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There’s little doubt in anyone’s mind that the American taxpayer saved Wall Street. Only several months ago the Dow Jones Industrial Average was teetering around 6500 points, well below its October 9, 2007 record high of 14,164. The mood was grim and the outlook was bleak.
The $700 billion set aside for the U.S. Treasury to buy troubled assets and make capital injections hadn’t fully made its way to Wall Street at the time, but helped the federal government steer the economy in a positive direction. Large banks and leading investment firms last year took tens of billions of dollars in TARP money to help ease the credit crunch driven by the subprime mortgage crisis. J.P. Morgan Chase, Morgan Stanley and Goldman Sachs in particular, collectively received $45 billion.
Whether these three companies needed financial assistance from the federal government remains unclear. Wall Street however, was in a panic and in danger of imploding. Layoffs followed. Goldman Sachs announced a 10% workforce cut, while Morgan Stanley slashed 10% from its institutional securities group and 9% from its asset-management group. J.P. Morgan Chase cut its investment banking department, and fired 10,000 of the 14,000 Bear Stearns employees and another 9,200 Washington Mutual employees.
Now much leaner, and all of the TARP money repaid, these same three companies recently reported record third quarters in 2009. With big profits come record bonuses. Morgan Stanley set aside $11 billion in bonuses and compensation thus far, while Goldman Sachs and J.P. Morgan Chase executives are expected to clear more than $20 billion each by the end of the year.
These enormous Wall Street payouts seem to come as a slap in the face to Main Street and the rest of the country, when hundreds of thousands of jobs are lost each month, producing the biggest employment decline since the Great Depression.
There is some hope however. Pay czar Kenneth Feinberg announced aggressive compensation reductions for executives of the seven companies that received bailout assistance. While this may appear to be good news, it doesn’t require other firms following suit. Wall Street nonetheless is restructuring its bonus system, although many industry watchers feel it hasn’t gone far enough.
Where is the outrage? Did firms like Goldman Sachs benefit from taxpayer assistance? How can these companies still reel in record profits when so many people are out of work? Didn’t this type of pay culture cause America’s financial crisis in the first place?
These are just a few of the many unanswered questions surrounding Wall Street. The fact is Wall Street is not only to blame for the current economic downfall. Main Street consumers played a big part in it too, buying homes they could not afford.
But the average American doesn’t receive a $400,000 bonus at the end of the year, which will be the average payment this year for a Goldman Sachs employee, not including salary. Nothing will change, at least for now. Investment firms will continue to rake in big bonuses. Perhaps Wall Street needs to do a better job of communicating its pay structure. If not, public outrage will continue to mount, unless the economy turns around even faster, and citizens start seeing their 401Ks rise, and Wall Street goes gangbusters again as it did in 2007.