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Obama All Talk, No Action on Wall Street Compensation, Cohan Says

Posted Jul 02, 2009 07:00am EDT by Aaron Task in Newsmakers, Banking

Updated from 7:00 a.m. EDT

Update: "Big Pay Packages Return to Wall Street," The Wall Street Journal reports. Among the highlights of the story:

  • Goldman is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007. 
  • Morgan Stanley set aside $2.08 billion for compensation in the first quarter, an unusually high 68% of its revenue. The firm will likely pay out $11 billion to $14 billion in compensation and benefits this year. Credit Suisse analyst Howard Chen projects the company's average pay will approach the $340,000 paid out in fiscal 2007 and up from last year's average of $262,000.

While a weak second-half could diminish those year-end bonuses, "the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits," The Journal reports.

Earlier: There's been a lot of talk from the Obama administration about reforming Wall Street, but little or no action where it matters most -- compensation, says author and former investment banker William Cohan.

"There's a lot of nice words in the 85-page re-regulation proposal...[about] making sure compensation is tied to behavior and accountability," says the House of Cards author. "But there's not much action going on."

And where there has been action, Cohan notes, its been by Wall Street firms raising salaries to get around new restrictions on bonuses, and paying off TARP so they're less beholden to government oversight.

Cohan believes there must be significant change to the industry's compensation structure in order for any Wall Street reform to be successful. Specifically, the personal fortunes of senior executives must be tied directly to the fate of their firms, he says, echoing the views expressed here by Nouriel Roubini.

Cohan recommends a special class of stock for senior partners, who would then really be on the hook for their decision-making. The current practice of deferred common stock option grants don't really tie CEOs fates to shareholders, he says, because they aren't "material" to executives' wealth when they are getting annual multi-million-dollar cash payments.

"The way the financial reward system works [now] you get a very large short-term bonus based on the revenue you bring in," he explains. "That money goes into your pocket without any concern for the consequences of what you've done."

Furthermore, with Morgan Stanley and Goldman Sachs now bank holding companies, their "risk-taking behavior" is now backed up by the Fed, Cohan notes. "It's insane."

 

 

 

 

102 Comments

marx
marx - Thursday July 02, 2009 07:45AM EDT

This administration is more entwined with Wall Street than any other administration.This is revealed in "The Obama Deception" a must see on youtube. http://www.youtube.com/watch?v=eAaQNACwaLw

Ron
Ron - Thursday July 02, 2009 07:49AM EDT

Exactly!! It is becoming obvious that Obama speaks one line to make Americans/Voters feel satisfied, but the his actions are totally different. Typical political BS that we have no choice but to live with.

Art
Art - Thursday July 02, 2009 07:57AM EDT

Let's face it. Wall Street and the democrats have been in bed together for a long time. They scratch each others backs.

Michael
Michael - Thursday July 02, 2009 07:58AM EDT

Obama is just continuing the 'in bed with Wall Street' that's been in place since the Regan Revolution. He is trying to move with patience and avoid an all-out war with the Ruling Class. A lot of us who voted for him wanted him to declare war on the Ruling Class and clean up the house. He's disappointed in that regard. I think he's afraid of moving too quickly and precipitating a civil war in America.

jose
jose - Thursday July 02, 2009 07:58AM EDT

wow amazing some people are starting to see thru the veil!!.

jose
jose - Thursday July 02, 2009 07:58AM EDT

wow amazing some people are starting to see thru the veil!!.

taopraxis
taopraxis - Thursday July 02, 2009 07:58AM EDT

Short-term thinking is part of the failed philosophy that is guiding America. Governments across the country are raising tax rates so that they can reconcile budget projections. Yet the rate/revenue curve is long passed the tipping point; higher rates will only weaken the economy and drive revenues lower. Yet, even now, after all that happened, these fools keep kicking the can down the road toward the cliffs and the sea. Sad...

Art
Art - Thursday July 02, 2009 08:01AM EDT

Ike. Try English!!! It is a great language.

