Just over twenty years ago, the movie “Wall Street” was released, in which a stock trader and corporate raider named Gordon Gekko (played by Michael Douglas), delivered a speech to a meeting of the Teldar Paper Company in which he extolled the virtues of greed.
“Greed,” he said, “is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind. And greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”
This speech has become a standard reference for excessive salaries, bonuses and other benefits paid to corporate executives. Gekko alluded to “the million dollar salary” of the chairman of the board of Teldar Paper, and 33 vice-presidents each making over $200,000 a year. While that sounded like big money in 1987, the year of the movie’s release, looking back from today’s perspective it sounds like chump change compared to the salaries and bonuses now being paid in corporations and on Wall Street.
Gekko was right about the role of greed in motivating people in all aspects of their lives, but he was dead wrong about greed saving the United States. To the contrary, the U.S. has, in the past 18 months, saved giant corporations and their masterminds who indulged in greed to such excess that the country has been placed in fiscal jeopardy.
As we all know, Main Street America has been undergoing one of the most severe recessions since the Great Depression of the 1930s, in part because of the highly questionable financial transactions that the geniuses who populate the big Wall Street firms dreamed up to increase their companies’ earnings, and the obscenely large bonuses and other compensation that those geniuses were paid for raking in the money from these transactions.
Millions of overvalued mortgages were made to unqualified borrowers who subsequently defaulted, and policies were sold by insurance companies such as AIG to insure these loans. It was, as one congressman said, “like selling a car with faulty brakes, and then buying an insurance policy on the driver.”
When the mortgages and other “securities” began to default in mass numbers, some of the biggest banks, mortgage brokers and insurance companies in the world that had invested in them were on the verge of going bankrupt, threatening the country’s and the world’s financial systems. Ironically, the first casualties of the recession were those very same companies that created those securities.
Responding to the crisis, the United States Government stepped in and propped them up with massive infusions of billions of dollars of taxpayer money under the Troubled Asset Relief Program (“TARP”). Those companies were, for the most part, happy to get the money, although many called it “socialism,” and those firms are surviving today because of that program.
In hearings before a committee of the U.S. House of Representatives on Wednesday, the heads of many of the same banks and other firms that caused these problems admitted their role in the financial collapse. Brian Moynihan, Chief Executive and President of Bank of America stated that “Over the course of the crisis, we as an industry caused a lot of damage.”
One would think that these firms would have learned a lesson about taking undue risks, and overspending on salaries and bonuses. But, one would be wrong. They are socialists when they need help from the government, but capitalists when things are going their way.
Beginning today, the country’s largest banks and other financial institutions will announce awards of bonuses to their officers, brokers and other employees that will amount to hundreds of billions of dollars. The country’s six biggest banks alone will have a total compensation package amounting to some $150 billion, a large part of which will consist of bonuses. The bonuses paid to individuals can amount to tens of millions of dollars.
Many of these banks also paid large bonuses during the height of the economic downturn, regardless of the fact that many lost money during 2008 – the period for which the bonuses were calculated. They earned large profits in 2009, assisted by billions in TARP funds. These banks paid those TARP funds back to the Federal Government in late 2009, in part because those funds included restrictions upon bonuses and other compensation that could be paid by those institutions while the loans were outstanding. The bank executives obviously wanted to be able to issue (and participate in) those bonuses.
The banks justify these huge payments by claiming that the recipients manage even larger sums of money, and should be paid for performance in making profits for the banks. Those that don’t make large profits justify paying large bonuses by claiming that they have to pay them to keep up with their competitors, and that they want to retain their experienced employees.
All of this ignores the fact that much of the profits of these institutions were attributable to taxpayer-generated TARP funds. While the rationale for TARP funds may have been admirable (preventing the economy from going into a depression), they were not intended to be used to further enrich a bunch of overindulged fat cat bankers and stock brokers.
The willingness of these firms to pay these enormous bonuses reflects insensitivity to the hardships that the average taxpayers on Main Street are undergoing in these economic hard times. It also shows that Wall Street has a heightened sense of entitlement to their multi-million dollar compensation packages. These compensation packages, and the financial schemes that make them possible, arguably add nothing of real value to the general economy. Instead, they dilute the returns that should be paid to shareholders.
Executive pay has lost all relationship to reality. It is time for Congress to impose limits on compensation paid by institutions that are regulated by the Federal Government, or whose deposits are insured by the FDIC, and for shareholders to revolt.

(Richard Mays, a Heber Springs attorney and environmentalist, offers a liberal viewpoint on politics and social issues in each Friday’s edition)