More furor likely as banker bonuses hit $145 billion

The eye-popping compensation will almost certainly raise cries for a bonus tax.

Posted by InvestorPlace on Friday, January 15, 2010 10:21 AM

The banking industry clearly does not care about the outcry from Congress, the President and taxpayers regarding the extravagant bonuses being paid on the heels of the greatest credit crisis in four generations. The Wall Street Journal reports that it has put together research which shows bankers will make $145 billion this year, which is even higher than the phenomenal amount that they made in 2007.

Most of the money will be paid to the top managements and traders at the blue chip firms which include Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM), which posted a huge increase in fourth-quarter net income early today. Earnings per share rose to $.74 from $.06 in the same period a year ago.

It is clear that the culture clash between Wall Street and Main Street is becoming more violent.

A number of financial company CEOs objected to the new tax proposed by The White House to raise $90 billion over ten years by placing a 0.15% tax on balance sheet liabilities. The top 50 financial companies will bear almost this entire burden. JP Morgan CEO Jamie Dimon reacted by saying the taxes should not be used as a form of punishment.

Politicians, on the other hand, will seize on the $145 billion number as a sign that bailed out banks used TARP money to survive the crisis and then prosper shortly thereafter. The eye-popping compensation will almost certainly raise cries for a bonus tax similar to the one instituted in the U.K. this year.

Wall Street executives will counter by saying that they already pay high income taxes on their bonuses and that their companies pay high corporate taxes. The Treasury will do just fine by its levies on the financial industry. But, that is a sign that the financial community has a tin ear. The populist reaction to the $145 billion number will drive new legislation to tax Wall Street pay or cap it at levels well below where it was last year.

By ignoring the anger of the average man, Wall Street has put itself in a position to be the government’s whipping boy as it prepares the budget for next year.

Comment

Arrogance such as this needs to be addressed by Congress. They screw up the works, coming close to dropping us into another Depression, we bail them out, and they continue to rob, rape, and plunder the system like it never happened. They use OUR bailout money to reward themselves for this series of fiscal mistakes. Ridiculous.