The Money Being Made on Wall Street

Wall Street firms were making a fortune from the bubble, which fueled their reported profits and share prices. Figure 2.4 shows the stock prices from 2003 to 2006 of the major Wall Street firms, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Lehman Brothers, Merrill Lynch, and

Figure 2.4 Stock Prices of Wall Street Firms vs. S&P 500, 2003-2006

Source: Yahoo! Finance (http://finance.yahoo.com).

Figure 2.4 Stock Prices of Wall Street Firms vs. S&P 500, 2003-2006

Source: Yahoo! Finance (http://finance.yahoo.com).

Bear Stearns, all of which roughly doubled or tripled, handily outpacing the S&P 500, which rose only 50 percent during the same period.

It wasn 't just these firms, of course. All across the financial services industry, massive profits were being made from the credit bubble, such that financial services firms ' profits soared to more than 45 percent of all profits made in the United States, as shown in Figure 2.5 .

The employees of financial firms were also making a lot of money, nearly doubling their share of national income over 30 years, as shown in Figure 2.6 .

What these charts don 't capture, though, is how much money was really being made by a lucky few on Wall Street. According to a study by Equilar, a compensation research firm, executives at seven major financial institutions that have collapsed (American International Group, Bear Stearns, Citigroup, Countrywide Financial, Lehman Brothers, Merrill Lynch, and Washington Mutual) received $464 million in performance pay from 2005 through 2008, according to an analysis performed for the New York Times.4

Another New York Times story examined compensation at Merrill Lynch, whose adventures in toxic mortgages are threatening to bring down Bank of America.5 Of the $5 billion to $6 billion in total bonuses paid at the firm in 2006, $1 billion to $2 billion went to the 2,000

Figure 2.5 Financial Services Profits as a Percentage of U.S. Total

Source: Moody 's Economy.com.

Figure 2.5 Financial Services Profits as a Percentage of U.S. Total

Source: Moody 's Economy.com.

Wage Proportion Economy

Figure 2.6 Financial Services Wages and Salaries as a Percentage of U.S. Total

Source: Moody 's Economy.com.

Figure 2.6 Financial Services Wages and Salaries as a Percentage of U.S. Total

Source: Moody 's Economy.com.

employees in the fixed-income and mortgage division; 1,900 of them received bonuses averaging $700,000 each, while the top 100 received at least $1 million each, with an average of $5 million! In that year, Dow Kim, co-head of investment banking and global markets and the person who oversaw the fixed-income and mortgage units, made $35 million, nearly as much at Stanley O ' Neal, Merrill's CEO, bringing Kim's six-year total compensation to $117 million.

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