$16.5 Billion. That's with a B as in booyah!

December 20, 2006 12:19 PM

It's Wall Street bonus season.And, as Henry Blodget writes, the folks who have "the good fortune of working in a hot industry in a favorable market environment" are doing extremely well this year. Notably, Goldman Sachs is breaking records with a $16.5 billion bonus pool. That is roughly $622,000 per employee but some employees do better than others: "[Goldman CEO] Lloyd Blankfein, for one, will probably earn a measly $50 million (loser), whereas Morgan Sze (big man on campus), head of GS's principal strategies group in Hong Kong will go home with a check around twice that." Anyway, whether you're a $120K secretary or a $100M trader, author Michael Lewis has some some tongue-in-cheek advice for dealing with poorer relations.
posted by blue mustard (46 comments total)

Hmmm, we posted about this last year...
posted by delmoi at 12:25 PM on December 20, 2006

I could sure use $622,000 right about now.
posted by Mister_A at 12:33 PM on December 20, 2006

C'mon now, they worked very hard for this dough.
posted by caddis at 12:36 PM on December 20, 2006

Not as insane as baseball salaries.
posted by furiousxgeorge at 12:39 PM on December 20, 2006

First up against the wall when the revolution comes. Oh it ain't comin? Damn. Well I guess I'll just be jealous then. And please tell me that caddis, your sarcasm tag is switched on and blinkin.
posted by lalochezia at 12:43 PM on December 20, 2006

My boss bought me a pack of Marlboros at the gas station yesterday... So I'm stoked.
posted by Divine_Wino at 12:54 PM on December 20, 2006

Smoke up Johnny!
posted by Mister_A at 12:54 PM on December 20, 2006

OMGWTFCLASSWAR!

Just like athletes, these people are cartoons that, for all intents and purposes, don't actually exist in my world. I've never met the CEO of Goldman Sachs, nor am I about to.

If they want to go all Scrooge McDuck and roll around in piles of cash (or a mountain of Colombian blow, for that matter), let 'em. Doesn't affect me one dang bit.
posted by pdb at 12:56 PM on December 20, 2006

I'm of two minds about bonuses like this, on the one hand I agree with furiousxgeorge, in that excessive sports salaries are far more offensive to me. At least the Wall Street people are doing something that affects the economy (for better or worse...)

On the other hand, WTF are you doing that is worth $50 million a year, as a bonus? As in on top of your already sizable salary?
posted by quin at 12:59 PM on December 20, 2006

Not as insane as baseball salaries.

I would disagree. Pro athlete salaries are generally based rather loosely on merit. I also think the salaries are valid (however unfortunate) representation how much their abilities are valued by the public.

I think a more apt comparison is movie stars, who receive more benefits and subsidies from the Hollywood infrastructure, just as these traders do from the financial infrastructure.

Heh, I've only got one "holiday" (read Christmas) bonus ever: a $10 gift certificate to Kroger's. I still have it, though it expired back in 1999.

At least the Wall Street people are doing something that affects the economy

And you don't think all those Derek Jeter jerseys are creating some GNP? For Malaysia at least? (Not to mention the concessioners, janitors, maintenance crew, marketing people, ticket sales, etc.) You may not be a fan, but MLB contributes a *hell* of a lot to the global economy.

WTF are you doing that is worth $50 million a year, as a bonus?

I think that's pretty obvious: making rich people even richer.
posted by mrgrimm at 1:05 PM on December 20, 2006

"At least the Wall Street people are doing something that affects the economy"

I'd say athletics have a pretty big effect on economies, at the very very least considering how much (almost) any town with a stadium taxes visiting athletes. That's obviously ignoring all the other ways athletics affect the economy.
posted by inigo2 at 1:05 PM on December 20, 2006

Following delmoi's link, it looks like there was a lot of good first-hand information in that thread.

I dont see a reason to post about it again this year.
posted by vacapinta at 1:07 PM on December 20, 2006

btw, I thought Steven Pearlstein's Washington Post article was pretty good...
posted by mrgrimm at 1:14 PM on December 20, 2006

At least it's been made public information.

