Wall Street bonuses are galling, a point that was driven home again this week with the release of the annual report on bonuses by the New York State comptroller.
Any pretense that Wall Street bonuses reflect performance — as that word is commonly understood — was shattered by the financial crisis and its aftermath. “Performance” implies something positive, but performance on Wall Street in the mid-2000s meant inflating a bubble which burst, wiping out jobs, income, wealth and opportunity across the nation.
About the only thing it didn’t wipe out were Wall Street bonuses. In records going back to 1986, the biggest total ever set aside for bonuses on Wall Street was $34.3 billion, in 2006, the last year of bubble-era profits. In 2007, despite huge losses, the bonus pool was $33 billion. In 2008, despite bigger-than-huge losses and bailouts galore, it was $17.6 billion. The next year, it had rebounded to $22.5 billion. It has been pretty much uphill since then. In 2014, it was $28.5 billion or $172,860 on average for Wall Street employees.
There are several ways to put those figures into perspective, all of which indicate that the bonuses are excessive. The Washington Post pointed out that Wall Street’s profits in 2014 were the ninth largest in the past 20 years, while the bonus pool and the average bonus were the third highest over the same period. Profits down, bonuses up. Go figure.
The comptroller, Thomas DiNapoli, pointed out that the average annual salary plus bonus on Wall Street, at nearly $356,000 in 2013, was five times as high as that for workers in the rest of the city’s private sector. The bonuses alone were more than three times the median household income in the United States of about $52,000 in 2013. Are those salaries and bonuses warranted by the value that Wall Street adds to the portfolios of investors, to the economy, to the public? It’s hard to think so. The comptroller’s report came out shortly after a White House report estimated that the financial services industry drains $17 billion a year from retirement accounts by steering savers into high-cost products and strategies rather than comparable lower-cost ones. Retirement accounts are only one of the many pools of money that big banks have their toes in. Overall, study after study has found that the growth of finance in recent decades has had adverse effects on economic growth, middle-class wage growth and broad prosperity in general.
If policy were focused on rebalancing the economy, Wall Streeters would still be well off. But many others could be better off, too. This chart, from a new report by the Institute for Policy Studies, a progressive think tank, shows that Wall Street’s latest bonus pool would be enough to give 2.9 million restaurant and bar servers, who make about $10 an hour on average, a raise to $15 an hour, and still have some $10 billion left over. Ditto 1.5 million home care aides or 2.2 million food prep and service workers.
But what about New York and New York City? Wouldn’t reining in finance be killing the goose? Mr. DiNapoli stressed how important Wall Street is to the economy of the state and city. But he also stressed that the goal should be a financial sector with sustainable profits rather than short-term, high-risk, high-reward profits.
That’s fine as far as it goes. But New York also must broaden its tax base and diversify its economy. New York politicians should be on the forefront of demanding higher taxes on private equity partners, who currently pay tax at about the lowest rate in the tax code on much of their income. They also should be doing their utmost to promote and develop New York as a high-tech center, as well as to capitalize on New York’s advantages in other fields, including media, advertising, entertainment, health care and tourism.
As things stand now, New York is still overly reliant on an overgrown financial sector. That’s not good for New York, or the broader economy.