In an recent interview with Bloomberg News/Businessweek, President Obama said that "he doesn't 'begrudge' the $17 million bonus awarded to JP Morgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein. "I know both those guys; they are very savvy businessmen," the President continued. "I, like most of the American people, don't begrudge people success or wealth. That is part of the free-market system." Mr. Obama went on to compare Dimon and Blankfein to "baseball players who are making more than that and don't get to the World Series either, so I'm shocked by that as well."
There are several problems with the President's analysis, the first is that baseball players, whatever their faults, were not architects of a system which bet the nation's financial future on ever rising housing prices. Baseball players did not create a system of easy credit that let virtually anyone get a mortgage and then re-package this investment junk as safe investments.
JP Morgan Chase, Goldman Sachs, along with other big banks and Wall Street financial firms built this system and they richly rewarded their executives for it. Goldman Sachs CEO Henry Paulson, for example, took home $101 million in salary, stock options, and bonuses between 2003-2006.
When the financial house of cards these lords of finance built collapsed, too many Americans lost their homes, their jobs, and their retirements. Long term unemployment, teen unemployment, and the number of home foreclosures have all reached records highs.
Wall Street, however, has not suffered, as the $26 million in "bonuses" awarded to Dimon and Blankfein attest. The bonus pool for Goldman Sachs, Morgan Stanley, JP Morgan Chase & Co. for 2009 is $39.9 billion. This is a mere 9 percent below the 2007 bonus pool ($44.7 billion), the top Wall Street pay year on record.
The reason why Wall Street bankers are reaping in millions while working Americans suffer is because the Bush Administration, the Obama Administration, and independent regulatory agencies such as the Federal Reserve Board eliminated "free enterprise" in finance and saved these firms from paying for their mistakes with bailouts.
While President Obama's $787 billion stimulus is regularly attacked by critics as wasteful spending, the trillions that the Treasury, Federal Reserve, FDIC and other agencies have spent to prop up Wall Street typically goes under the political radar.
If there was free enterprise in American finance, many of the nation's top banks and financial firms would have failed in the winter of 2008-2009; the Dimons, Blankfeins, and other top executives would more than likely be without jobs.
Instead, bailout programs such as the Treasury Department's TARP and the Federal Reserve's repurchase of mortgage-backed securities transferred more than $2 trillion of taxpayer dollars to the "too big to fail" banks and financial companies. These and a host of other U.S. taxpayer-funded bailouts have propped up Wall Street and made its obscene banker bonuses possible.
Unfortunately, it was necessary to "rescue" the irresponsible banks and financial firms to prevent another Great Depression. But these bailouts could have been done in ways that required the replacement of top executives and required that they and their employers pay for a good bit of the damage they inflicted on the economy and working Americans. Instead, they are rewarded with what are in essence taxpayer funded bonuses.
Free enterprise on Wall Street is a myth, as President Obama, should well know. As to this year's banker bonuses, Henry Paulson put it best: "If you have losses, you are supposed to bear responsibility."
The tragedy of the situation is that President Obama, his regulators, and Congress all should be working to hold the responsible bankers accountable and make them share some of the economic pain that the rest of America is feeling. Instead, they would rather propagate myths about savvy bankers and free enterprise.