Stocks ended a strong two-week run with a thud on Friday. The week started off with news that AIG had given $165 million dollars in bonuses to the very same people that had virtually bankrupt the company and ended with the House passing a bill to tax those bonuses at a 90% rate. No need for a 100% tax, since the states and local governments will take care of the remaining. The Wall Street firms were so wrapped around the axle by end of the week – that they probably had their trading desks shorting financials on Thursday and Friday to remind the politicians that this ain’t time to rock the boat.
There is an obvious disconnect between Wall Street and the rest of the world. I previously worked in sales for a software company and received a salary as well as incentive pay. I remember three things about the compensation plans. First, the plans were rather generous if you exceeded expectations. Second, the goals of the individual and company were aligned. It would be hard for the individual to excel if the company didn’t. Third, the company had the right to modify the plan at any time. In the real world, whoever writes the contract has the leverage. Apparently, on Wall Street that is not the case.
I find it hard to believe that AIG employees had such iron clad contracts, that even if the company had just reported the largest quarterly loss in U.S. corporate history and even if the company was within days of collapsing the entire global financial system – the employees still had enough juice to warrant $165 million dollars in bonuses. Something doesn’t smell right!
Personally, I believe the Wall Street executives have presided over the greatest crime in American history. Maybe if a few of them spent a little time, preferably sitting by large prisoner named Bubba, they would think twice about handing out such ridiculous bonuses. Did you see how fast Madoff lost his smirk after he met Bubba?
As an aside, I think that Congress’ response to the matter was a little over the top. I am not in favor of Congress taxing the smithereens out of people. What’s going to stop them for going after anyone not aligned with their idea of fairness in the future?