Sense on Cents

Gaining market intelligence is one thing. Colluding with market participants in business practices is an entirely different issue. The Wall Street compensation process has always operated dangerously close to that line, and would appear to have gone over it in 2008.

This potentially collusive practice is easily disguised in the midst of excessive profitability, but is blatantly obvious when revenues disappear. The Wall Street Journal highlights this practice in writing Banks Paid Big Bonuses as Profits Slid:

Several of the banks hit hardest by the economic downturn and those that got the most U.S. government aid nonetheless handed out huge bonuses to hundreds of employees last year, according to New York Attorney General Andrew Cuomo.

Many of the banks that took money from the U.S. Treasury Department’s Troubled Asset Relief Program had been saying they wanted to pay it back as soon as possible, largely because of restrictions put on compensation that came with the funds.

Many of the banks have already paid the money back, but some, such as Bank of America Corp. and Citigroup Inc., haven’t yet done so. Mr. Cuomo said his office has been investigating compensation at many of the banks, including the original nine banks that took TARP funds, over the past nine months. The study refers to 2008 bonuses — those that would have been paid before any of the banks repaid their government bailout money. (more…)