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The Jewish Ethicist: Tycoon Traders II

The Jewish Ethicist: Tycoon Traders II

Making a killing with other people's money.

by

Q. Is it fair for Wall Street traders to be making tens of millions of dollars a year?

A. Last week we discussed whether traders are engaging in socially worthwhile work, as opposed to some kind of rip-off. Based on the evidence I am aware of, I wrote that traders seem to be engaged in a job like any other, earning a salary based on performance which results from a combination of skill and luck.

Some people may be willing to grant this point, but still feel that at some stage salaries become "obscene" or "excessive." In the US, there is legislation limiting how much salary can be considered a legitimate business expense. (Ironically, this supposedly "salary limiting" legislation is partially responsible for the compensation system of traders, who get a low base salary partially for this reason.)

It is interesting that no one has tried to limit how much money can be made from a business, or by an athlete. For some reason, people don't have a problem with the fact that people like Bill Gates of Microsoft or Sam Walton of Walmart can make billions of dollars from the firms they founded, or with the hundred million dollars earned in a good year by outstanding sports talents like Tiger Woods. Yet it disturbs them that a "regular" salaried worker like Andrew Hall can earn a hundred million dollars a year. Perhaps it is because a salaried worker is working with "other people's money" and not risking his own.

I think we can find a precedent for this attitude in the Torah. The patriarch Yaakov begins working for Lavan as an impoverished hand. But his management of the flock is so successful that soon his salary (a percentage arrangement worked out with Lavan) makes him a wealthy man in his own right. Lavan's sons became jealous: "And he heard the words of the sons of Lavan, saying: 'Yaakov has taken everything belonging to our father, and from what belongs to our father he obtained all this honor" (Genesis 31:1). Yaakov after all was merely a hired hand; it didn't seem right for him to become a wealthy householder in his own right from a mere salary. But Lavan's daughters, who are Yaakov's wives, recognize the truth: "All the wealth that God saved from our father, it is ours and our sons'" (Genesis 31:16).

Later on we find a similar story with Yaakov's son, Yosef. Yosef is acquired as a slave in the household of Potiphar. There, he makes shrewd use of his master's possessions. "And it happened, since he appointed him on his house and on all that was his, that the Lord blessed the house of the Egyptian because of Yosef." Yosef, despite being a slave, was allowed to enjoy a standard of living commensurate with the profits he brought his master, as he says to Potiphar's wife (Genesis 39:9), "and he hasn't denied me anything except for you, seeing that you are his wife." It is likely that jealousy towards Yosef's success also played a role in the enmity borne him, which resulted in his imprisonment, but certainly we do not find any condemnation of Yosef's generous remuneration merely because he was managing "other people's money."

To sum up, I don't find that there is any reason to condemn someone for making a lot of money merely because they are managing and risking someone else's money and not their own. If any person, such as Yaakov or Yosef, lacks funds of their own but shows a unique talent for effectively managing the funds of others, there is no reason they shouldn't enjoy a fair return, up to an including making them independently wealthy like Yaakov or enjoying the lifestyle of a lord like Yosef.

Published: August 23, 2009


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Visitor Comments: 3

(3) Anonymous, August 26, 2009 7:39 PM

game unfair is it true what one will earn for the year is set at the onset of the year

the incentive to take big risks with others money was there as the upside was a huge payoff and downside was getting fired after others took the loss and one getting a job at another firm to try your luck again. if the house of cards crumbled the suckers lost and if the loss too big the other suckers [taxpayers] paid. what often happened was conservative investors relying on so called professionals where placed at the high risk table without being told. that said i agree re Toarh that in a fair game no limiit on what one can earn. important to remember that if blessed with great wealth one has to give an accounting. it's a loan not a gift. HaShem could have been mad ecertain you were born impoverished. with no shot at wealth[think kids in darfur etc] Do you believe that the amount of money one will earn assuming one makes the proper effort is predetermined on New Year?

(2) Manasseh, August 25, 2009 5:58 PM

(ETHICS)

I do think Zvi has hit the nail on the head because when innocent customers invest, they are not only investing their money but their trust too. Indeed if; 'Making a Killing', with the investors money means killing the investor too, then that ammounts to sinful sellfish un ethical bussiness practice rather than good ole' market place sensible principles It ammounts to a practice I call "caterring ONLY for the special three; ME , MYSELF AND I" Old blessed Yosef's bussiness principles and ethics ended up saving not only Egypt but the surrounding countries and his own family from destruction and so does all those whose bussines practices are on a higher ethical level. They not only shine but spread light (or Wealth for that matter)all arround

(1) Zvi I Weiss, August 25, 2009 3:51 PM

There is an objecetion to the salaries of traders

I think that the objeection to the "obscene" salries is that these trader are being compensated for actions that HURT many MANY other people. The actions may have generatd short-term profits for the companies but led to the collapse of credit and the like. When Bill Gates is hihgly compensated, he is seen as being compensated for CONSTRUCTIVE activities (and also that his workers are seen as being well-compensated). Here, we have people bin compensated for DESTRUCTIVE actions and that generates a lot of anger. For the same reason the "golden parachutes" that many execuives received when they "bailed out" -- inspired similar anger. The head of Washington Mutual Bank took decisions that drive the bank "into the ground" but HE is not bearing any consequence for those actions. In short, when people engage in destructive action -- actions that destroy credit, mortgages, etc. and then get large bonuses for those very actions -- I think that people can be correctly outragd. This is in SHARP contrast to Yaakov who worked hard and created bendfit for his boss -- in that case, it was just jealousy (and the same can be said of Yosef). I do not see any comparison to these destructive traders.

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