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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Feb-23-09 01:31 PM
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TIME: Pay Wall Street Less? Hell, Yes
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Pay Wall Street Less? Hell, Yes
By Justin Fox Thursday, Feb. 19, 2009

A few years back, two finance professors at the University of Chicago set out to discover who was behind the spectacular rise in the very top incomes in the U.S. Steven Kaplan and Joshua Rauh quickly concluded that for all the outrage about the pay of corporate chief executives and their lieutenants, it didn't account for more than a sliver of the gains. And highly paid athletes and entertainers were too small in number to have much impact.

The big, big gainers, Kaplan and Rauh found, were on Wall Street. At least 2,500 people at major investment banks made more than $2.5 million a year, they estimated, acknowledging that the actual figure was probably substantially higher. They couldn't nail down numbers for private-equity firms, hedge funds and other money-management outfits but concluded that their ranks and compensation had grown dramatically. The country's big law firms, many of them legal remoras attached to Wall Street, accounted for thousands more high earners. (See pictures of TIME's Wall Street covers.)

Overall, the top 0.1% of the income distribution in the U.S. in 2006--the most recent year for which data are available--was made up of 148,361 taxpayers who took home more than $1.9 million each. This top 0.1% accounted for 11.6% of personal income, according to income-inequality mavens Emmanuel Saez of the University of California, Berkeley, and Thomas Piketty of the Paris School of Economics. Back in 1978, the top 0.1% claimed only 2.7% of income.

Rising pay on Wall Street was the biggest single contributor to the shift. "This was all market-oriented," says Kaplan. "Part of the reason you saw such a big increase in pay over time was just an increase in scale." The sums of money managed and size of transactions arranged by Wall Street grew exponentially, starting in the 1980s. So did profits and pay. You can argue that CEO compensation is a rigged game, but on Wall Street, lavish pay packages have never been restricted to the top of the executive ladder. Top-performing investment bankers and traders were paid big sums because otherwise they might jump ship to a rival bank or a hedge fund. And nobody was forcing rich people and pension funds to entrust their money to high-fee private-equity firms and hedge funds. .......(more)

The complete piece is at:,9171,188063...

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