Prof Karen Z. Ho, University of Minnesota
This entry is meant to provoke and continue our discussion on financial crises, and in particular, American finance capitalists’ roles in helping to produce the volatile and unequal conditions that manifest as financial market and “emerging market” crises. Perhaps one simple yet effective way to describe the link between Wall Street culture and the construction of market crises is through the deeply embedded ritual of the Wall Street bonus. Although hardly a media day goes by without a query into bonuses, most journalistic accounts range from incredulous disbelief (i.e. how can Goldman Sachs be poised to pay record bonuses despite its bailout and the still ongoing recession) to essentialized resignation (i.e. the “rules of the jungle” will never change) to a staunch defense of the strategic use of bonuses to maintain Wall Street “talent”. While most articles are either critical or skeptical of these bonuses, the central theme is usually one of surprise: although many investment bankers and traders are on an celebratory upswing, most people, not to mention “the economy” in general, continue to experience either “a jobless recovery” or “recession-like” symptoms. I would argue that the fundamental point for examining bonuses is not their irony, strangeness, indexing of out-of-touch privilege, or conspicuous compensation. Rather, in the spirit of bringing anthropological tools to bear on financial analyses, it is important to read Wall Street’s bonus and compensation culture as perhaps the central cultural distillation of the key contradictions and unequal effects of a finance-capital-dominated social economy. To a certain extent, bonuses embody the restructuring of American economic practices and large institutions according to financial values that often mine the productive assets of corporations. And, precisely because Wall Street’s key ethos is often expressed vis a vis bonuses, these compensation schemes can also serve as a culturally useful predictor, indicator, or sign of impending crises.
Bonuses, I would add, is also good to think with for anthropological theories of money and number. Bonuses (which Wall Street bankers and traders actually dub “the number”) are quantifications in which are embedded complex cultural practices; far from being abstractions, they index moral superiority, outrage, and debate. They are both calculations (and calculable) and distillations of neoliberal “excess” and “irrationality”. Bonuses, like many anthropological approaches to money, belie dominant assumptions of money as abstract, objective, and asocial.
So, I ask the reader to turn their attention first to this press release from the New York State Comptroller’s Office, where in January 2009, the Office of the State Deputy Comptroller compiled a chart of New York City securities industry bonuses from 1985 to 2008. Though, admittedly, there are multiple ways to interpret and contextualize these numbers, I read them as indicative of the growing influence of financial values and practices. With a cursory glance, it is striking how Wall Street bonuses have been increasing exponentially in the past two decades: in the 1980s, the “decade of greed,” bonuses hovered around a “mere” 2 billion; in the mid-1990s, around 5 billion; in 1999, around 9 billion; in 2003, around 16 billion; and in 2007, almost 33 billion! Not surprisingly, the massive rise of the total bonus pool (which is based on the number and size of financial deals generated by Wall Street investment banks) is indicative of “the financialization of everyday life,” where corporations, institutions, and even individuals went from being separated and protected from, avoiding, and/or faddishly dabbling in the financial markets to nearly conflating all their hopes and labors for growth with constant financial transactions. Financial deal-making has become the routine path for corporations to “demonstrate” growth, responsibility, and success, despite the fact that such narrow strategies often led to long-term decline in corporate productivity, not to mention shareholder value volatility. Simply comparing 2007 with 1987 – 32.9 with 2.6 billion– gives a sense of Wall Street’s stakes and interests in restructuring the global economy, not to mention the acceleration and intensification of the wide-reaching effects of financial crises.
