NEW YORK (Reuters) - Author Michael Lewis, known for exposing the culture of excess at Solomon Brothers with his book “Liar’s Poker,” says Wall Street bonuses at banks bailed out by Washington are “a very elegant form of theft.”
Lewis’s latest book “The Big Short: Inside the Doomsday Machine,” to be published next week, tells the story of the 2008 financial meltdown through the prism of a few Wall Street players who spotted the weaknesses of the U.S. sub-prime mortgage market and made a fortune betting against it.
In an interview with the CBS news show “60 Minutes” to be broadcast on Sunday, Lewis described how banks have been given free rein to make big profits and reward themselves with whopping bonuses.
The big Wall Street banks “have access to a zero percent loan in virtually unlimited quantities from the Federal Reserve. You can take that money and reinvest it in Treasury bonds or government agency securities and you will get the spread and you could do it over and over,” he said.
“You’re essentially borrowing from the government ... and taking a cut,” he said.
Wall Street banks, many which received government bailouts in 2008, saw higher bonuses in 2009. Even though profits returned robustly in 2009, the bonus pools still fell short of the banner year of 2007.
For example, Goldman Sachs, the poster child for excessive pay, paid out $16.2 billion in 2009, ahead of the $10.9 billion it paid in 2008, but still well below the record $20 billion it set aside for compensation in 2007.
“Really what’s going on is the people on the top of the firm want to make a lot of money and if they’re going to make a lot of money, they have got to pay the people under them a lot of money,” Lewis said.
“So it’s a very elegant form of theft right now.”