[Vision2020] One Part of the System that is Broken

[Ron Force]

They're really suffering. From David Frumm:

Mac Abelson reports in Bloomberg on what happens when people working on Wall St. get smaller bonuses. It turns out that some of America's wealthiest are having trouble 
adjusting to life with a smaller six-figure income:

The smaller bonus checks that hit accounts across the financial-services 
industry this month are making it difficult to maintain the lifestyles 
that Wall Street workers expect, according to interviews with bankers 
and their accountants, therapists, advisers and headhunters.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine 
what it’s like to say I got three kids in private school, I have to 
think about pulling them out? How do you do that?”
…

Richard Scheiner, 58, a real-estate investor and hedge-fund manager, said most people on Wall Street don’t save.

“When their means are cut, they’re stuck,” said Scheiner, whose New 
York-based hedge fund, Lane Gate Partners LLC, was down about 15 percent last year. “Not so much an issue for me and my wife because we’ve 
always saved.”

Scheiner said he spends about $500 a month to park one of his two Audis in a 
garage and at least $7,500 a year each for memberships at the Trump 
National Golf Club in Westchester and a gun club in upstate New York. A 
labradoodle named Zelda and a rescued bichon frise, Duke, cost $17,000 a year, including food, health care, boarding and a daily dog-walker who 
charges $17 each per outing, he said.

Still, he sold two motorcycles he didn’t use and called his Porsche 911 
Carrera 4S Cabriolet “the Volkswagen of supercars.” He and his wife have given more than $100,000 to a nonprofit she founded that promotes 
employment for people with Asperger syndrome, he said.
Scheiner pays $30,000 a year to be part of a New York-based peer-learning group for investors called Tiger 21. 
Founder Michael Sonnenfeldt said members, most with a net worth of at 
least $10 million, have been forced to “reexamine lots of assumptions 
about how grand their life would be.”
While they aren’t asking for sympathy, “at their level, in a different way but in the same way, the rug got pulled out,” said Sonnenfeldt, 56. “For many people of wealth, they’ve had a 
crushing setback as well.”
…

The malaise is shared by Schiff, the New York-based marketing director for 
Euro Pacific Capital, where his brother is CEO. His family rents the 
lower duplex of a brownstone in Cobble Hill, where his two children 
share a room. His 10-year- old daughter is a student at $32,000-a-year 
Poly Prep Country Day School in Brooklyn. His son, 7, will apply in a 
few years.
“I can’t imagine what I’m going to do,” 
Schiff said. “I’m crammed into 1,200 square feet. I don’t have a 
dishwasher. We do all our dishes by hand.”He wants 1,800 square feet -- “a room for 
each kid, three bedrooms, maybe four,” he said. “Imagine four bedrooms. 
You have the luxury of a guest room, how crazy is that?”
 


________________________________
 From: Art Deco <art.deco.studios at gmail.com>
To: vision2020 at moscow.com 
Sent: Thursday, March 1, 2012 9:39 AM
Subject: [Vision2020] One Part of the System that is Broken
 



