Re: Outsized Pay on Wall Street Persists

I'd settle for Tyler Durden.

regards,
-Lance

On Jan 13, 2011, at 8:43 PM, Mike Findlay wrote:

> Would it be to inciteful, (pun intended), of me to ask where Guy  
> Fawkes is when you need him?
>
> Mike F.
>
>
>
> From: Lance McLain
> Sent: Thursday, January 13, 2011 3:30 PM
> To: DADL-OT (Mailing List)
> Subject: [DADL-OT] Outsized Pay on Wall Street Persists
>
>  naked capitalism
> January 13, 2011 1:51 PM
> by Yves Smith
> Outsized Pay on Wall Street Persists
>
> A piece at Bloomberg today confirms that the financial crisis did  
> nothing to shift the gap between what someone can earn on Wall  
> Street versus more worthwhile lines of work:
>
> Wall Street traders discouraged by declining bonuses this month can  
> take solace: They still earn much more than brain surgeons and top  
> U.S. generals.
>
> An oil trader with 10 years in the business is likely to earn at  
> least $1 million this year, while a neurosurgeon with similar time  
> on the job makes less than $600,000, recruiters estimated. After a  
> decade of deal-making, merger bankers take home about $2 million,  
> more than 10 times what a similarly seasoned cancer researcher gets  
> (see table below).
>
> The pay gap between finance and other professions widened between  
> the 1980s and 2006, exceeding the record set before the Great  
> Depression, according to a 2009 study by Thomas Philippon, a  
> professor at New York University’s Stern School of Business. After  
> the 2008 financial crisis, Wall Street started paying a larger  
> portion of bonuses in stock and restricted cash. Yet there’s little  
> sign the gap with Main Street is narrowing.
>
> “I don’t think it’s healthy for the economy to be this skewed,” said  
> Stephen Rose, a 63-year-old professor at Georgetown University’s  
> Center on Education and the Workforce. “I believe there’s some sort  
> of connection between value added to the economy and pay. Everyone  
> is losing sight of any fundamentals.”
>
> It’s important to stress that this is a new pattern. In the stone  
> ages of my youth, top earners in investment banking were on a par  
> roughly with top heart surgeons and when someone became a partner at  
> Goldman, his cash compensation fell sharply. The old line was that  
> partners lived poor and died rich.
>
> And their aspirations were modest by contemporary standards: a nice  
> apartment in the better sections of the Upper East side, having  
> their kids in private schools, and having a summer home, likely in  
> the Hamptons (which were much cheaper then than now).
>
> One of the perverse elements of the pay escalation in finance is  
> that more dollars are being thrown at social signaling.  
> Anthropologists would have a field day. To a significant degree, top  
> end goods have been repriced upwards to reflect competition for the  
> same assets (paintings, luxury goods, prime residential real  
> estate), with admittedly some new creature comforts now on the list  
> (private jets).
>
> But a much uglier element is how this trend continues to suck  
> “talent” into socially destructive activities (if you think that’s  
> an overstatement, read this post from yesterday). And it is becoming  
> institutionalized, not just due to the pay gap between jobs in TBTF  
> financial firms, but also due to the seemingly unending rise in the  
> costs of higher education, well outpacing inflation for more than 20  
> years. As Jamie Galbraith pointed out in his book The Predator  
> State, there’s a fallacy in thinking that having more people get  
> more advanced education leads them to higher levels of lifetime  
> earnings. While that can be true for individuals, if large numbers  
> of people adopt the same strategy, more credentialing simply becomes  
> a new normal (look at how many college and even advanced degree  
> graduates take jobs that don’t require their level of educational  
> attainment).
>
> So the result is increasingly costly higher education, due to more  
> and more people going to college and grad schools, and students  
> being less price constrained due to student loans. So students who  
> don’t have affluent parents are forced to be mercenary in their  
> career choices or risk having huge problems in contending with their  
> school loans (which can’t be discharged in bankruptcy). A widely  
