Thursday, January 29, 2009

President Obama Doesn't Quite Get The Concept Of Stimulus

He's busy railing at the payment of $18 billion in bonuses on Wall Street. Apparently he's not familiar with what that $18 billion represents to the economy of New York City, New York State, and New Jersey and Connecticut.

It represents a huge hit to the local economies because it's far lower than the bonuses doled out by the financial services companies throughout the region in the past. It also marks the steepest decline in 30 years. It means billions less in tax revenues and billions less that those recipients are spending on everything from restaurant bills to home and car purchases.
Overall, financial firms paid out $18.4 billion in bonuses last year, down from $32.9 billion in 2007 and an all-time-high of $34.1 billion in 2006.

The size of bonus checks shrank, too, as financial firms wrote off massive losses and some top executives decided to forgo bonuses altogether.

The average individual bonus fell 37 percent to $112,000, the lowest level since 2004. Last year, bonus checks averaged $177,000.

"The effect of the lower bonus payments will ripple throughout the regional economy and could cost the state and city of New York significant tax revenue," DiNapoli said.

The city collected $275 million less in personal income taxes due to the drop-off in bonuses last year, the comptroller found. The state, meanwhile, took a $1 billion hit.
So, as much as Obama wants to slam the financial companies for issuing bonuses, consider what those bonuses entail to the rest of the economy. They are a real and measurable stimulus to the local economy. It further means that the local economy will take a hard hit through 2009 and into 2010 as one should not expect bonuses to pick up this year or next, especially with President Obama carping on their size.

Then again, this is what you get when you put the federal government in charge of the financial industry with its TARP takeover. Obama and Congress signed off on the TARP plan, ignoring the warning signs and that the money would be spent without oversight.

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