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Mainstreet in gutter while Wallstreet posts 17% profit

aig building

Bonuses on Wall Street rose 17 percent last year to $20.3 billion even as the industry faced a public backlash over pay practices.

While it’s easy to blame the financial industry for this mess, a large part of the trouble was with mortgage backed securities that had been reworked many times since they were merely sub-prime mortgages. For many, the investments they were buying looked like very sound investments and only through a great deal of “digging” would the fragility of these products be made clear.

Let’s not forget to blame the subprime lenders, backed by the federal government, the greedy home purchasers who overextended thier credit to buy a home they could not afford, and the unscrupulous re-sellers who took risky mortgage backed paper and molded it into what appeared to be sound investment products in order to make obscene profits. AIG, as with many other investors, was scammed. First Enron, now SubPrime. The writing for due diligence law is on the wall and we should make sure the rules change drastically for equities reporting requirements.

Certain divisions of AIG lost mountains of money on derivatives, principally credit-default swaps. In all likelihood those divisions will be wound down and the profitable portions of the business will be sold. However, AIG has countless open positions that need to be wound up by someone. Liddy testified that AIG’s exposure of $2.7 trillion has been reduced to $1.6 trillion. That doesn’t happen by itself; AIG needs the services of some very talented people, who were not involved in getting the company into its current predicament (they have been fired).

If you are a top talent, what are the odds you would stick around in the current economic climate for a fraction of what you could be making elsewhere? So AIG promised key individuals that if they agreed to stay long enough to wind up certain positions (saving AIG $1.1 trillion) they would be paid a retention bonus. These are dead-end jobs, as the divisions are being wound up. There is no reason to expect anyone to continue to work for a doomed company for a fraction of market rates instead of looking for a new job.

The stimulus package that the Dems rammed through literally overnight provides for these retention payments. (Presumably most who voted for the measure never read it.) Now the Dems, faced with populist backlash, intend to tax back 90% of the amounts that were promised to employees who are cleaning up the AIG mess, after the work has been performed? That is the true outrage.

Wall Street bonuses jumped 17 percent last year

NEW YORK (Reuters) – Bonuses on Wall Street rose 17 percent last year to $20.3 billion even as the industry faced a public backlash over pay practices.

The rise in payouts, reported by New York State’s comptroller, came at a time when Wall Street was recovering from the financial crisis of 2008, which forced a taxpayer rescue of the industry that, in turn, stoked widespread anger across the United States.

Comptroller Thomas DiNapoli said on Tuesday profit for all of Wall Street could top $55 billion for 2009, nearly triple the previous record year. Last year, the U.S. economy began to stabilize and lenders raced to repay federal bailout money they had come to view as a stigma.

Average taxable bonuses on Wall Street rose to $123,850 in 2009, DiNapoli said. Compensation at Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley, three of New York’s biggest banks, rose 31 percent, he added. You can read the full story at Reuters News.

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