it appears that one could make the case for rewarding some employees with a bonus to help with brand capital, corporate culture, and talent retention. But the issue here is what kind of bonus structure does make sense, given the new financial landscape.
For example, if the government owns any slice of a company, should that company be allowed to give bonuses? Should it have to give an equal dollar amount back to the U.S. government, a la matching 401(k)? If a company loses money, should it still reward departments/desks that did well? Or does the whole company suffer? Etc., etc. It's a normative set of questions, but it has potential to find a nuanced middle ground, rather than the yes/no poles.
James Ledbetter: I'm going to write a piece today: Give Back the Bonuses.
Michael Newman: Late to this, but can't a case be made that the bonuses are a form of stimulus? Leaving aside the question of whether they're deserved, they're a quick injection of money likely to be spent on things this year—dinners, cars, houses, nannies, etc. Isn't the whole point of the stimulus to encourage this kind of spending?
Rachael Larimore: I can 100 percent assure you that the absence of bonus money indeed reduces spending.
James Ledbetter: Sure. Nearly any form of economic activity can be described as stimulating some sector of the economy. Bombing Cleveland right now would create the need for more bombs, bombers, and Halliburtons to rebuild Cleveland. That doesn't make it a good policy.
John Dickerson: Isn't the economic case that the bonus boys would save lots of it (having, like many members of Congress, just been reminded of the necessity of prudential behavior by their own imprudent acts)? And the larger point is that it distracts from the goal, which is less about stimulus than using every dollar to get the credit markets moving again, a system upon which the entire economy relies. Plus, there's the psychology of the thing. If regular people think that the fat cats are getting taken care of with no moral penalty, then their view of what government can and can't do for them gets distorted. This puts noise in the legislative system and it distracts people from the one true goal of government right now which should be the making of and implementing plans to bomb Cleveland.