Matt Frei's diary: Battle of the bonus

By Matt Frei
BBC News, Washington

Remember the days when Barack Obama raised more money than any other presidential candidate in history, when the titans of Wall Street were lining up to line his campaign pockets and the relationship between money in New York and might in Washington seemed as cosy as a country picnic?

Barack Obama's administration is seeking to limit some bonus payouts

Well, those days are, it seems, over.

The administration's move to lower the compensation packages of those top employees whose companies are still clinging to the bail-out life reads like a declaration of war against Wall Street.

Top executives at those companies are going to see tough pay cuts. For example, reports suggest at insurance giant AIG, no one will be able to earn more than $200,000.

And generally, if people want a bonus or an extra over $25,000, they will need to consult the new accountant-in-chief at the Treasury.

On one level, this makes political sense. Mr Obama has been getting hammered for presiding over a jobless recovery while hundreds of bankers on Wall Street are poised to rake in bundles of cash in bonuses.

With its nose for a headline, the White House could see the train wreck: bank bosses get millions while ordinary Americans lose their homes.

When unemployment is nudging 10% nationally and has crept well above it in some swing states like Michigan and Ohio, this amounts to political toxin. It upsets hard-core liberals and it's a gold mine for Republicans.

Grim financial reaper

The move to limit bankers' compensation makes perfect populist sense. You could even say it was unavoidable.

AIG drew criticism when it paid out big bonuses after a government bail-out

AIG has always had a big target painted on it.

Deemed too big to fail, it was thrown a taxpayer-funded lifeline and then went on to pay $165m in retention bonuses to its financial division.

Even if some of the employees have been working their socks off to remedy the mistakes of the past, it seemed outrageous that any of them should be getting a bonus while ordinary Americans are still feeling the grip of the Grim Financial Reaper.

The banking industry will argue that this is grossly unfair and that the targeted companies will not be able to retain the best talent precisely at a time it is needed most.

It is an argument that will, I fear, fall on deaf ears these days.

Suspiciously socialist?

But the administration opens itself to attack on another front.

Fear not, if you work on Wall Street. There are plenty of loopholes Send your comments

One of the big fears has been that the Obama administration, with its stimulus plans, bail-out packages and so-called public option in health care reform has been interfering far too much in the business of business.

When was the last time the government of the world's proudest free market economy set executive pay and told bosses that they need to get their country club memberships and limos approved by a technocrat at Treasury?

To some this will, indeed, sound suspiciously socialist.

But fear not, if you work on Wall Street. There are plenty of loopholes.

First of all, banks that have already paid back their bail-out billions, like Goldman Sachs, are exempt from the ruling.

Goldman Sachs can now carry on and dole out what is expected to be a staggering $20bn in bonuses this year.

Top executives at Bank of America still have their stock options to look forward to, although it will no doubt hurt to have a 90% cut in compensation and to say goodbye to that country club membership courtesy of the bank.

Party fundraising

The irony, of course, is that the announcement came in the same week that Mr Obama kicked off a round of Democratic Party fundraising with a $30,400-a-plate dinner (including partner) at the Mandarin Oriental Hotel in New York.

Presumably this kind of meal will now be off-limits for some company executives, unless they get special approval from the main speaker, that is.

It will be interesting to see whether Wall Street now feels so chastened and humbled that it will punish the Democrats with hands firmly planted in pockets, or whether the likes of Goldman Sachs are so grateful about the exemptions in fine print that they will carry on lavishing dollars on the president.

The next months will show whether America has shifted from a culture of aspiration to a culture of resentment.

Whatever happens, it seems certain that the gulf between Wall Street and Main Street is set to become even more of a chasm.

Matt Frei is the presenter of BBC World News America which airs every weekday on BBC News, BBC World News and BBC America (for viewers outside the UK only).

---

Send us your comments in reaction to Matt Frei's diary using the link below:

Send your comments