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Oligopolistic Banking System and Compensation

Outrageous results displayed in colorful charts, by Jake at Econompic Data.

I have no problem with people who work hard, work smart, innovate and produce great things, making lots of money, but this isn’t that (see e.g. Morgan Paying Out 62% of Revenues in Bonuses and Pay While Average Families Face ‘Years of Pain’ and Joseph Stiglitz on ‘Ersatz Capitalism’ and Moral Bankruptcy). - Ilene

Oligopolistic Banking System and Compensation

At this stage, most of us are familiar with the idea that compensation within the financial services industry has grown much faster than compensation outside the system. As can be seen below, this trend has largely gone uninterrupted throughout the crisis.

Financial services weekly salary

And while this level of compensation remains exorbitantly high across all of financial services, the lack of competition among the largest banks has caused compensation within the industry to become even more concentrated.

Before specifically detailing those firms, lets go to Wall Street Pit:

The Journal reported that based on its analysis — which includes banking giants J.P. Morgan, Bank of America and Citigroup, securities firms such as Goldman Sachs and Morgan Stanley, and exchange operators CME Group Inc. and NYSE Euronext Inc. — executives, traders and money managers at 38 top financial firms can expect to earn nearly 18% more than they did last year, and slightly more than they did in the record year of 2007.

While 18% seems like a massive jump (it is) from a level that was already too high (in my opinion), it ignores the broader issue of what has resulted from a government (i.e. taxpayer) guarantee on the downside risks of those banks deemed too big to fail… a MASSIVE increase in compensation (the joys of a "too big to fail" title for the select few).

The chart below details the compensation for all of those 38 firms, grouped here by JP Morgan, Morgan Stanley, Goldman Sachs, Bank of America, Citigroup, and "Other" (all others). BUT, slice off Citi and "other" and we can see that the remaining four make up more than 100% of that 18% jump (let it be known that the data below is not an apples to apples comparison – as Felix points out these charts don’t account for the fact that JP Morgan and Bank of America have swallowed up smaller counterparts).

That said, my point is that the increase in compensation (and risk) is now concentrated among only these top banks. Bonuses at these "big four" banks are up a whopping 25% since 2007 (all other firms are down 18% since that time) and 40% since 2006 (whereas all other firms are down 2%).

Wall St. Compensation

For all the talk and supposed intervention, nothing has changed (actually, with these banks even more "too big too fail", things may actually be worse).

Source: WSJ / BLS


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