Money for Nothing

Quite a media hullabaloo was raised when the New York Times recently reported that Citigroup's head energy trader, Andrew Hall, was possibly collecting a $100 million bonus for the profits his group earned last year--most, though probably not all, of it made trading on the price of oil. Hall is one of those independent-minded, nervy traders who generate enormous profits when they are right. But even if he has lost money on balance in 2009, it is unlikely he would have to return any of that huge bonus. That's because Wall Street employees have a very sweet deal: it's heads I win, tails you lose.

What has everyone especially up in arms, however, is that Citigroup is still a ward of the state, as the Times put it. The government has a 34 percent stake in the bank holding company, which received some $45 billion in bailout money. People are understandably furious that the money is being used to finance these outsize bonuses. But what should really have the public upset is that these star traders and bankers do not deserve the money in the first place, bailout or not.

Many of us feel this in our guts. But now some mainstream economists have gathered serious evidence to support the case. They find that big profits on Wall Street, and the big bonuses they fund, don't reflect the value these firms add to the economy. They would add just as much through accessible and cheap financing and innovative investment vehicles, at much lower levels of profit and individual compensation.

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