Join The Trading Room

Bank Pay Outrageous, But Is That Recovery?

By Rick Ackerman Posted on August 3, 2009, 12:01 am EDT Last Updated August 3, 2009, 10:02 pm EDT

Assuming Americans still have the capacity for outrage, they should be rioting in the streets following last week’s reports that nine big banks paid out $33 billion in bonuses in 2008. The Wall Street Journal put this travesty in perspective, noting that the bonuses were a third larger than California’s budget deficit. “Six of the nine banks paid out more in bonuses than they received in profit,” the Journal reported, and “one in every 270 employees at the banks – [a total of 5,000 employees] –received more than $1 million.” 

lambo-small

Compare these princely sums to the relatively paltry numbers associated with the government’s “cash for clunkers” program, which provides a U.S. voucher of up to $4,500 for motorists trading old gas guzzlers for new vehicles. Cash-for-clunkers ate through $1 billion of funding last week in its first four days, prompting Capitol Hill to approve yet another $2 billion, presumably before things turned ugly on the dealers’ lots.  Talk about bread and circuses! If the cash-for-clunkers giveaway enjoyed the kind of backing the banks received via TARP, thousands of Americans who don’t have two nickels to rub together would be driving Bentleys, Ferraris and Lamborghinis.

No Shame

Lest you think the banks are embarrassed by it all, it has been reported that Goldman Sachs, for one, is on course to pay $20 billion in bonuses in 2009 — an average of $700,000 for each and every employee. Over at Morgan Stanley, bonuses are up 30%, to an average $340,000; and at J.P. Morgan, the incentive pool for the first quarter alone has swelled by 175% to $3.3 billion. 

These numbers came to light in a report issued by New York Attorney General Andrew Cuomo. Shortly thereafter, New York Rep. Edolphus Towers, chairman of the U.S. House investigative panel, pronounced the news “shocking and appalling.” He promised hearings into the matter, but we’re not holding our breath. At other times in history there would be scaffolds going up in the town centers, and kangaroo courts convened at midnight to condemn the offenders.  Instead, we are being asked to believe the brazen falsehood that the banks are leading us out of recession. In fact, as a report issued recently by Matterhorn Management makes clear, “none of the problems  in the banking system have been resolved. The system still has a leverage of 25-50 times, it is still full of toxic debt and derivatives, loan books are deteriorating daily, it still has worthless paper assets valued at fantasy prices and most banks are run by the same bankers who created the problems in the first place. For a typical bank, a 4% drop in asset value wipes out the equity. This is what we call a recipe for disaster.”

***

Midnight Briefing

There’s good news for traders who were unable to attend the Morning Briefings that Rick held in June before the opening bell. To gauge demand for a late-hours briefing, especially from traders in Europe and Asia, Rick will hold a Midnight Briefing on three successive days his week: Tuesday, Wednesday and Thursday, August 4,5 and 6, starting just after midnight EDT. Click here to sign up.

These 20-minute sessions will begin at 12:01 a.m. EDT (GMT-5:00).  During this time, we will attempt to identify timely trading opportunities mainly in the E-Minis and Comex Gold.  Last month’s briefings were enormously popular, drawing as many as a thousand traders on some mornings.  To reserve a place, register now.

(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • Bryan August 8, 2009, 11:40 am

    Senator Bunning Released a statement after meeting with Sheila Bair of the FDIC. That states the FDIC expects to close 500 more banks this year! Where is the outrage. Some speculate a Bank Holiday after the 2 Quarter numbers from FDIC on 8/25 Now that IS change we can actually count on!

  • Tom Paine August 4, 2009, 2:20 pm

    In 2005 I publicly stated ( http://safehaven.com/article-3993.htm ) that the Refco meltdown was a signal event to a coming credit crunch that would rudely awaken market players to the notion of “counter-party risk” and be a catalyst to rise in precious metals prices as they returned to their role as a hedge to paper assets.

    Rick’s quote from the article by Matterhorn Management is real eye opener as it points out that insane leverage remains with the big banks. What this means is that the risk of a sytemic failure also remains unremedied despite tens of trillions of dollars in bailouts. So, be careful folks with the derivatives you may be using to hedge against the next down turn. Be sure to be overweight physical precious metals stored in a safe place and away from government’s confiscatory paws.

    Also, careful folks, violent revolutions rarely, if ever, end the way YOU want them to.

  • Ray Newton August 4, 2009, 9:50 am

    I apologise for some small errors as in spelling. I write from the hip quickly, and there is no facility to edit once posted like some forums provide. (Here me Rick?)
    I usually spot them when I read it after posting. Yes, I know, I should do it before.

