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Wall Street Bonuses
Economics: Banking
Banking industry is a key sector of economy as it is tasked with holding peoples financial assets, making investments of the same assets to earn interest, and government regulation of these activities (Investopedia). In this essay, a discussion about various aspects touching the banking sector is done. These are investment banks, bonuses and profits, separation of ownership and control in corporations, decision on whether or not large banks should be allowed to fail and whether taxpayers should care about the pay practices of financial firms.
Investment banks form the banking division which performs the duty of capital creation for other companies that form the economy. These particular banks have several functions to carry out. Firstly, they give guidance consultations concerning bond issues or stock placement and issuance. Secondly, they give aid during the selling of securities. Thirdly, investment banks do the trading of securities for those accounts that are personal to them. Moreover, they do facilitation of acquiring and merging, brokering and reorganizing trades for investors both in the private and institutional sector (Investopedia).
Are Bonuses Still Larger Than Profits?
The status of bonuses of Wall Street does not reflect the way they used to be previously. According to Thomas P. DiNapoli, who is the comptroller of New York State, profits of the industry declined while the minimum Wall Street employee bonus rose by 2% in 2014 to the figure of $172,860. Even though according to numerous standards it appears huge, the growth rate was much slower than that in a couple of preceding years. This sluggish growth shows the numerous shortcomings Wall Street is still struggling with. These challenges include choppy markets and those recent regulations reining in the profits. In the year 2014, 2,300 new jobs were added in the city. This was after 2 years marked by loss of jobs. However, the job base is still minute compared to the way it was before the financial crisis of 2008 (Alden 23).
The office of the comptroller uses the data containing withholding tax to monitor Wall Street pay. This is, it claims, the key contributor to the state economy. Many businesses, such as luxury real estate firms and restaurants, depend very much on the bonuses of Wall Street. According to Mr DiNapoli, every new job on Wall Street creates two new jobs in other economic sectors of the city. However, this special locomotive of the economy has not been running properly. The reports released lately indicate that last years job numbers (167,800) are far below 2007s 188,300 jobs. Wall Street, unlike other parts of the city, has not recovered from the recession unlike being its major economic recovery driver previously (Alden 18).
The bonuses of Wall Street are an indicator of its health and are always watched very closely. They go up during good times then go down when revenue is not abundant. The comptrollers recent statement stated the 19% bonuses rise amounting to $169,850 in the year 2013 compared to the preceding year Arcane factors and policies, such as compensation portion deferring, modulate yearly bonus amounts.. The figures released in the year 2013, comprised unknown amounts of pay from earlier years. In the same way, the 2014 numbers do not comprise awarded but not yet paid out compensation. The stock options are not captured in the data either. The office of Mr DiNapoli noted that for two successive years there has been a decline in the profits of Wall Street. The industrys total profit of $16 billion in 2014 revealed a 4.5% reduction compared to the year 2013. This is a serious drop from the year 2009, when the profits of the industry before inflation adjustment totalled more than $60 billion (Alden 31).
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Using average measurement, the total pool of Wall Street bonus in 2014 had increased compared to an average individual bonus measurement. The bonus pool of 2014, as was found out by the office of Mr. DiNapoli, experienced a 3% rise to $28.5 billion, in comparison to the year before. Despite the fact that Wall Street is of great economic importance to the city and state, average New York residents will probably be less affected with the slow bonus growth. Mr DiNapoli reported that in the year 2013, an average employee of Wall Street had nearly five times the total compensation of the private sector employees in the city (Alden 14).
Banks with huge stakes in the economy had their best finish of the year in 5 years, with bankers in the area of Charlotte participating in the wealth sharing to a certain extent. There is a rise in the banks profits evidenced by larger yearly bonuses brought to the banks. This is a sign that economy is on the path to improvement. However, the payouts made at the end of every year have not yet returned to the same level as before financial crises (Alden 42).
The Topic of Separation of Ownership and Control in Corporations
Merits such as assured unlimited operational years and liabilities that are limited are making corporations dominating business forms in the United States large-scale business ventures. Demerits of such business form are that sole proprietors are both the business owners and operation managers of enterprises. However, in huge corporations, stakeholders leave the management of the business to the officers employed by the corporation. This management and ownership separation brings about conflicting interests. For instance, managerial teams take keen interest in their remunerations, reduce the benefits or the number of the junior officers and subordinate staff or, even worse, the ultimate business size that they are tasked to manage, and care less about the profits of the stakeholders (Corporations, Separation of Ownership and Control n.d.).
Should Big Banks Be Allowed to Fail?
Joseph Stiglitz, an economics Nobel laureate, noted that no bank is too big to fail. While making an address to those bailout programmes he believes are not well-guided, Stiglitz asked the government to be actively involved even by changing personnel so as to stop banks from venturing on those high risk operations that create crises of credit. The programmes of bailout are putting taxpayers at unnecessary risk thus instilling financial market with fear that pressure from the public can push the government to revise the rules attached to those plans. Joseph Stiglitz further argues that recapitalization of banks should be carried out in a manner which guarantees system integrity protection with safeguards protecting the government from being held hostage by banks (Stiglitz 19).
Every taxpayer should care about the pay practices of financial firms, because it is the responsibility of every individual to contribute to growth of the economy and the problems resulting from loss of jobs and savings due to poor financial bank programmes will affect every person in the economy (Gross 40 ).
In conclusion, it is clear that investment banking financial practices are pivotal to the economy and have far-reaching consequences. It is therefore crucial for all the players in the banking industry to come up with measures and policies that are beneficial to the economy.