These guys could've done about as well as private hedge fund managers and it wouldn't make the press. And hedge funds manage money from university endowments, charitable endowments, pension funds and other sources of money that are a lot more pertinent to the average person than Goldman Sachs' capital (though GS does tap those pools of capital as well).

mrgrimm writes "WTF are you doing that is worth $50 million a year, as a bonus?"

Well, he does have the humility to manage employees making twice as much as he is.
posted by mullacc at 1:14 PM on December 20, 2006

(i didn't write that. quin did. i was responding. and i basically agree with you. it's all relative.)
posted by mrgrimm at 1:19 PM on December 20, 2006

"At least the Wall Street people are doing something that affects the economy (for better or worse...)"


Emphasis on worse. But hey, don't hate the playa, hate the game.
posted by MikeMc at 1:19 PM on December 20, 2006

I heard Blankfein already blew the whole wad on grillz.
posted by The Straightener at 1:24 PM on December 20, 2006

mrgrimm: Sorry about that! I used the metafilthy thing in your response rather than quin's original comment. I should be more careful.
posted by mullacc at 1:26 PM on December 20, 2006

The 26 leading hedge fund managers earned an average of $363 million each in 2005. Morgan Sze is practically working for free.
posted by Kwantsar at 1:35 PM on December 20, 2006

I wonder what the janitors at Goldman Sachs get this year.
posted by DenOfSizer at 1:44 PM on December 20, 2006

Half the world's wealth is held by two percent of the population.

Can't imagine why it's all going to hell.
posted by five fresh fish at 2:19 PM on December 20, 2006

Can't imagine why it's all going to hell.

Kind, loving, giving people like you don't thoroughly bust their asses after college to pad their resumes, notch a 99th percentile GMAT, get into a top-five business school, beat at least 90% of their classmates, get that precious Wall Street internship, graduate, give 120 hours per week to the firm while forsaking their loved ones, and turn around and give all $622,000 to charity. Which would make the world a better place of course.
posted by Kwantsar at 2:27 PM on December 20, 2006

People who create money earn money. So it goes, and so it should be.
posted by xmutex at 2:29 PM on December 20, 2006

Gotta say, I'll take a Kevin Garnett making $21mil a year banging rims with an orange ball over some suit-stuffer on Wall Street snorting blow out of a stripper's asscrack. At least we can publicly condemn and complain about KG's equivalent performance over the course of an entire NBA season whilst swilling beer and nachos. If I'm gonna be poor anyways (by Wall Street standards), I demand to be entertained by athletic freaks of nature.

So maybe we need to start a fantasy league for fund managers (similar to that Congressional version) so we can at least appreciate what the hell it is they do and notice when their skills fall short and they crap the fund? That might be fun*.

*no fun whatsoever.
posted by krippledkonscious at 2:40 PM on December 20, 2006

over some suit-stuffer on Wall Street snorting blow out of a stripper's asscrack

Because a pro-baller wouldn't ever do something so gauche?
posted by docpops at 2:44 PM on December 20, 2006

"People who create money earn money. So it goes, and so it should be."

Hmmm, I used to be a printer and I don't recall earning that much money.

Oh, you didn't mean actually creating money. You meant moving other people's money around.
posted by MikeMc at 2:49 PM on December 20, 2006

mrgrimm : You may not be a fan, but MLB contributes a *hell* of a lot to the global economy.

Fair enough. And my swipe shouldn't have been at MLB specifically. I think across the board, that sports stars are overpaid, but part of that comes from my overall dislike for professional sports and part from my jealousy of people making, in one year, more than I will ever make in my life, for playing a game.

But you are not wrong. Despite my opinions of professional sports, they do in fact, contribute a lot to local economies.

Withdrawn.
posted by quin at 2:51 PM on December 20, 2006

These people make their money, and large bonuses, by and large, by creating value for shareholders of companies. If they do not create value for shareholders, they will not make this money, or not for very long.

