Banker bonuses flourished in 2009. Wall Street paid $20.3 billion in bonuses last year, according to New York State Comptroller Thomas DiNapoli. Those banks themselves are doing pretty well too. Their 2009 profits could exceed $55 billion -- nearly triple their previous record year, according to Reuters. I've got a few observations.
First, Reuters also reports that this bonus tally is 17% higher than in 2008. My response to that is -- really? Is that all? Remember 2008 -- that was the year that the entire financial industry had to be bailed out. And Wall Street has a momentous record year in 2009, yet bonuses have only increased by 17%? Not to say that those sums aren't lofty enough, but this, more to the point, shows the ludicrousness of the bonus levels in 2008.
As for Wall Street making such lofty profits, I guess I find that altogether unsurprising. Early 2009 was a historically delightful time to employ the simple buy-for-cheap strategy. Asset prices improved steadily over the year and there was a great deal of trading. All of that means Wall Street profits. But more importantly, all of the rescue efforts (through the Treasury and Federal Reserve) created an environment where it was very cheap for banks to borrow money, which leads to even higher profits.
In 2010, those rescue efforts will mostly disappear. That will make it a little more difficult for banks to make as outlandish profits. We might even manage to get a little bit of financial regulation, which I desperately hope will include higher capital requirements and more reasonable leverage limits. If that happens, then we may not see a repeat performance of profit growth on Wall Street once the legislation takes effect. But those bankers and traders do have an uncanny talent for extracting profit no matter what the obscale, so they could very well manage to find ways to escape much of the regulatory effort that would otherwise limit their profits.
Lastly, it's always good to note who must find this news pleasant. Obviously, anyone who works on Wall Street doesn't mind. New York City and state also probably walked outside and did a little celebratory dance when no one was looking -- those profits mean more tax revenue. Finally, luxury retailers aren't complaining. They're polishing up those Ferraris, yachts and private jets to get their showrooms ready.
This news will likely have some angry taxpayers wielding their pitchforks once again. But should it? No. Yes. Maybe.
Wall Street's success also means that 401k's and pensions should be better off now than a year ago. The bailouts are also mostly paid back -- with interest -- from Wall Street, unless you include AIG in that category. These guys pay federal taxes too, so that's good news.
But where populists might experience more legitimate anger is regarding the fact that these banks are making lending more expensive while reaping incredible record profits. In a vacuum, those new underwriting standards might seem prudent, given banks' experience over the past few years. Yet, with profits like this, it's harder to justify increasing interest rates and fees.
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