Sunday, January 31, 2010

Why Main Street despises Wall Street

We hear a lot about resurgent populism – the anti-establishment anger that smoldered in the bosom of William Jennings Bryan in the 1890s and that flares anew in the breasts of Sarah Palin's followers today. President Obama scolds American banks in what some call a desperate resort to populist rhetoric. Tea Party conservatives attack Obama in terms that liberals dismiss as childish populism.

Populism is considered crude and simplistic. The colorful populist leaders of the 1890s – like Sockless Jerry Simpson of Kansas – were often uncouth farmers. They favored nationalizing railroads, giving everyone the vote, and passing an income tax. Horrors!

One streak that unites all populists – the original old-timey ones who wore no socks and the modern educated ones who mostly own stocks – is a delight in slamming Wall Street. You – the worldly viewers of this worldwide blog – are doubtless too sophisticated to condemn Wall Street. You probably see life as a complex interweaving of off-grays – not a simplistic interplay of good and evil.

Well, my friends, prepare to become populists. Our friend Charles R. Morris – author of The Trillion Dollar Meltdown and nine or ten other terrific books – shares these numbers on Merrill Lynch's revenue/compensation ratios. Read 'em and – not weep! – feel the boil.

Note that Merrill Lynch pay remains steady while revenues and profits plunge. Here are the actual ugly numbers:
Notice that in 2008 – thanks to government funds! – Merrill's silk-stockinged employees received just about the same 15 billions they received the preceding year – even though revenues and earnings went into negative territory.

Too jaded to be infected with populist indignation? Not now. I bet you're fixing to cast off your socks and grab a pitchfork.



Jay Livingston said...

It has long been a staple of lefty critiques of income inequality that CEO salaries go up even when share prices go down. The explanation usually has to do with the cozy relationship between CEOs and boards. But the compensation/profit discrepancy apparently goes much farther down the line. How does Morris explain it?

(Are you suggesting we put the lynch back in Merril Lynch?)

brandsinger said...

Thanks for the comment and question, Jay. Charlie Morris provides the following commentary to go with these figures:

After record revenues and compensation in 2006, revenues tumbled by 67% in 2007. But comp dropped only by 6%. Revenues were actually negative in 2008 (which is hard to do) but comp dropped only by another 6%. Why the break in the behavior pattern? A gold star for anyone who guesses that $25 billion in Federal TARP payments might have had something to do with it.
It’s worth noting, too, that Merrill’s total profits over the entire nine-year period were a negative $7 billion. Those big pre-2007 profits were fake, but the compensation was real.

So there you have it. Grist for the populist mill.