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US banks return to old ways of high pay

US banks return to old ways of high pay

WASHINGTON – As countries are calling for coordinated international action to limit compensation in the financial sector, US banks that have repaid public rescue money are returning to their lavish ways.

The trend flies in the face of traditional market logic. The sheer number of US financial sector jobs lost in the global credit crisis – more than 286 000 in a single year, according to Labour Department data – should tend to lower salaries as demand from out-of-work employees outstrips available jobs.However, just the opposite has been observed at several major banks.At Wall Street titan Goldman Sachs, second-quarter financial results showed an annual leap of more than 47 per cent on spending linked to employee pay, including salaries and bonuses, though its workforce shrank 16 per cent.JPMorgan Chase, the second-largest US bank by assets, after Bank of America, reported compensation in the form of stock-options surged 21 per cent in the first half of the year from the 2008 January-June period.Propped up with taxpayer-funded federal rescues a year ago when the financial crisis accelerated, the two banks repaid the public aid in June. Wells Fargo, which has not totally reimbursed its public aid, explained that a second-quarter increase in salary outlays was due to ‘higher variable compensation in mortgage, brokerage, and investment banking.’Generous financial industry pay is blamed for creating excessive risk-taking that fuelled the financial bubble that burst and plunged the world economy into the darkest recession in six decades.In an op-ed article published Sunday in The New York Times, Nobel economics laureate Paul Krugman railed: ‘Even as the rest of the nation continues to suffer from rising unemployment and severe hardship, Wall Street paycheques are heading back to pre-crisis levels.’The financial sector, with some support from Republicans, is mustering its political clout to block even the slightest reform and Democratic President Barack Obama does not seem ‘ready, even now, to take on the bankers,’ Krugman wrote.Last week Obama sidestepped a question from a Bloomberg TV reporter who asked why the United States did not support a European proposal to impose caps on compensation. The president answered: ‘Then you have to start asking yourself, well, why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or NFL football players?’Banks that have freed themselves from the government restrictions imposed in exchange for financial support can act as they wish: the US government in June backed away from curbing compensation in US companies, particularly in the banking sector, even after identifying some elements in pay and bonuses that were factors at the heart of the financial crisis.The managing director of the International Monetary Fund, Dominique Strauss-Kahn, said in a speech in Berlin in early September that the global economy appeared to be reaching a fragile recovery, but downside risks remain.’I worry that as the financial sector emerges from crisis, a ‘business as usual’ mentality may prevent serious progress from being made’ in reform of compensation policies, the former French Socialist finance minister said.Along with banks, large US companies do not seem to have altered much their executive compensation policies, at the root of several corporate scandals in recent years.Strauss-Kahn insisted in an interview last week with US public television network PBS, that ‘we have to find new rules for compensation’ to prevent another crisis, justified by a simple ‘ethical point of view.’In the world’s free-wheeling and largest economy, that argument may be tough to hear. – Nampa-AFP

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