Bonus Jackpot Can Be Yours in Five Easy Steps: Michael Lewis
Commentary by Michael Lewis
Nov. 10 (Bloomberg) — It may still take awhile before Wall Street finally accepts that it won’t get paid.
At the moment, as their bony fingers fondle the new taxpayer loot, the firms appear to believe that they might still fool the public into thinking that bonus money isn’t taxpayer money.
“We’ve responded appropriately to the attorney general’s request for information about 2008 bonus pools,” a Citigroup Inc. spokeswoman told Bloomberg News recently, “and confirmed that we will not use TARP funds for compensation.” But as the Bloomberg report noted, “she declined to elaborate.”
As well she might! For if the Citigroup spokeswoman had elaborated she would have needed to say something like this: “We’re still trying to figure out how the $25 billion we’ve already taken of taxpayers’ money has nothing to do with the $26 billion we’re planning to hand out to our highly paid employees in 2008 (up 4 percent from 2007!). But it’s a tricky problem because, when you think about it, it’s all the same money.”
Sadly, the public is now poised to see through any ruse: This pile of money instead of that pile, stock instead of cash, options instead of stock, options on options instead of options – – none of it is going to fool anyone anymore. If Goldman Sachs Group Inc. paid its bonuses in old office furniture, there would be a story in every major newspaper the next day that examined the market for second-hand desk chairs, and calculated the cash value of the haul.
Just how wised-up the public has become was recently illustrated in a letter sent to Treasury Secretary Henry Paulson from Leo Gerard, President of the United Steelworkers Union. The steelworkers’ boss, deploying the Black-Scholes model with lan (“Mr. Secretary, this analysis is not rocket science”) correctly priced the securities bought by the U.S. Treasury in nine Wall Street firms, and thus revealed to all the extraordinary deal Paulson had just given his old pals at Goldman Sachs.
Of the $10 billion the Treasury handed Goldman Sachs, $5 billion counted as a fairly priced investment. The other $5 billion was…free money. “It would appear,” Gerard wrote, “you intend to reward the institutions that have driven our nation, and it now appears the whole world, into its most serious economic crisis in 75 years, with a gift of $350 billion from the American taxpayers, who have watched 760,000 jobs disappear over just the past nine months.”
If even the steelworkers union can parse the Wall Street doublespeak, the doublespeak has lost its power to persuade. Too many people know too many things. The problem of how to get paid on Wall Street must be radically reframed.
If you are one of those people currently sitting inside a big Wall Street firm praying for some kind of bonus it may already have dawned on you that you need to rethink your approach. It’s no longer any use to hint darkly that they had better fork over serious sticks or you’ll bolt for Morgan Stanley. There’s no point even in thinking up clever ways to make profits for your firm: who cares how much money you bring into Goldman Sachs if the U.S. Congress doesn’t allow Goldman Sachs to pay bonuses?
The moment your firm accepted taxpayer money, you lost control of your money machine. To reclaim it will require patience, teamwork and an action plan with at least five artful steps. To wit:
Step 1: Publicly renounce all material ambition.
As you won’t be getting any money anyway, you won’t be giving anything up. As soon as possible your chief executive officer must rise in public and say: “For as long as we have taxpayer money we will pay no bonuses! Let no one in our bank speak ever again of being robbed! Even if the government offered us more pay, we would decline it, as it insults the interests of both the public and the company.” As your CEO speaks these rousing words be sure you are nearby, standing and cheering, and filmed by at least one major cable-news network.
Step 2: Do nothing. Say nothing. Wait.
You will be treated, at first, like a man who scarfed down his breakfast and then promptly announced he was going on a hunger strike. You will be, as usual, a figure of fun. You’ll need to skinny up before anyone believes you’re a threat to yourself. Go without bonuses for long enough, though, and people will begin to take you seriously. And one day — trust me — they’ll begin to worry about your health.
Step 3: Do as little as possible to generate profits for the firm.
For most traders this shouldn’t be too difficult — remember, you no longer eat what you kill. For investment bankers lassitude will not come so naturally. Accustomed to seeing your life as one giant Min-Max problem, you may be overcome by a lack of structure. Think of it this way: Your old problem was to make as much money as possible without losing your wife. Your new problem is to take as much free time as possible without losing your job.
Step 4: Having established your noble indifference to money, demand similar sacrifices of others.
Your shareholders have come to expect a dividend: How greedy is that? The world economy needs banks with capital, not banks that pay dividends. Eliminate your dividend, with a gusto that sends your share price plummeting. For an ordinary bank, in ordinary times that would be a problem, but these are no ordinary times and you are no ordinary bank. You are a bank owned, increasingly, by the U.S. government. A bank staffed by docile, saintly, unprofitable bankers. A bank whose stock no Wall Street analyst can in good conscience recommend. But a bank that also, because it has tens of billions of taxpayer money invested in it, can’t fail.
It won’t take long before the table is set. I’d give it three years, tops. Your share prices will fall into the low single digits; the Treasury will own ever larger stakes in your business; Warren Buffett will get laughs when he jokes at his annual conference that he should have learned his lesson from Salomon Brothers. I trust you will know when the time is right to take the final step.
Step 5: Move in for the kill.
Now it is time for your CEO to pay his semi-annual call to the latest poor fool at the U.S. Treasury who monitors your performance. Our little business really isn’t all that profitable anymore, your CEO says, but we few who have stuck with it through these dark times have come to love the old place. The government really has no business owning us, and there clearly is no upside to the taxpayer, holding shares in this barely profitable venture. Let us turn the bigger part of your investment into a loan, which we use to buy you out, and allow us to repay that loan over time. Allow us to own our firm, as Wall Street traders and bankers once owned their firms.
At that point you should feel free to go back to being your old self.