    You do well to provide this opportunity to release some mental pressure, and for this, I am sure everyone thanks you. However, a small ‘editing’ feature would help.

    Why I plug this is because we often forget that many people whose first language is not English visit these sites. They seek as part of the exercise to improve their English. Some believe that what they read is spelled correctly, or the syntax is correct. Some will try to find that incorrect spelled word in the dictionary, and struggle.

    Its a big world out there, and the internet reaches all the far corners.

  • Ray Newton August 4, 2009, 9:35 am

    You all enjoy complaining, but when there are some people on this planet who are prepared to risk their own lives, even blow themselves up, to actually do something about it, to stop what you are complaining about, happening to them, you cheerfully send your young men and women to get slaughtered trying to exterminate them.

    Lets be objective and free from so called patriotic emotion instilled into you by those whom you only dare blast with your rhetoric (no risk to your blood).

    We brand those who are prepared to take up arms against this financial, economic, tyranny as ‘terrorists’. Well, media do and we echo their words.

    Their way of life may not be ours. But that is for them to change if they don’t like it. Their are many things in their way, that may seem truly bad to us. There are many things that some within those cultures would like to change. They should be left to do that, themselves.

    However, be all that as it may, they have no desire to change their way of life for some of the horrors that they see in ours. And what is more, they are prepared to
    do all that it takes to resist it.

    When we interfere, we even unite the rival factions within themselves to fight a common enemy.

    The vast majority of American Colonials were very loyal to the mother country and wanted no part of a revolution. But in the end, once blood is spilled, and media goes to work, it is inevitable that both elements are focused into uniting against what they have been told is THEIR common enemy.

    That ‘enemy’ of their own basic stock, were the ones who had earlier protected them against other enemies like the native American tribes who did not like ‘Paleface ‘, and the French who wanted to make them part of their empire.

    About a hundred years later you had a most bloody civil war with brother against brother. Now your neighbours to the north, as equally as free as you are (some believe more free) is a nation housing two once enemies, England and France, and speak two lanaguages, but they never had a civil war. And many American Indian tribes fled to their, to escape persecution in their own country.

    No, your history books do not explain that, or perhaps don’t even mention it.

    More recently we had the Chinese who were engaged in a bitter internal struggle between rival ideologies. There was terrible fighting and bloodshed between the two sides. But when the Japanese invaded their nation and were marching through Shanghai, and Nanking, raping and pillaging, both Chinese sides stopped fighting each other, formed a truce, and fought the Japanese side by side. After they had stopped the Japanese, their common enemy, they carried on with their own fight.

    The Iraqis will do the same. The Afghans will also. They are fighting for ideals, their way of life, in their own land. We are there for one lie after another, and another and………..

    We so quickly, and easily, lose our reasoning power (if some of us ever had any) when media goes to work. It works time and again, no matter how many lessons are thrown up we should learn.

    They say talk is cheap. That is because the supply is always greater than the demand.
    And, that applies to me as much as anyone else.

  • Elaine Douglass August 4, 2009, 7:13 am

    Could it be these bankers know something we don’t? Perhaps they don’t expect their institutions to be at bonus time 2010. They’ll all have been closed. So perhaps these brazen bonuses represent the managers taking all available liquid capital out now before the fall and public opinion be dammed. I wonder how many Swiss bank accounts are being opened now into which these bonuses are being deposited. . .

  • Ray August 3, 2009, 8:46 pm

    First the bankers crater the economy.

    The they force the taxpayer to pick up the tab…

    All the while yelling about free markets and Adam Smith…

    Then demand bonuses for doing so…

    Time to man the barricades my friends!

  • Brian Meighan August 3, 2009, 6:53 pm

    Hello America. The end is in sight but will take time for all the contradictions to coalesce into a critical mass that begs the question–Why did we take the corruption by owners of capital and of government for so long to poison the body politic to do nothing but glaze at the scene. T.H White in the 1960s said that a country falls apart from within and not the enemy outside.
    The USSR did it in the 20th century…maybe in the 21st century it will be ….!?

  • cp August 3, 2009, 4:35 pm

    I think one of Rick’s points, as he has stated in the past, is where is the outrage? Americans have seemingly lost the ability to be truly outraged (at least to this point, in sufficient numbers). As a consequence, those “at the top” of industry and politics take it as a green light to push the boundaries of acceptable behavior. Although this has been growing for some time, I believe that the Bush/Cheney administration elevated the any action with no consequences philosophy to the highest level with their contempuous middle finger approach to unilateral policies.
    Though I do believe that they did set the tone that industry has followed, it still comes down to the american public mounting very little resistance to this rapacious behavior.