Sharelholders of companies are insiders (who build the company and create jobs), private individuals, pension funds, mutual funds primarily held in 401k's and RRSPs, and hedge funds for higher net worth individuals.

The giant bonuses that get paid during bull markets compensate for the layoffs and total lack of bonuses during the bear years.

There is no rule or law against any person in the world joining one of these firms and working their way to the top. If you're smart and make money, you're in. Even the degree doesn't matter. There is no secret handshake, there's no racism, no privelge. These people are not lottery winners, they've worked for years to make this money, not 8 or 10 hours a day, but 15 or 16, writing pitch books, compiling data, creating models, ingratiating themselves to clients, and first and formost, generating wealth. To dismiss them as fat cats or whatever is stupid and ignorant (unless you're a communist, in which case, it's perfectly understandable). This is capitalism. If you don't like it, go to Cuba or start the revolution already...
posted by loquax at 2:52 PM on December 20, 2006

If I were a shareholder of any of these companies, I'd be screaming.

This is legal, sanctioned theft that no one on the Street challenges because anyone that can do anything about it aspires to benefit from it. It's institutional, self-reinforcing corruption; a "don't rock the boat and you'll get yours" mentality.

Yes, most of them are smart, hard-working, focused people. And yes, many of the give significant money to charity. But they work in an industry that exists and prospers not because of their collective skill or creativity, but because securities law props it up and assures their companies' existence.

Do they deserve to make a lot of money? Sure. Why not? But billions? Come on. How much is a life worth?

Think about what you need to do in order to get there.

You start with getting an MBA from a recognized program (not all these guys went to HBS), work hard, suck it up, don't have a life that interferes with ANY of your job commitments (cancel a vacation you'd confirmed six months ago on the night before and don't DARE complain), and kiss the right asses (guess well) so you can ally yourself to the right people to avoid the axe during the next economic downturn... And you're there.

To get to this level requires guile, stamina and a lot of luck, but not that much creativity or actual smarts. I don't believe that such skills are as rare as the ability to throw a baseball 96 miles an hour 100 times over 2 and a half hours (if you look at it from the supply/demand perspective as Jack Welch does).

So, good for themn but I can't help but find it sad that such people, who really create nothing, are so highly valued. But as you look at the rest of our society, it makes as much sense as anything.
posted by psmealey at 3:02 PM on December 20, 2006

These people make their money, and large bonuses, by and large, by creating value for shareholders of companies

No. Companies create value for sharelholders by executing strategy and benefitting from market conditions. Investment Banking firms facilitate their clients' access to capital. Huge difference.
posted by psmealey at 3:06 PM on December 20, 2006

To get to this level requires guile, stamina and a lot of luck, but not that much creativity or actual smarts. I don't believe that such skills are as rare as the ability to throw a baseball 96 miles an hour 100 times over 2 and a half hours (if you look at it from the supply/demand perspective as Jack Welch does).

If it's so damn easy, why don't you stop posting on MetaFilter and go earn a $650,000 bonus? These people do not create nothing - they create enormous wealth for the companies that employ them. Otherwise, they would be fired, and quickly. Wall Street has no mercy.

Maybe you think it's an empty life. Maybe they feel differently. So it goes.
posted by xmutex at 3:07 PM on December 20, 2006

To get to this level requires guile, stamina and a lot of luck, but not that much creativity or actual smarts.

This may be true for the lower levels - nobody on the street pays out a multi-million dollar bonus for a kiss ass. Nobody. The people making serious money make it because they have made more than that for clients and shareholders, and the only way they will continue to do that is to receive a bonus large enough to prevent them from going to another firm that will pay them more. Simple as that.

But they work in an industry that exists and prospers not because of their collective skill or creativity, but because securities law props it up and assures their companies' existence.

This, on the other hand, is just nonsense.
posted by loquax at 3:10 PM on December 20, 2006

I did for several years. Hated it, got out. Don't kid yourself that its a utopia of meritocracy. It's not.
posted by psmealey at 3:10 PM on December 20, 2006

Capitalism is not just in its distribution of wealth. But it is the best we have. Let's eliminate the wealthy heirs who do absolutely nothing. Far worse than a bunch of Wall Street geeks.
posted by geoff. at 3:13 PM on December 20, 2006

If they do not create value for shareholders, they will not make this money, or not for very long.

