Merrill Lynch Has Trouble With Math

A Bloomberg story this morning claims that Merrill Lynch is said to be cutting bonuses by 50% this year.  I'm sure that headline was meant to be eye-catching, so that readers are shocked by the huge haircut Merrill's bankers will be forced to stomach.  What caught my eye, however, was the fact that Merrill's revenues dropped 96% in the nine months ended September 2008 from a year earlier.  Investment banks generally pay out 50% of revenues as compensation.  Something about the math here doesn't really add up.  Revenues shrink by 96%, the firm loses over $20 billion, nearly fails, and is forced to merge and get various bailouts from the government.  Yet somehow, Merrill is only reducing bonuses by 50% from last year, which was a record year for pay?  The article clarifies that bonuses account for the bulk of a year's pay for most traders and investment bankers.  While that is certainly true, we are talking about people who have base salaries of $150,000 or so, and then receive bonuses of like $650,000.  Let's not be mistaken that anyone here is working for commissions alone.  So while our lawmakers argue over putting GM out of business, the recipient of $10 billion in cash from Mr. Paulson and multiple billions in loans via Mr. Bernanke, is busy handing out bonuses.  Nice.