February 29, 2012, 8:48 am
Bonuses Dip on Wall St., but Far Less Than Earnings
By KEVIN ROOSE
Brendan McDermid/ReutersThomas P. DiNapoli, the comptroller of the State of New York.
9:07 p.m. | Updated 
It is apparently going to take more than shrinking bank profits to put a big dent in Wall Street bonuses.
The total payout to security industry workers in New York is forecast to 
drop only 14 percent during this bonus season, according to a report issued on Wednesday by the state comptroller, Thomas P. DiNapoli. By comparison, profits last year plunged 51 percent.
“The securities industry, which is a critical component of the economies of 
New York City and New York State, faces continued challenges as it works through the fallout from the financial crisis and adjusts to regulatory reforms,” Mr. DiNapoli said in a statement.
Hurt by the European 
debt crisis, a sluggish economic environment at home and the 
introduction of new regulations that have threatened once-profitable 
business lines, the nation’s largest banks had a weak 2011. Goldman Sachs reported that profit dropped 67 percent from 2010. Morgan Stanley’s earnings fell more than 40 percent.
In all, securities firms in New York made an estimated $13.5 billion in 
2011, down sharply from $27.6 billion in 2010, according to the 
comptroller’s estimates. It is the second consecutive year that Wall 
Street’s profit fell by more than half.
“The financial industry is in the midst of structural change,” said Ronnie Lowenstein, the director of the New York City Independent Budget Office. “It’s not just the boom and bust cycle we’ve seen in the past.”
Despite the difficult environment, New York firms paid roughly $20 billion in 
year-end cash compensation to their employees. The average bonus was 
$121,150, down just 13 percent from the year before as the head count 
shrank. In 2006, the year before the financial crisis, the average 
investment bank employee took home a bonus of $191,360.
But the 
comptroller’s estimates do not include noncash compensation given for 
last year and so may not give the full picture given that many banks 
dole out a larger portion of their annual payouts in stock.
Still, a dip in year-end cash compensation is cause for concern for New York 
government officials. Before the financial crisis, Wall Street accounted for 20 percent of the state’s tax revenue. Last year, that tally was 14 percent. For New York City, the share dropped to 7 percent of tax 
revenue from 13 percent over the same period.
“The city budget is 
dependent on a very small group of people — the 1 percent, if you will,” said Nicole Gelinas, a senior fellow at the Manhattan Institute. “If 
the 1 percent isn’t doing well, the city’s not doing well.”
Not 
only is it local and state governments that are feeling the pinch of 
lower Wall Street pay. High-end restaurants, luxury goods stores and the real estate market in New York stand to suffer as well. Mr. DiNapoli 
estimates that every job lost in the securities industry in New York 
costs two city jobs in other industries.
For the Wall Street firms themselves, compensation has presented a quandary. It is their biggest 
cost and banks have been cutting thousands of jobs amid the worst year 
for banks since the financial crisis. Yet at the same time, keeping pay 
relatively stable is critical to retaining and rewarding employees.
Jamie Dimon, the chief executive of JPMorgan Chase, said at an investor conference on Tuesday that even in tough times, he would not pay his employees less than the going rate.
“We are going to pay competitively,” Mr. Dimon told a roomful of analysts 
and investors at the conference. “We need top talent. You cannot run 
these businesses with second-rate talent.”
Wall Street continues 
to be a lightning rod for politicians and critics who contend that the 
industry’s pay packages are too high. In 2010, the average pay, 
including bonuses, in the securities industry in New York City hit 
$361,180. (Figures are not yet available for 2011.) At that level, Wall 
Street paychecks are 5.5 times higher than those in the rest of the 
private sector.
Banks are wrestling with ways to trim the tab, 
including paying more stock and less cash. At Morgan Stanley, for 
instance, cash bonuses were capped at $125,000 — a small fortune to many Americans, but a pittance for investment bankers and traders used to 
seven-figure payouts.
Some top executives at the bank, including 
James P. Gorman, the chief executive, deferred the entire cash portion 
of their bonuses.
“It’s a pickle,” said Alan Johnson, a 
compensation consultant who advises big banks on their pay plans. 
“Paying employees and giving attention to the external constituents, be 
they politicians or regulators, is a very delicate balance.”
As 
Wall Street struggles to adapt to leaner times, government officials are asking themselves what it means if the industry never returns to its 
heights before the crisis.
“Local and state politicians see this as a cycle we’ve seen a million times,” Ms. Gelinas of the Manhattan Institute said.
“They’re kind of conditioned to kick the can down the road, because down the 
road, Wall Street comes and rescues them. The problem is, they’re not 
looking at the structural change,” she said.
In an interview on 
Wednesday, Mr. DiNapoli said that while he believed that “the ups and 
downs and the cycles are always there” on Wall Street, he and other 
state officials had been forced to prepare for the possibility that 
securities firms might never be able to hoist up the local and regional 
tax base.
“This could be the new normal,” he said.
-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com

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