Among the five largest banks in America, JPMorgan (NYSE:JPM) led the way concerning how much they set aside for bonuses in the first nine months of 2009, with an approximate $29 billion total. All together, the five banks reserved close to $90 billion in various bonuses and compensation during that time.
The other banks included in the total are Bank of America (NYSE:BAC), Citigroup (NYSE:C) Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).
This is an issue the mainstream media wants to prop up, and they’re the ones that are primarily promoting it. What the mainstream media doesn’t include in the story is the banks were largely forced by the government to take the TARP funds, some of which didn’t want to or feel they needed it to survive.
So the idea that a private business shouldn’t pay market rates because other people are struggling really makes little sense, as it’s irrelevant.
Having said that, there is the other side of it, which is from a marketing and branding point of view, and that is it does increase the envy of those that aren’t doing as well, and that can lead to more public resistance to the idea even though it’s really no one’s business, other than shareholders, how much a company pays an employee.
Now the problem of the government bailing out these companies is why these bonuses can continue on in the first place. If these bonuses and compensation indeed contributed to the failure of these banks, than the government is like a parent who continues to enable a son or daughter to continue on in a lifestyle they can’t afford, paying them money to cover their mistakes so they can continue living in that particular lifestyle.
This is why the big banks should have been allowed to fail, with the best-run banks then taking over their assets and deposits. That way the bonus culture, which allegedly was part of what led to the economic disaster, would be disciplined by the market, and the practices by the surviving banks would change and adapt to best practices as a result.
Banks paying large bonuses like before was an obvious outcome of the government interference in the market, as they now know how the government will play its hand, and it’s really the banks that are calling the shots, even though the government attempts to make it look otherwise.
This isn’t a call for more government, but just identifying that the government played the role of a parent saving their child in spite of their folly, and now they’re whining about the child continuing on in their ways, wondering where they went wrong.
Where the government went wrong is they are enablers. The government needs to stay out of what it doesn’t know, and it doesn’t know business. After all, look at the bankrupt U.S. government and see if that’s the model you would want to work from.
