Banking on pay cuts

Banking on pay cuts

Ask most people what they were doing a year ago today and they wouldn't remember, but I'll bet former U.S. President George Bush does.

He was explaining his government’s plan to spend billions of U.S. tax payer dollars to prop-up some of Wall Street's biggest banks; it was a massive investment - nationalisation by any other name.

It was deeply embarrassing for the head of a country and political party built on free enterprise, and he looked most uncomfortable as he said:

"This new capital will help healthy banks continue making loans to businesses and consumers and this new capital will help struggling banks to fill the hole created by losses during the financial crisis."

Now, one year on and the banks are making money – lots of it.

This week JP Morgan Chase and Goldman Sachs announced billions in profit from the three months 'til the end of September.

And with profits up, pay and bonuses are up too.

Reports say 23 of Wall Street's biggest firms will hand out a record $140 billion this year - the highest payout since 2007.

Analyst James Lardner says the Obama administration does nothing to curb executive compensation because many Wall Street insiders work for the government - so much so that Wall Street's seen as a training ground for the U.S. central bank and Treasury.

"It's impossible for those folks to look at policies that affect their old companies with any detachment, and meanwhile, the same companies have tremendous political influence through campaign contributions."

The pay may be skyrocketing again on Wall Street but for millions of ordinary Americans this is the year of the pay cut - with reductions hitting their highest level since the Great Depression of the 1930's.

U.S. stocks shot up on Wednesday with the Dow Jones Industrials crossing over 10,000 for the first time since the financial crisis struck.

Better than expected retail sales figures helped push them over the magic number. Retail sales were actually down in September after the government's subsidy on new cars came to ended. Without the federal cash, retail sales slipped, but not as much as many economist had been forecasting.

The Dow crossing over ten thousand is remarkable when you think that this time last year they were flirting with 6,000 in the face of the worst recession in 60 years.

However, the high profits and bonuses on Wall Street will keep pressure on the government to reinvigorate what's known as the real economy, where most Americans - not high flying, highly paid execs - operate.

- John Terrett, Washington