Which union is the most powerful in America?
Some would say the Teamsters. Others would pick the UAW or SEIU, or the school teachers. My vote is for the derivatives clerks.
Today the bankruptcy judge in the Lehman case approved spending $50 million for an incentive bonus pool for a group of 230 employees charged with unwinding the swaps and other over-the-counter derivatives contracts that Lehman was a party to.
That $50 million is similar to the infamous $154 million in “retention” bonuses paid out to AIGFP employees, another group that is basically a handful of people. These $200K per-person extra paychecks are on top of base salaries that are almost certainly higher than the “outrageous” pay packages the SEIU got for its hotel maids, the UAW got for its assembly line workers, or even the NEA got for its graduate-degreed 20-year veteran teachers.
Granted, there is specialized knowledge needed to deal with the arcane world of derivative contracts. As I pointed out in my early post Good Timing, I look at them as a special kind of janitor faced with a special kind of mess.
Still, you’ve got to wonder. Some of Lehman’s former employees got jobs with Barclay’s. Some of Bear Stearns’ employees survived the takeover by JP Morgan. Consolidation has only wiped out about 30% of Wall Street’s jobs, after all.
My Econ 101 professor would probably expect me to believe that any business that loses 30% of its jobs would experience downward pressure on compensation. Ha!
In the Bloomberg article about the Lehman derivatives clean-up crew, there’s this gem, a quote from the Trustee in charge of the Lehman wind-down:
Diana Adams, the U.S. Trustee who oversees Lehman’s bankruptcy, said in a filing on Dec. 11 that she was questioning why Lehman needs to pay bonuses to people for merely doing their job, particularly vice presidents who have “limited authority” except for signing papers.
I guess Diana had the same Samuelson text I did all those years ago when I was learning that calculating the slope of the price-demand curve was a major technical advance in the science of economics.
In spite of the fact that Adams has overseen several of the largest bankruptcies in US history, apparently her objection to paying six-figure bonuses on top of six-figure salaries means nothing compared to the power of the derivatives clerks union.
Even more amazing is that this union was never formally organized and charges no dues. The one thing the rest of us know is that they got paid very well to create a mess that has cost many trillions of dollars in real cash and taxpayer guarantees. The other thing the rest of us know is that when a company goes broke in a business that has 30% unemployment, the people who still have jobs are very happy to keep them, often with pay cuts.
With Wall Street expected to pay record bonuses near $140 billion for 2009, we have the peculiar situation that a small group of people are going to get close to 1% of our national GDP over and above their base salaries and benefits. And don’t kid yourself. Those base salaries and benefits aren’t peanuts (albeit lower than they should be for the job stress, hours, skills and education needed, but still probably well over $100K per employee).
My answer to the people that love to hate the unions that represent teachers, police, hotel clerks, auto workers and truck drivers is that you are reviling the wrong unions.
Strangely enough, some of the same people who love to hate unions also rant on over how “unfair” it was for the taxpayers’ paymaster to limit current cash compensation to a measly $500,000 per year, even though millions could be added in stock and other non-cash compensation to sweeten the package.
I’ll start to take their arguments seriously when they ‘fess up to the reality that the Wall Street workers’ union came a lot closer to destroying our economy than any other union.
Next time, maybe I’ll have to go into how the programmers union drove all those high-paying jobs over to India.
* Sarcasm alert