Qu'ils mangent de la brioche.
Any student of the French Revolution should be familiar with this ignominious phrase. Unfortunately, the true meaning has been lost in the translation.
The quote, attributed to Marie Antoinette, was claimed to have been shouted during one of the famines that occurred in France during the reign of her husband Louis XVI.
Upon being alerted that the people were suffering from widespread bread shortages, the Queen is reputed to have replied, “Let them eat brioche.”
At the time of the French Revolution, brioche, or bread, was the staple food of the peasantry. While there is debate among historians as to the context in which these words were uttered by the Queen, her ultimate fate at the base of the guillotine is well known.
An Outrageous Statement?
Two days ago in London, at a forum on the role of morality in the marketplace, words of a similar ilk were expressed by a prominent figure at the financial giant Goldman Sachs.
During a panel discussion beneath the august arches of St. Paul’s Cathedral, Brian Griffiths, Vice-Chairman of Goldman Sachs International, was asked about the propriety of the estimated $20 billion in bonuses his company is set to distribute by year’s end, after the company was bailed by the American taxpayers.
In a rejoinder that stunned nearly everyone in attendance, Griffiths coolly admonished that we have to learn to “tolerate inequality as a way of achieving greater prosperity for all.”
Although Griffiths was speaking in London, his faux pas has reverberated on both sides of the pond.
Lord Griffiths, a former advisor to British Prime Minister Margaret Thatcher and Director of the Bank of England, was undaunted by the breathless audience reaction to his apparent callousness towards the plight of the common man.
With public anger mounting at the forecast of bumper bonuses for bankers only a year after the industry was rescued by the taxpayer, Griffiths said bankers' bonuses should be seen as part of a longer-term investment in the British and global economies.
A Test of Banks’ Leverage Power?
“I believe that we should be thinking about the medium-term common good, not the short-term common good… We should not, therefore, be ashamed of offering compensation in an internationally competitive market which ensures the bank businesses here and employs British people,” Griffiths retorted.
Griffiths argued that many banks would relocate abroad if the government cracked down on the bonus culture. “If we said we're not going to have as big bonuses or the same bonuses as last year, I think then you'd find that lots of city [London] firms could easily hive off their operations to Switzerland or the Far East.”
If you’ve been following the latest earnings reports coming out of Wall Street, you probably already know that several investment banks like Morgan Stanley and Goldman Sachs are posting records profits. The New York-based Goldman Sachs turned an eye-popping $3.2 billion profit in the third quarter as revenue from trading rose four-fold from a year earlier.
As Wall Street firms typically do, Goldman set almost half that sum aside to compensate its people. Through the first nine months of 2009, the firm socked away $16.7 billion, enough to pay the average Goldmanite $526,814.
The Goldman bonus pool is on pace to hit $21 billion for 2009, which would match the record bonus payout of 2007. It’s probably cold comfort, but Goldman could not have done it without our help.
Goldman Sachs is not the only Wall Street firm ready to pay record bonuses. Morgan Stanley set aside $10.9 billion for compensation and benefits in the first nine months of the year, or 64 percent of revenue.
Some of the sharpest critics of the Wall Street bonus culture charge that the lion's share of bank profits comes from making big bets using cheap dollars printed by the Federal Reserve. Moreover, given the crisis that followed the failure of Lehman Brothers, there's a pervading sense that government officials simply won't let big firms like Goldman or Morgan Stanley go bust. Consequently, this gives too-big-to-fail firms like Goldman, Morgan Stanley and JP Morgan Chase, a license to bet the house.
Goldman, like Morgan Stanley and JP Morgan, denies that they are still taking too much risk leaning on the government for support.
To its credit, Goldman has fully repaid, with interest, the $10 billion in aid it received from the Troubled Asset Relief Program (TARP). Likewise Morgan Stanley and JP Morgan are well on the road to doing the same. Each of these banks has also raised substantial amounts of new investment capital over the past year from private sources and the aggressive sale of preferred stock.
Still, it is tough to escape the notion that none of their newly found prosperity would have been possible without our help.
It seems they are eating cake on Wall Street. John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
