Recession? What Recession ask the bankers!

November 26, 2010 at 9:48 am | Posted in Political Economy, World Politics | Leave a comment
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Earlier this month, Lord Young of Graffham, the 78-year old ‘enterprise advisor’ to British Prime Minister David Cameron was forced to retire after claiming that most Britons “never had it so good” in this ‘so-called recession’ because interest and mortgage rates were so low! If his comments were politically too difficult for the Coalition government in Britain, it was at least true for bankers and financiers in the UK and the US. Though trading is down and Congress is tightening regulations, Wall Street firms are setting aside large sums as bonuses. According to Nomura, the Japanese bank, five Wall Street firms–Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and JP Morgan Chase–are setting aside $89;54 billion this year for its employees’ bonuses even though revenues for the firms fell by 4 percent.

While the bonuses will not be paid till January 2011 as the financial firms assess their performance in the fourth quarter, luxury purchases are booming and The Lion, a new restaurant that opened in New York;s Greenwich Village in May, recently sold a bottle of Chateau Mouton Rothschild for $3,950. Though public outrage has led firms to scale back on corporate excesses like private jets and corporate retreats, personal indulgences have come roaring back.

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While much of the attention has been focused on the top executives who make the 19th century ‘robber barons’ look like petty juvenile delinquents–Goldman Sachs’ chief executive, Lloyd Blankfein pocketed a cool $68.5 million in pay and shares in 2007–this has obscured the fact that lower-level employees making between $100,000 and $200,000 receive hefty year-end bonuses. Wall Street firms typically set aside 40 to 50 percent of their revenues as bonuses.

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In the bizarre logic of Wall Street, if firms do not pay top bonuses to their employees even if the firms post losses, the employees will jump ship to a competitor willing to pay higher bonuses or salaries. This is of course a case of inverted logic: if the employee was responsible for losses, why not let the employee go–or better yet, fire and blacklist the employee?

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And now that the Republicans have won control of the US House of Representatives, they are clamoring to make the Bush era tax cuts permanent. Though Candidate Obama had campaigned on a platform that promised to end the tax cuts for those earning over $200,000, there are signs that the White House will now cave in to Republican demands or at the very least extend them for another two years.

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Despite the media claiming that the Democrats’ loss of approximately 60 seats in the House of Representatives was a “bloodbath”–to which President Obama concurring by admitting they received a “shellacking”–if the overall percentage of votes cast for the two parties are examined, John Kane noted, the Democrats received 47.3 percent of the vote and the Republicans 50.1 percent: hardly a “shellacking”. Moreover, only 38.2 million of the eligible voters cast their ballots–hardly a case of the “American people” rejecting the President’s message. In fact, the reason for the large fall in the percentage of eligible voters exercising their franchise in the 2010 mid-term elections may precisely be because they did not see the Democrats making a difference. After all, the $700 billion bailout may have secured the health of the financial sector–and guaranteed the return of good times to the financiers–but has done little to ease unemployment.

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Hence, it would clearly be a mistake for the Democrats to throw in the towel and cave in to Republican demands. But perhaps it is too much to expect of this President!

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