No legacy is so rich as honesty - William Shakespeare

We Built This Bank

by Hal_10000

You knew it was coming.  The Feds are issuing rules on executive pay for banks on the TARP dole.  High-end salaries are being cut as much as 90%.  I don’t have much to add to Bainbridge’s brilliant commentary:

So set aside the question of whether compensation at financial firms is “too high,” however you propose to measure it. Set aside the question of whether these troubled firms will be able to keep their best people, who presumably now will be targeted by unregulated firms like hedge funds that will be free to pay market rates.

The basic problem is here is that many (most?) of the compensation deals the Obama administration is shredding were set in employment contracts. Granted, some of those employment contracts were signed after the law setting up pay “czar” Kenneth Feinberg’s position and empowering him to review pay packages at TARP firms. But a lot of them are pre-existing contracts and it’s those contracts that are the main concern.

Feinberg in fact is trumpeting his success at forcing so-called renegotiation “even for contracts over which he did not have explicit authority.”

The bottom line thus is that Obama is having his minion coerce TARP executives and employees into ripping up contracts Obama doesn’t like so as to assuage the populist public. In doing so, Obama and his appropriately entitled “czar” are exhibiting a basic lack of respect for the rule of law.

Unfortunately, these are not isolated incidents. As I wrote back in May, they are each “of a piece with the totality of Obama’s program.”

Here’s Elizabeth Warren trying to justify this nonsense:

Memo to Warren: the way you prevent companies from having stupid business practices is not bailing them out.  And where on God’s green Earth did you get the idea that’s it’s OK for the government to threaten, cajole and violate the rule of law to “send a message” so that the high-paying execs “get it”.  The purpose of TARP was not to act as your personal message service or as some instrument of social reform.

Notice that she also doesn’t rule out the idea (as the obsequious CBS “reporter” suggests) of having the government take control of all executive compensation.  Warren is very popular in liberal circles because she sounds reasonable.  But what she actually says is antithetical to the rule of law and an open economy.

It would be one thing if the TARP has stated, up front, that the price of accepting the bailout was going to be cuts in executive salaries.  I would have accepted that; hell I argued for it at the time.  Barrack Obama, had he not been neglecting his Senate duties to run for President, could have added such language to the bill.  Instead, they are retroactively imposing this stuff on the banks.  They want to have their cake and eat it too—keep the big salaries initially so that the firms can retain or hire people to clean up the mess; then jerk the rug out from under them the second the public gets pissed about it.  Yes, I’m looking at you, Chris Dodd.

I don’t like big executive salaries any more than the next guy.  But I do love me some rule of law.  It would be nice to see some from what is supposed to be the most ethical administration ever.

In other news, Mervyn King, governor of the Bank of England, has said something that’s been on my mind for a while.

Mervyn King, governor of the Bank of England, called on Tuesday night for banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to think tougher regulation would prevent future financial crises.

Mr King’s call for a break-up of banks to prevent them becoming “too important to fail” puts him sharply at odds with the direction of domestic and international banking reform.

My understanding—which is probably wrong—is that he wants a sort of Glass-Steagel Lite that would split up parts of banks so that the risk-taking parts are separate divisions.  I’ve been thinking about this a lot lately—whether a bank being “too big to fail” means that it should be broken up before it presents a threat to our economy.  And I do agree that the regulators are always going to be a step behind the investors.  Regulating the banks the way we do—i.e, fixing every problem after it has exploded in our face—is like mapping out a mine field by stepping on every mine.

My instinct, however, is to say that this wouldn’t work.  The problem that precipitated this crisis was far more systemic.  The entire banking system believed that they had figured out a way to make money off mortgages without risk.  The Fed was pumping cheap money into the system in a vain effort to keep the bubble inflated.  Whether you have a few big banks or lots of little ones, the problem would have been the same.  The only way to fix this system is to throw the risks back on the shoulders of the people taking them.

Comments

Posted by on 10/22/09 at 09:32 PM from

I am waiting for agricultural collectivization to be suggested.

Posted by HARLEY on 10/23/09 at 04:05 AM from

Fucking Bush Started TARP, and now Obama has free rein to enact his socialistic agendas.
Now watch as the good talent at these banks go somewhere else.

Posted by Tool on 10/22/09 at 10:32 PM from Germany

I am waiting for agricultural collectivization to be suggested.

have you read ”The Last Centurion”?

Posted by AlexinCT on 10/23/09 at 05:51 AM from

Personally I love this idea. The only drawback I see is that the collectivists running government are literally changing the rules after the contracts where signed, and that sets a real horrible precedent. Otherwise this action will serve to forever sour any company that is not plum going down in flames, and maybe not even then, from ever again looking for a government bailout. I am certain that the collectivists have no clue this is the likely outcome of their actions, or worse, think that it will not matter a bit, but I can’t ever again see anyone of these top executives thinking that robbing the tax payers is good for them.

The one thing we need to be vigilant against is if they try to do this to other companies that have not taken any government handouts. My fear is that they are using these companies that took bailouts as the starting point for a collectivist driven push to establish government controlled/mandated salary caps like the European scum across the pond do. The parasites in many European countries have now tried for a while to link and cap top executive pay to that in government, as they see it as a win-win. The thinking goes that if the captains of industry want to make real money, they have to allow the politicians to make a lot more money. Scum that already screw those that actually produce and pay taxes stand to gain big with this sort of idiotic economics.

But after all, collectivist economics isn’t anything but Peter robbing everyone and using the power that comes with that to oppress the masses.

Posted by AlexinCT on 10/23/09 at 05:59 AM from

My instinct, however, is to say that this wouldn’t work.  The problem that precipitated this crisis was far more systemic.

Even worse, it not only still exists, but is getting made worse. This crisis was caused by ideologically driven economic policy that flies in the face of reality. If you force lending institutions to give loans to people that are not qualified and will very likely default, threaten them legally while telling them that you will use tax payer’s money to cover the risk for them, and then rig the system with goodies - such as those meaningless and dangerous securities that government encouraged them to create and trade to prop up the system - sooner than later, you end up with egg on your face. The politicians blamed Wall Street when that happened, demanded the right to address and fix the problem, ignored the fundamental and underlying problem, and went right back to jurry rigging the entire system with meaningless and totally empty bureaucracy that serves to do nothing but inflate their power, drain valuable resources from the private sector, and mask the still existing risk and problems. What we are getting from the collectivists is a destroyed economy and a guarantee of another future crisis. But as they already told us, they like crisis, because it is an opportunity for them to do things that the public would otherwise never stand for.

Posted by on 10/23/09 at 09:14 AM from

I am waiting for agricultural collectivization to be suggested.

This will be done under the guise of “supporting family farms” since we all know that big agriculture is evil just by the fact that we named it “big”.

People don’t want to admit that the “family farm” model of agriculture has been a dead business plan for over 50 years when it comes to most crops.  I attribute it to an excess of sentimentality.

Posted by on 10/23/09 at 09:32 AM from

If they’re cutting salaries because they took our tax money, can we cut congressional salaries that are paid with our taxes?

Posted by on 10/24/09 at 01:59 PM from

Well we had a good run.

If you look at the percentage of the economy represented by government spending, well we’re rapidly approaching a government run economy that tolerates some capitalism, basically moving in the opposite direction of china, a rapidly growing economy.

Posted by on 10/26/09 at 08:30 PM from

If they’re cutting salaries because they took our tax money, can we cut congressional salaries that are paid with our taxes?

Yes.  You can cut them right to Zero.  Dodd’s on the list for salary reduction in fact.

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