With outrage over Wall Street bonuses back in the headlines, Simon Johnson, a professor at M.I.T.'s Sloan School of Management, who is a former chief economist at the IMF, says it's wrong for too-big-to-fail banks to pay out their profits to employees. Instead, Johnson insists that people who worked at banks that were saved - with assets totaling more than $100 billion - should get zero bonus in 2009.The entire profits made in 2009 were the result of their being saved in 2008 and 2009 and it should be retained by these banks, Simon argues, noting that in a similar government recapitalization of the banks in 1982,following the Latin American debt crisis, banks retained the profits to build up their balance sheets.
If they are paid, Simon argues there ought to be an extraordinary windfall tax on bonuses, affecting everything paid under the bonus category whether in cash, stock or deferred loans or any type of concealed compensation. This would impact employees of all the banks in too-big-to fail category or all the banks in the stress tests.
Simon reasons that banks, including Goldman Sachs and Morgan Stanley, made these profits because of the way in which they were rescued by the government - TARP money,access to the Fed window, FDIC guarantees, and therefore they should retain their profits and not pay out 40 percent in bonuses. "These people who run these banks have to get the message that this behavior in too-big-to fail institutions is simply not acceptable and it will not be allowed again," Johnson told Yahoo's Tech Ticker in the following video interview, "Kill Wall Street Bonuses or Tax Em to Death."With Wall Street bonuses back in the headlines, Simon Johnson, a professor at M.I.T.'s Sloan School of Management, says it's wrong for too-big to fail banks to pay out all their profits to employees. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio