PrintJanuary 30, 2009
Obama and the Times Get Half the Story Right
The New York Times reports breathlessly on Obama's "anger" at the $18 Billion in bonuses paid by Wall Street banks in 2008. What is missing from the story, however, is the context of the report by the Office of the New York State Comptroller,
Cash bonuses paid by Wall Street firms to their New York City employees declined by 44 percent in 2008 in response to record losses suffered by the securities industry, according to an estimate released today by State Comptroller Thomas P. DiNapoli. DiNapoli noted that the federal Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.
"A 44 percent decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will probably be another difficult year for the industry."The decline is the largest on record in absolute dollars and the largest percentage decline in more than 30 years, but the size of the bonus pool is still the sixth largest on record. [italics mine]
Obama and Geithner appear not to realize that in many corporations, particularly Wall Street brokerage and banking firms, the year end bonus is part of the employee compensation plan for most employees. The President, in his limited real world experience, may not know that, but Geithner certainly should. Looking further at the numbers indicates that the $18 billion number being bandied about covers a lot of people:
The average bonus declined by 36.7 percent to $112,000 in 2008. The decline in the average bonus was smaller than the decline in the bonus pool because the pool was shared among fewer workers as the industry shed jobs. Employment in the securities industry in New York City declined from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2 percent.
The numbers indicate there were on the order of 160,000 employees receiving year-end bonuses as part of their annual compensation. While Obama grandstands with the number, New York State is singing a different tune:
The reduction in Wall Street bonuses will cost nearly $1 billion in personal income tax revenues for New York State and another $275 million for New York City. Before the start of the financial crisis, business and personal income tax collections from Wall Street activities accounted for up to 20 percent of State tax revenues and 12 percent of City tax revenues.
The focus on bank bonuses serves as a distraction from further exposing the Big Spending Stimulus Plan to the public before it can be railroaded through congress. It also further indicates that executive compensation will continue to be the whipping boy for every industry that the Obama government gets its hands into.
The New York Times for it's part ran an op-ed on Monday that suggested newspapers could be turned into
... nonprofit, endowed institutions - like colleges and universities. Endowments would enhance newspapers' autonomy while shielding them from the economic forces that are now tearing them down.
How large an endowment would a newspaper need? The news-gathering operations at The New York Times cost a little more than $200 million a year. Assuming some additional outlay for overhead, it would require an endowment of approximately $5 billion (assuming a 5 percent annual payout rate). Newspapers with smaller newsrooms would require smaller endowments.
Note that just as endowed educational institutions charge tuition, endowed newspapers would generate incremental revenues from hard-copy sales and online subscriptions. If revenues were to exceed the costs of distribution, the endowment requirement would decline.
Note that just as endowed educational institutions charge tuition, endowed newspapers would generate incremental revenues from hard-copy sales and online subscriptions. If revenues were to exceed the costs of distribution, the endowment requirement would decline.
Many newspapers will not weather the digital storm on their own. Only a handful of foundations and wealthy individuals have the money required to endow, and thereby preserve, our nation's premier news-gathering organizations. Perhaps a George Soros could pony up the money, so that the Times could have "enhanced autonomy" to report the "whole story" the next time.
