Tuesday, October 21, 2008

Taxpayers Finance Excessive Wall Street Bonuses

"Despite" receiving hugh sums of money from taxpayers, Wall Street will continue to pay out tens of billions of dollars in bonuses to the same employees who were responsible for bringing their companies to the point where they would have collapsed if the government hadn't bailed them out, Guardian reports.

In the article we can read that on Wall Street, bonus is something you receive even if you don't do anything good.

"For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

The article asks the question of why these companies keep blowing such large sums on bonuses when that money is needed to shore up the capital bases destroyed by the bad investment decisions made by those that receive bonuses. The reason is of course because they know the government will provide them with that money and if they had stopped paying bonuses all they would have done is save money for the taxpayer's.

Jonathan Weil continues on this subject, and points out that a key reason why Wall Street need money from the government is because they blow such enourmous sums on excessive bonuses (The other key reason is of course the dismal job performance of those who receive these bonuses).

In a free market economy, these firms would have been replaced by sounder financial firms. But that won't happen because of the government bailouts.

At the same time, we can see how some of the bonuses go to campaign contributions to Presidential candidates. We should perhaps not be too shocked by the fact that these candidates support the bailouts that finance these bonuses.


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