SAINT PETER II
SAINT PETER II - Thursday July 02, 2009 08:05AM EDT

Obama is a triangulating politician who is forever seeking a hypothetical construct called the middle. The idea of pulling the nation together in such a way that we'll all be pulling in the same direction, as outlined by Obama and his Clinton team, is not workable in a nation where individualism still holds say. Obama is playing to a myth of togetherness, a collective that doesn't exist and the result is Obama represents nothing at all, except what some consider pretty words. This includes foreign policy, financial matters and domestic policies from health care to education. For more perspectives on Obama in the form of editorial cartoons http://www.saintpeterii.com

yogi9448
yogi9448 - Thursday July 02, 2009 08:05AM EDT

Obamas history is a campaigner, socialist and enabler for speacial interest groups. What makes anybody think he would change as president, or that the lobyists/clintonistas he has surrounded himself would act any different then they have for the last 20 years....Replace this CEO with one that gives money to Dems, continue business as usual.

Bruce
Bruce - Thursday July 02, 2009 08:14AM EDT

maybe johnny ike needs to go back to school. I have never seen the english language butchered like that.

harshing_my_mellow
harshing_my_mellow - Thursday July 02, 2009 08:19AM EDT

Reagen Revolution??? You have got to be kidding me! This relationship between government and Wall Street goes back to the beginning of securities trading. Read about how the wars of the centuries were financed for goodness sakes! Put the stinking agenda aside for a moment in your life and realise the middleclass is nothing more than the conduit to the public trough by financiers and the puppet politicians they endorse. What makes anyone believe Obama was not in bed with Wall Street? Just like any other politician, Obama needs these titans of finance to pay for his agenda ... and guess who is paying that agenda? Everyone that invests in the markets puts money in the hands of the politicians. Look who got bailed out first by the politicians? Oh, world economy is going to collapse .... boo hoo let's give them 0% "loans" and keep them solvent until they can bring us back from the abyss... yeah, you saw how that worked out, huh? You saw Freddie and Fannie, AIG, GS, BoA, CITI ... all of them got middleclass dollars and the politicians got the sweet re-fi deals, the lucrative investments, the paybacks .... The middleclass got 9.6% unemployment, salary cuts, foreclosures, and taxes up the wahzoo... Take a hike with your agenda and your worthless ideology because politicians are politicians and political parties help NO ONE. Looks like the middleclass still hasn't learned anyting from getting screwed yet. Maybe more of the middleclass has to suffer before they finally realise they need to move beyond partisan politics and start voting these slugs out.... Like that's going to happen.....

sj
sj - Thursday July 02, 2009 08:20AM EDT

Mr. Cohan speaks the truth. Well, at least the financial Oligarchs still allow some people to go public without assassinating them, like in "lesser"countries. That is a plus, right?

Yahoo! Finance User
Yahoo! Finance User - Thursday July 02, 2009 08:24AM EDT

johnny is gaming you people and you fall for it every time he is a modern language professor at cal poly doing research can you think of any better place to do it

UH1Driver
UH1Driver - Thursday July 02, 2009 08:27AM EDT

Obama is all talk and no do. Impeach him now.

deanp
deanp - Thursday July 02, 2009 08:32AM EDT

You are surely mislead. !@#@@ Didn't Busch give all of our money to Big Buisness , Big Oil and Halliburton a.k.a Dick Cheney!@!@

Yahoo! Finance User
Yahoo! Finance User - Thursday July 02, 2009 08:36AM EDT

Capitalism is inherently risky.

Mark
Mark - Thursday July 02, 2009 08:38AM EDT

It just goes to show that regardless of the circumstances , money talks. It is no longer survival of the fittest. It is survival of the financially fittest.

KH
KH - Thursday July 02, 2009 08:44AM EDT

this guy looks like a used-car salesman

chuck
chuck - Thursday July 02, 2009 08:47AM EDT

All you grand conservatives;, where were you for the last 8 years! G. Bush and his economic guru's took us to the cleaners with no remorse, and no one seemed to object to it. You reap what you have sown, and it was sown from 2000 on, so stop blaming someone who has been in office for only 5 months.

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