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Wall Street’s Happy Holidays

“He’s making a list, checking it twice. Gonna find out who’s naughty and nice…”

I’m not referring to the jolly old fat man with the red suit and beard here. Instead, I’m talking about your boss and those in management, as they determine who will be receiving a year-end bonus. A long time ago (in a galaxy far, far away) bonuses were given out in recognition of an employee’s contribution to the organization. It used to be the greater the contribution, the larger the bonus (theoretically). Nowadays, as more managers are afraid to withhold bonuses from employees who may not deserve them in the first place, equal bonuses (usually as a percentage of salary) are given out across the board, thereby removing an essential financial incentive in the workplace. Bravo. Even worse, in some cases the “bonuses” that are distributed aren’t bonuses at all. Instead, they are really just cost of living adjustments. In stark contrast to the situations these poor souls are facing, it’s party time on Wall Street. Ironically, in a year when investment bank stocks plunged 45% in value, Wall Street bonus checks rose an average of 14% from last year, according to the Associated Press last Friday. Dean Baker, Co-Director of The Center for Economic and Policy Research (CEPR), noted in TruthOut on Christmas Eve that Morgan Stanley’s stock is down almost 20%, Lehman Brothers stock is down a bit more than 20%, and Citigroup’s stock price is down almost 50% from the beginning of the year. Baker said:

With a year like this, you might have expected that most of the Wall Street gang would be waking up on Christmas morning to find lumps of coal in their stockings. But, that’s not the way that the modern economy works… In a year in which tens of millions of families are struggling to pay their heating bills and hang onto to their homes, it seems that Santa still has a soft spot for the folks who cut deals on Wall Street.

Still, unless you’re a stockholder, it’s really none of your concern. However, Main Street might have a problem with the other reason why Wall Street is especially festive this holiday season. Baker explains:

Of course, it’s not just the shareholders who are generous with the Wall Street crew. All of us, as taxpayers, have done our part to ensure that these folks have a happy holiday season. In particular, we deserve thanks because we gave hedge and equity fund managers a special tax break that allows them to pay a much lower tax rate than workers like firefighters and schoolteachers. The fund managers’ tax break allows some of the richest people in the country to pay a tax rate of just 15 percent on their earnings, as compared to the 35 percent tax rate that they would face if they had to pay taxes like ordinary workers.

Congress did consider eliminating the fund managers’ tax break this year, but a determined lobbying effort saved the day. The fund managers told Congress that if they had to pay the same taxes as everyone else, their hundred million dollar salaries would not give them enough incentive to work. Undoubtedly some sizable campaign contributions made this argument more compelling to members of Congress.

One of the leaders of this lobbying effort was Peter Peterson, an investment banker with the Blackstone Group, a private equity firm that earned Peterson and other partners billions when it went public this year. Mr. Peterson is primarily known for having spent much of the last fifteen years arguing for cuts in Social Security and Medicare for people like schoolteachers and firefighters. When arguing for these cuts Mr. Peterson routinely asserts that he does not need his Social Security. With the tens of millions in tax breaks he gets from the government, this is surely true.

I sure hope Mr. Peterson has fire sprinklers in his home, because I have a feeling his local fire department may get “lost” should a fire ever break out…

Everyone smile and say “Medicare”