    It’s for this reason that I don’t believe that things will change for the better, until things get worse. Until people demand, with force if necessary, that their leaders perform more ethically, then the “smash and grab” mentality that seems to be growing here in the states will not abate. Like the spoiled and indulged child that got that way from spoiled and indulgent parenting, we are in part to blame for the condition we find ourselves. Not enough of us behaved like the supervising adults we have to be in a system like ours.

    As far as the ballsy nature of the banks handing out even larger bonuses, I get the feeling that they know another collapse is coming and they are grabbing everything they can get their effing hands on. Something even more than just pushing the limits.

    BTW, I know that many, many people have lived reasonably and within their means. I just mean to say that collectively, as citizens, the effort has not been enough. May the Phoenix rise sooner than later. Best of luck, cp

  • Alex August 3, 2009, 3:50 pm

    Even the great Ron Paul agrees with the axiom that states “people get the government they deserve”. I am an Australian but like almost anyone that has followed the, brazen thievery, greed and corruption since Bush Jnr took office, have to wonder if most people in America understand what is going on or have simply resigned to let a bunch of crooks rob them blind. I would agree that expecting justice from any government agency or BS oversight committee is a waste of time as the same crooks that own the FED and control wall street pay their wages of these supposed independent committee people. Perhaps if and when the Obama administration decides to go after peoples guns Americans may finally decide to use them. I agree with Cosmo, it may be time to declare open season on the Banksters!!! It probably won’t save the USD from the disaster that it is headed for with these astronomical bailout/handouts. But since these crooks own the courts and the judges and their greed and avarice will destroy millions of lives in the USA and has already had a global effect (as the USD is the world reserve currency) let the victims dispense their own justice.

  • rich August 3, 2009, 3:19 pm

    Re the Hamptons, I do not condone violence but intelligence.
    Last week the CARS.gov list, when you could get through, had Lambourghini on the List, but not Buick, because the EPA decided after the fact when it revised its figures the Buick gets more than 18 mpg. Maybe someone wants an exotic car for $4500 and is willing to break the law on destroying the engine and creating more landfill waste?
    Until cars sell for $4500 cash, buying them on credit for lease or loan has absolutely no economics except for the lenders getting those $33 B in bonuses. The last four quarters GDP declined at a -15.5% rate, which makes 72 month car loans, if you can get them, not only upside down from the moment you sign, but effectively cost 15.5% plus whatever the nominal interest rate is.
    Like being long gold and stocks…

  • cosmo August 3, 2009, 1:32 pm

    The final nail in the coffin for Americans ability for outrage was proven in 2003 when GWB took the country into war under false pretenses, plunging the country into a waterfall of debt. Up to that point, hope was possible. Now the country reaps the rewards of his foolishness. Helen Thomas was correct when she said that “George Bush is thew worst President ever”, early in his game, I might add. Obama was handed a foul hand against a stacked deck and will take the blame for this mess, which will last well beyond his first term. Ron Paul was the last hope I saw for a chance at salvation, but the Bankers were NEVER gonna let him in office…

    But all that is past now. NOW, it is open season on Banksters heads. I’m sure some sharpshooter will find a target out in the Hamptons this month, getting the criminals to PERHAPs rethink their avarice and greed. What other options are left??

  • Carol August 3, 2009, 12:21 pm

    Excellent post. I copied the url and forwarded it to my two Senators wondering, probably idly, what they think about it and what they plan to do about it … if anything.

  • Chris August 3, 2009, 5:18 am

    Well, thank goodness for the NYC Ferrari dealership, and also great for Porsche’s upcoming Panamera.

    “Six of the nine banks paid out more in bonuses than they received in profit’

    This shows that they really figured out the game in the last two decades. Who is being fleeced here first of all? The owners of these banks, the shareholders.

    Years ago, these were identical with the people receiving the bonuses, as they were partners. But of course such partnerships had major downsides.
    Unlimited liabitliy for each and everyone, and an illiquid asset bound up in the patnership.

    How to deal with that?
    Gee, lets sell us to the gullible public. We will get rid of the unlimited liability on assets we long ago stole and thought safe. In addition, we have totally liquified our assets, which we can even sell free of taxable gain, if we lobby to become a member of the US Executive (or which we can spend to become US Senator or governor).

    Also, because we will of course keep control of the firm, despite selling shares, we can still pay bonuses, of a size that the partnership would not have allowed. But its the public shareholders that now foot the bill.

    And, because we can take the highest risk (for largest payout) without endangering our palace in the Hamptons, we can make even more dough!


Exit From This Page Back to Trades