Whereas profits were mostly fictitious, real money that was supposedly invested went to enrich employees - massive bonuses. From the NY Times of 18 Dec 2008:
Quote:
On Wall Street, Bonuses, Not Profits, Were Real
For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.
The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business.
Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million. ...
Unlike the earnings, however, the bonuses have not been reversed.
As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. Scrutiny over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money. While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.
... Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning. ...
The bonanza redefined success for an entire generation. Graduates of top universities sought their fortunes in banking, rather than in careers like medicine, engineering or teaching.
... More than 100 people in Merrill’s bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than $20 million apiece to more than 50 people that year, ...
Mr. Lin ... was one of the last people hired onto Merrill’s mortgage desk, in the summer of 2007. Even then, Merrill guaranteed Mr. Lin a bonus if he joined the firm. ... such payouts were often in the seven figures.
... Mr. O’Neal, however, got even richer by leaving Merrill Lynch. He was awarded an exit package worth $161 million. ...
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The real money paid service fees and bonuses. Profits were mostly mythical since stock brokers will say, "The purpose of a company is to make a profit."
Stock brokers typically underperform the market. Significant profits come from naive investors in mutual funds, hedge funds, and other overhyped, underperforming money games where even service fees consume profits. If your broker truly represented your interests, then he recommended selling all stocks last summer. But that would harm his profits. As the NY Times article demonstrates, any real money was quickly going out the door enriching people whose job is only a lowly service but hyped into a genius mythology.