The men who made a killing in the crisis - Tuesday, September 30, 2008

Tuesday, September 30, 2008

http://indiaequityinformation.blogspot.com/2008/09/men-who-made-killing-in-crisis.html

The men who made a killing in the crisis

A
basic rule in accounting says that 'every debit must have an equal and
opposite credit'. This must hold true irrespective of the size and
nature of transaction. So, when you read about the billions of dollars
going out of the largest financial institutions in the US, did you ever
wonder – Who made the money? Here is the answer.

According
to Bloomberg, Wall Street's five biggest firms paid more than US$ 3 bn
in the last five years to their top executives while they presided over
the packaging and sale of poor loans that helped bring down the
investment-banking system. The 185,687 employees of the big 5 (Goldman
Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns)
laughed their way to the bank with a whopping US$ 66 billion in 2007
(including about US$ 39 billion in bonuses).

That
amounts to an average pay of US$ 353,089 per employee. The total
compensation was nearly 2/3rd the combined net income of US$ 93 bn
earned by the 5 firms in five years until 2007. The Wall Street
investment banking genre that drew their history as closely held
partnerships of investors who put their own capital at risk took their
compensation levels too far and sidelined a greater share of revenue
than any other industry (nearly 50%).

The
men who presided over the creation of the crisis (the CEOs of the five
firms) saw their compensation double between 2003 and 2007. Little
wonder that President Bush in his televised address to the nation about
the US$ 700 bn bailout assured that the plan would provide 'urgently
needed money so banks and other financial institutions can avoid
collapse' and 'should make certain that failed executives do not
receive a windfall from the citizens' tax dollars.'