Naïveté is charming. I am far from convinced that shuffling mortgages and other debts (oops, I mean incomes) back and forth in ever-higher stacks of derivatives produces any real-world wealth, nor am I sure it is really very capitalistic or sustainable. It creates the illusion of growth.

I know, I know, "markets efficiently allocate resources", but you can't tell me that you are getting your money's worth out of these guys. You really think they perform so far outside a couple standard deviations as to make their incomes a good investment?
posted by sonofsamiam at 3:14 PM on December 20, 2006

Kind, loving, giving people like you

awww, that's sweet -- but then, maybe five fresh fish didn't try to scam a hotel with a sad, fraudulent, cheap-ass promotion code scam, so, who knows, he might even be less douchebaggy than you are anyway, Kwantsar. not to mention, feel free to brag, how much was your Wall Street bonus this Christmas?
posted by matteo at 3:20 PM on December 20, 2006

Fine young cannibals, they is.
posted by crowman at 3:26 PM on December 20, 2006

You really think they perform so far outside a couple standard deviations as to make their incomes a good investment?

The real question is, do you really think that's what Wall Street investment banks do?

These people by and large make their money in the following ways:

1 - Mergers and acquisitions - creating value for shareholders of the companies involved in the transanactions

2 - Equity financing - the issuance of company stock, raising money for growth, etc

3 - Institutional trading - trading huge blocks of shares for pension funds, hedge funds, etc.

4 - IPOs - taking private companies public. (or the opposite)

They are not the people who give grandma stock tips. They are not mutual funds. They are not financial advisors.
posted by loquax at 3:26 PM on December 20, 2006

Your #2 and #4 are synonymous unless you meant to differentiate between an IPO and a follow-on offering. You also neglected to mention as other LOB bankruptcy restructuring and the underwriting of other financial products (debt instruments, derivatives, etc.), but those are details.

Thanks for the intro to corporate finance 400/401 refresher, though.
posted by psmealey at 3:51 PM on December 20, 2006

Thanks for the intro to corporate finance 400/401 refresher, though.

I'm glad you didn't need it. Most other people in the thread do.
posted by loquax at 3:56 PM on December 20, 2006

Aw, shucks, matteo. I didn't think my response to fff was nearly inflammatory enough to draw that kind of derision, but thanks in no small part to your boundless goodwill and warm heart, you've somehow managed to exceed my expectations yet again. FYI, I don't nowadays work as a full-time employee of an investment bank, and thus I've been liberated from such petty babbitry. I must confess, though, that I still like to join Chip and Paige after work for a few drinks at Ulysses or Adrienne's before I kick a few bums en route to my Tribeca loft.
posted by Kwantsar at 4:20 PM on December 20, 2006

Lewis forgot to add the point about making sure your middle-class aunt sets an extra seat around the (skimpy, "what is this shit?—pass", sideservant-less) table for your big swinging dick.
posted by carsonb at 5:13 PM on December 20, 2006

The real question is, do you really think that's what Wall Street investment banks do?

While Goldman certainly does all the things loquax listed, they made more money in principal investments and proprietary trading this year than in investment banking. To be very simplistic, this involves making investments using the firms money rather than earning a fee by executing a transaction for a client. The $100 million bonuses were given to employees involved in principal side of the business.

If I were a shareholder of any of these companies, I'd be screaming...they work in an industry that exists and prospers not because of their collective skill or creativity, but because securities law props it up and assures their companies' existence.

In the case of Goldman, their compensation as a percentage of revenues is actually less than the competition. But, more to the point, the shareholders don't scream because they benefit from this situation as well. Wall Street bonuses can vary dramatically from year-to-year, so when the market is bad the shareholders don't feel nearly as much pain as the bankers do and when it's good both the shareholders and the bankers are happy. Look at how strongly these companies have performed this past year: GS up 75%, MER up 41%, LAZ up 53%, BSC up 41%, MS up 41%, JEF up 23%, LEH up 23% (I exclude C and JPM due to their diversity of businesses). Why would any shareholder complain?

