Former Citigroup CEO Slams Wall Street’s Bonus Bonanza: ‘They Just Don’t Get It’

John Reed, founder and former co-CEO of Citigroup

John Reed, founder and former co-CEO of Citigroup

This week, Wall Street firms will begin to pay out their annual bonuses, which will reportedly “rival those of the boom years.” According to the New York Times, “industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse.”

During the first nine months of 2009, Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley set aside a combined $90 billion for compensation, and some analysts expect the total compensation pool at Wall Street banks to hit $200 billion.

These staggering totals led Citigroup founder and former CEO John Reed — who has expressed regret at his role in dismantling the Depression-era Glass-Steagall law — to slam the banks, saying that they “would not fully regain the public’s trust until banks scaled back bonuses for good”:

“There is nothing I’ve seen that gives me the slightest feeling that these people have learned anything from the crisis,” Mr. Reed said. “They just don’t get it. They are off in a different world.”

So far, it doesn’t seem that any banks are taking Reed’s words to heart. In an attempt to head off some criticism, many large banks are planning to issue compensation packages that include more stock and less cash than in previous years. But according to the Wall Street Journal, even that step had led bankers to “complain” that they will be “short of cash.” American bankers are also whining about a British requirement that bankers working there defer 60 percent of their pay packages for at least three years.

The real problem here, of course, is that the banks are returning to huge paydays when their profits have come courtesy of the government programs that kept them from collapsing. “Those funds helped Wall Street financial institutions, deemed too big to fail, survive their own misdeeds,” wrote Prof. Peter Morici. “Bankers used this cash, much obtained at near zero interest rates, not to make loans for homes and businesses but to trade derivatives, currency futures and other exotic contracts.”

Goldman Sachs is trying to deal with its public image problem by “expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity.” That’s nice, I suppose, but it doesn’t at all address the structural problems with the compensation packages.

Instead, investment firms should be looking at ways to alter their pay packages to appropriately acknowledge how they were able to make so much money. Of course, I’m not holding my breath for that to happen, which means that some government action on taxing Wall Street may be in order.


New York Attorney General Andrew Cuomo is asking the nation’s eight biggest banks how much they plan to pay in bonuses for 2009 and “how the size of the banks’ bonus pool would have been affected if the banks hadn’t received a taxpayer rescue at the height of the financial crisis in late 2008.”

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