> discussed article in the New York Times pointed out how law school  
> is now a bad investment, and also described “Enron-type accounting”  
> on behalf of the law schools themselves in misrepresenting the value  
> of their degrees.
>
> So the normal avenues to upward mobility or even normal middle class  
> prosperity are eroding, and demanding and socially valuable careers  
> that were once highly respected are now falling in relative standing  
> in increasingly Plutocratic America. This is not a blueprint for  
> economic success or rising social well being.
>
> Another reflection of this sorry trend was an article in the  
> Atlantic, “The Rise of the New Global Elite,” which was admirably  
> shredded by reader paper mac:
>
> The cherry-picked anecdotes of blue-collar, self made executives  
> used to suggest that entry into the ranks of the ultra-rich is  
> somehow “meritocratic”, despite extensive evidence showing that the  
> relationship between heriditary wealth, education, and socioeconomic  
> status is strengthening; the suggestion that these elites somehow  
> “produce wealth”, despite the clear evidence than in fact most of  
> them do little but extract it; the absolutely laughable assertion  
> that attending elite wank-fests like TED talks or Davos conferences  
> somehow constitutes engagement with serious ideas; the absurdity of  
> claiming that the handful of billionaires with significant  
> philanthropic contributions to their pet causes shows us that the  
> ultra-rich are legitimately attempting to better the condition of  
> their inferiors- I’m amazed this trash got past any editor, anywhere.
>
> Freeland is clearly far too close to her subjects. She spends most  
> of her 7 pages fellating a handful of executives she had access to  
> (include a puke-worthy passage suggesting that Lloyd Blankfein is,  
> after all, just a regular, salt-of-the-earth boy)….
>
> It’s nonetheless worth pointing out a few bits that provide some  
> insight into the psychopathology of the subjects and the author. One  
> that struck me was this:
>
> “The clincher, Peterson says, came from the wife: “She turns to me  
> and she goes, ‘You know, the thing about 20’”—by this, she meant $20  
> million a year—“‘is 20 is only 10 after taxes.’ And everyone at the  
> table is nodding.””
>
> In what way is this person not mentally ill? In what world is this  
> not simple addiction to money? Who in God’s name needs 20, or even  
> 10 million dollars a year? If we lived in a sane society, this  
> person would be the object of pity and ridicule- someone so  
> completely given over to their wealth addiction that they will  
> literally never have enough. It is people like this who will kill us.
>
> There’s also an interesting fallacy that at least some members of  
> this cohort subscribe to:
>
> Our light-speed, globally connected economy has led to the rise of a  
> new super-elite…Perhaps most noteworthy, they are becoming a  
> transglobal community of peers who have more in common with one  
> another than with their countrymen back home. Whether they maintain  
> primary residences in New York or Hong Kong, Moscow or Mumbai,  
> today’s super-rich are increasingly a nation unto themselves.
>
> To the extent that members of this group have wealth that depends on  
> assets or operations located in, say, China or Russia, their  
> assumption that they can operate above states is a tad optimistic.  
> They are effectively projecting their success in capturing the  
> American government apparatus and assuming that other states will  
> also hew to their will. But America is an empire in decline, hence  
> ripe for exploitation. And American has long had plutocratic  
> tendencies, while the elites in other countries, notably China are  
> keenly sensitive to foreign exploitation, having been on the wrong  
> side of that trade far too often, and are likely to turn the tables  
> outsiders once they cease to be of use to them. They probably won’t  
> wind up as badly as Mikhail Khodorkovsky, but their optimism that  
> they can continue to operate unfettered, beyond the reach of  
> governments is more than a tad optimistic.
>
>
>
>
>
> Banana republic Banking industry Economic fundamentals Free markets  
> and their discontents Globalization Income disparity Social policy  
> Social values
>
>
> Sent from my iPhone
>
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