Upon further examination, another interesting pattern and possible correlation emerges: notice how the bonuses peak and trough within the general upward climb. Reflecting on the multiple moments of crises and heightened financial market volatility that have characterized the past two decades, pay attention to how bonuses “peak” at precisely the moment of financial crisis. In 1987, bonuses culminate at 2.6 billion with the stock market crash of 1987 and the impending junk bond collapse; in 1993, bonuses rise to at 5.8 billion, right before the Mexican peso crisis of 1994; in 1997, bonuses crest at 11.2 billion, at moment of the Asian and Russian financial crises; in 2000, bonuses top out at 19.5 billion, right at the dot-com bust; and in 2006 and 2007, bonuses are at a record 34.1 billion and 32.9 billion, as the current subprime debacle implodes. Could bonuses, then, culturally index crises, i.e. be used as an approximate predictor and indicator of impending financial disaster? In other words, to the extent that stratospheric bonus numbers discursively demonstrate the frenzy of deal-making that help to constitute bubbles in the first place, they also notify the stage for the impending crash. As I argue elsewhere, many of my Wall Street informants actually sensed the impending bursting of bubbles precisely because through their daily practices, they often recognized they had pushed through as many financial transactions as the markets could bear. And, yet, this knowledge did not so much curtail their hype as it hastened their culture of expediency to eke out even more deals to count towards their year-end bonus. Given that investment bankers and traders themselves have jobs that are on the line – rife with insecurity – and that for them, a sacred cultural value is to “be one” with the market, to be simultaneous and “real-time” with it as their cultural embodiment, they are culturally constructed, even encouraged, to mortgage the future through their bonuses. Of course, Wall Streeters’ experiences of financial crises and job insecurities have historically been cushioned contrary to the average worker: they are amply resourced, highly networked, exorbitantly compensated, and valued as “the smartest.” As such, their understandings of what it takes to be a successful worker in the new economy, to be simultaneous with the market that they have had a strong hand in constructing, are internalized as challenges and sources of empowerment, however unstable, disciplinary, and disruptive such standards are for most people.
The ritual of the bonuses also begets yet another key cultural quandary: how can investment bankers be arguably the most highly compensated workers in the world when their practices so often generate crisis and economic decline? Veteran Wall Street observer Michael Lewis wondered why, after the collapse of Long-Term Capital Management, the world’s leading hedge fund, in the wake of the Russian and Asian financial crises in the late 1990s, didn’t hedge funds, which had been blamed for exacerbating these crises, lose credibility? He wrote, “But the panic – like all panics – did nothing but strengthen the booming hedge fund industry.” (Not surprisingly, the IMF and US Treasury step in during emerging market crises to demand policies that enhance repayment for western creditors and investors, and compromise economic sovereignty). The commonsense understanding on Wall Street is that hedge funds, i.e. financial architects and innovators, have demonstrated the ability to create entirely new market opportunities characterized by immediate exploitation and high growth; such is the culture of expediency, where market simultaneity, not wisdom, is a central goal. In a similar vein, the head of AIG’s Financial Products division, which was responsible for the credit-default swaps now explained as largely responsible for the extent of Wall Street’s spreading of toxic debt, used to work at Drexel Burnham Lambert, an investment bank that went bankrupt due to junk bonds and insider trading.
At issue here, also, is a fundamental misapprehension of Wall Street’s practices of compensation, which is largely represented as “pay for performance.” There is not so much a contradiction between Wall Street bonuses and the larger performance of our social economy as a misplaced understanding of what actually constitutes financial “performance.” Investment bankers and traders measure performance according to the number of deals executed, regardless of their impact on the corporation or society at large. Even in a recession, transactions such as selling off toxic assets or bankruptcy advice count towards the bonus. The essentializing of banker smartness is again important here: despite their roles in failed deals and financial crises, the discourse of awarding bonuses as a vehicle of retention, to retain talent, still has traction. The dominance of short-term, transaction-led compensation schemes, the understanding that Wall Street investment bankers, as the smartest investors in the world, are deserving, and the taken-for-granted divorce of executive pay (and stock prices) from the livelihood of most workers in the service of quick shareholder value are at work here. The persistence of high bonuses despite Wall Street’s instigation of global financial meltdown raises the question of who bears the brunt of high-risk practices. And, yet, precisely because bonuses are a core part Wall Streeters’ sense of themselves, totally eliminating bonuses for still-employed bankers would be all but culturally unthinkable.
References Cited:
1. New York State Comptroller. 2009. “New York City Securities Industry Bonuses.” January 28, www.osc.state.ny.us.
2. Martin, Randy. 2002. Financialzation of Everyday Life. Philadelphia: Temple University Press.
3. Lewis, Michael, ed. 2009. Panic: The Story of Modern Financial Insanity. New York: W.W. Norton & Co.
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