Daniel Gross, at Slate, wrote a Moneybox commentary on Wall Street bonuses. He makes a point in it that I did not realize:

At most companies, bonuses are paid out of profits. No end-of-year profits, no bonuses. But on the island nation of Wall Street, they’re paid out of revenues.

Bonuses out of revenues, what sort of nonsense is that? No wonder they can pull down ridiculously obscene compensation. Let’s see – we are doing a 10 billion dollar refinancing, we want 10% to do it and 50% of that will go into the bonus pool. The other 50% will go to pay for the office building, the corporate jets,  the million dollar salaries; your basic operating expenses. Anything left over would be profit. How do they get away with it?

Since the 1980s, notes Brad Hintz, an analyst at Sanford C. Bernstein, it’s been the standard for half of revenues to be devoted to compensation. So long as these outfits were private partnerships, that practice didn’t really matter to the rest of us. But since the 1990s, when investment banks went public, compensation has evolved into a zero-sum game between employees and shareholders. Guess who lost?

Any compensation in excess of the annual presidential salary is not deductible from corporate ledgers and the corporation must pay corporate taxes on excessive compensation.

News Alert: U.S. Is Said to Agree to Raise Stake in Citigroup From the NYT.

Why? Why? Why?

Why can’t we just let these ‘big’ banks die? Are the Treasury officials afraid that their friends won’t talk to them any more if their friends lose their shirts and pants and West Side condos? There are a lot of fiscally sound banks out there that can pick up the credit load and remove the credit crunch problem, especially with several hundred billions of support from the Fed. Problem is that they are more ‘Main Street’ banks than ‘Wall Street’ banks.

Providing Citigroup with an additional influx of cash won’t help the credit crunch. All they are going to do is pay off their losses which won’t leave enough for lending to anyone.

Let Them Die!

A lot of good ideas in this Daily Kos item. Follow the link to David Cay Johnston’s Mother Jones article.

Capital Gains Tax.

I would like to see the Capital Gains Tax, as applied to stocks and bonds, modified a bit. Specifically, I would like to address investment profits derived from securities subject to regulation/control by the SEC.

If you invest in a stock/bond/security and later sell it for a profit you pay a tax on the difference between your purchase price and your selling price – your Capital Gain. In and of itself, that’s fine. But, if you are selling one stock in order to buy or invest in another stock, you pay the Capital Gain tax on your profit and only have the remainder to invest in the new stock. You haven’t taken the profits and used them in the non-security world and you have less to invest in a new security. I would like to remove the Capital Gains Tax on security sales where the proceeds are directly applied to the purchase of another security. You are only taxed on the proceeds you take out of the security marketplace.

I think this would encourage, indeed stimulate, investment in new potential industries and encourage people to move their investments around. I find it sometimes isn’t worth contemplating moving investment money around when you know you will be paying a 15% – 20% – 30% tax on the proceeds. So it sits, slowly not growing. I may take other money and invest it in the new industry I think will be growing but the older money stays where it is, stuck until it is needed. The newer industry doesn’t get the boost it might with more capital investment and then good things don’t happen.