In the wake of landmark profits posted by the US banking industry last week, Washington will seek to strike a delicate balance toward massive bonuses expected to be paid out by Wall Street, experts said.
If US President Barack Obama’s administration helps “to make this a bigger issue politically, they will be pushed to do things they don’t want to,” said Douglas Elliott of the Brookings Institution, referring to previous calls to cap compensation that were roundly rejected by Wall Street.
In a bid to simultaneously support financial firms’ innovation and not enrage a downtrodden public facing a tough economy, the administration “would prefer not to spend much time on this topic,” Elliott said.
Wall Street investment leader Goldman Sachs surmounted profit forecasts on Thursday with a US$3.19 billion gain in the third quarter — more than triple the amount posted for the same period last year.
Fellow industry giant JPMorgan Chase similarly saw its quarterly gains soar to US$3.6 billion. Even struggling banker Citigroup topped expectations with US$101 million in profit.
Meanwhile, the Wall Street Journal estimated that the top 23 US banks and securities firms are planning to pay out US$140 billion in bonuses to their staff — a record high that surpasses the peak year of 2007.
“The compensation issue is one of the few remaining things that can get people very angry,” Elliott said, noting that financial groups and government officials alike are seeking to ensure “they can pay their people to keep them motivated” without arousing public anger.
Goldman Sachs chief financial officer David Viniar was keen to demonstrate a degree of humility when peppered with questions on compensation, with the latest government figures showing US unemployment hovering just below 10 percent — the highest in 26 years.
“We are very focused on what is going on in the world,” Viniar insisted on Thursday. “We are focused on the economic climate. We are focused on what is going on with other people.”
Wall Street is “mocking” the American people with their expected record bonuses, said Robert Weissman, president of the nonprofit consumer advocacy group Public Citizen.
The firms that would have imploded without government bailouts are offering the bonuses after “resuming exactly the same speculative gambling … that crashed the financial system in the first place,” he said.
A week after taking office on Jan. 20, Obama rebuked Wall Street titans who raked in millions in bonuses while being bailed out by taxpayers as “shameful” and guilty of acute “irresponsibility.”
The sentiments were echoed throughout the administration as wider disgust became evident with public protests erupting in the following months — notably over compensation to staff of insurance giant AIG, a bailout recipient.
White House National Economic Council chief Lawrence Summers said at the time that “what taxpayers are being forced to do is outrageous.”
Future high-level government indignation appears unlikely without some serious prodding, Weissman said.
“The outrage on the political side is contingent on the outrage on the public side,” he said, lamenting that lawmakers “only get worked up when someone tells them to.”
It is “obvious that the public hysteria has diminished,” Weissman said.
“It’s hard for people to get quite as angry and quite as moved if it keeps happening,” he said.
Financial industry insider Don Lindner, executive compensation chief at the nonprofit human resources group Worldat Work, pointed to a worrisome trend with a company like Goldman Sachs that is “fairing well in a very difficult economy … is getting criticized for the way [it is] paying.”
How such firms compensate their workforce, he insisted, “is one of the reasons they have all the best people, and they are doing so well.”
If the government goes too far in trying to put brakes on bonus payments, he said, it will stifle innovation because financial firms will not be able to retain personnel.
“Imposing strict rules on how you can pay people is a very slippery slope because in [this industry], such a move could be devastating,” Lindner said.
But since it was “overreacting” in its criticism of Wall Street at the beginning of the year, the administration has much been “much more thoughtful and careful, and backed off the idea of hard caps on compensation,” he said.
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