One shareholder who agreed with you did do something about these giant banker bonuses once--Warren Buffett when he took control of Salomon Brothers. The talent left and Salomon teetered on the brink of disaster (caused mostly by the fallout from the Treasury scandal, but the talent exodus didn't help either). Salmon Brothers was eventually purchased by Sandy Weill, compensation returned to normal and the firm struggled until recently to regain market share.
posted by mullacc at 6:10 PM on December 20, 2006

Whoops, GS was only up 60%, or $75. I mixed up the numbers. My attention to detail has fallen dramatically--I already got my bonus this year :)
posted by mullacc at 6:14 PM on December 20, 2006

Mulacc's explanation is the best. I was feeling a bit cranky above, I'll admit. I worked for the big company on Vesey Street from 1989-1996 and mostly saw the downside he mentioned (same 80-100/hr week grind, but low base salaries, paltry bonuses, friends/colleagues being laid off every quarter). Guess I was feeling my long-forgotten embitterment return. And yes, I realize how fortunate I was to have access to that career path when so many other struggle on a daily basis, so let's not go there.

I still get a bit irked when I see these ridiculously naïve fantasies about Wall Street being such a meritocratic uptopia. That may be at least somewhat true for sales traders, as they are measured daily on how well they do and a non-performer has difficulty hiding (unless you're Nick Leeson). However, Investment Banking is just as political, has exactly the same proportion of ass kissers working in it as any other industry.

I mean, come on, other than maybe developing the next new derivative widget (in my day it was liquid yield option notes, fancy names for things that are essentially off-balance sheet financing or other ways to stay a step ahead of the FASB), all these firms do exactly the same thing. If a client isn't getting what they think they need from JP Morgan, the Bear or Sali, they'll take their business to Merrill or Goldman. Chances are that the bankers they deal with at Merrill, will be the ones that handled the senior secured debt offering at the Bear five years earlier. Even more likely, that the client would go to that other firm anyway when it does its next follow on offering, just to spread the wealth around and keep on good terms with all the bankers. It's a pretty much a racket.

The business processes are well documented and somewhat easily learned. People have been running transactions (run your comps, assemble your syndicate, do your due diligence, run your roadshow) the same way for decades. It takes no special skills to succeed in such an environment other than stamina, attention to detail and having the right mentor. That last part is the biggest factor, because when it comes to layoffs, if you find you've chosen the wrong mentor, you can find yourself out on your ass despite a pristine track record of performance.
posted by psmealey at 4:00 AM on December 21, 2006

Oldie but goodie:

An investment banker was taking a few days off near a small coastal Mexican village, where he came upon a fisherman. The banker complimented the fisherman on his catch, and was astonished to learn that it didn't take long for the fisherman to complete his daily work. The banker then asked the fisherman what he did for the rest of his day.

'I sleep late', the fisherman replied, 'fish a little, play with my children, take a siesta with my wife, stroll around the village with my friends, sip some wine, play a little guitar. I keep myself occupied, senor'.

The investment banker scoffed. 'I have an MBA from Harvard', he proudly exclaimed. What you need to do is spend more time fishing. With the extra proceeds buy a bigger boat. With the proceeds from that boat, buy a few more. Then, instead of selling your catch to a middleman, you would be able to sell direct to a processor. You'll be so successful that you could end up running your empire from New York'.

'But senor,' the fisherman asked, 'how long will all that take'.

'15 - 20 years', came the reply.

'And then what, senor ?'.

The investment banker laughed. 'Then, my friend, you'd do an IPO, sell stock in your company, and make millions'.

'Millions, senor. Then what ?'.

'Then', said the banker, 'you'd retire. Move to a small coastal fishing village. You'd sleep in late, fish a little, play with your children, take a siesta with your wife, stroll around the village with your friends, sip some wine, play a little guitar'.
posted by loquax at 8:21 AM on December 21, 2006 [1 favorite]