Blogs and Stories
Pay Cut Backfire
Getty Images & AP Photo
By putting compensation caps on some bailed-out firms, pay czar Kenneth Feinberg sent a message, writes Nomi Prins. But he also strengthened the hands of the rest, including Goldman Sachs.
Kenneth Feinberg, the so-called pay czar who President Obama has charged with making the take-home pay among our bailed-out behemoths logical again, took a deep breath yesterday, stepped up to the plate, wound up a couple of times and… bunted. His intent was admirable, if politically timed to coincide with the renewed bonus wrath following the bank’s quarterly earnings results. But the details will ultimately exacerbate the systemic risk that propels high compensation and nearly destroyed the financial world, not to mention the rest of the general economy. In short, Feinberg made the situation worse.
Feinberg’s plan would cap compensation at the seven companies that received "exceptional assistance” (AIG, Bank of America, Citigroup, General Motors, GMAC, Chrysler, and Chrysler Financial). It would cut the total compensation of the top 25 executives at these firms by 50 percent and their annual salaries to 90 percent of 2008 levels.
Shouldn’t those 175 executives who have to now ask permission from Feinberg for perks greater than $25,000 take it upon themselves to fly coach once they hit $24,999?
To be sure, these companies owe their very existence to the federal government. Bank of America still owes the government $63.1 billion, AIG sits on top of a $181.8 billion pile of federal help, and Citigroup has a $368.7 billion public cushion, The auto industry? $89.4 billion.
The problem is, by simply tying compensation caps to the TARP program (a year late), Feinberg and the Obama administration are completely ignoring the rest of the $14.6 trillion federal bailout and subsidization of the banking industry, which has helped propel many key banks to 2007 levels of compensation, unfettered. If this is the best he can do, all the other Wall Street bankers can breathe a huge sigh of relief.
• Charlie Gasparino: Behind Ken Lewis’ PanicThere are those who think that if the government has any say in any pay, it’s only a matter of time before it will be rationing air intake. They should back off—unless they also believe that the government shouldn’t have taken such a generous approach to subsidizing the banking system, in which case they should be happy that Feinberg wants to do something to ensure our money is spent fortifying the firms we’re subsidizing (so that it’s returned) rather than on luxury items.
The bigger question for those fearing this is some outrageous government intervention: Why aren’t the firms receiving public money making these cuts themselves? Shouldn’t those 175 executives who have to now ask permission from Feinberg for perks greater than $25,000 take it upon themselves to fly coach well before they've hit $24,999?
Feinberg engineered Citgroup's sale of Phibro to Occidental Petroleum, which the firm did to get out of its $100 million bonus contract with star trader, Andrew Hall. Bank of America’s Ken Lewis’ chat with Feinberg resulted in him agreeing to take no salary or other pay for 2009—of course, he’ll survive with a nearly $50 million retirement package and the $165 million he made since 2001. Feinberg will also cut the total compensation of AIG’s top 25 executives to $200,000. No doubt, these people are already negotiating employment deals at Goldman Sachs, where $12.9 billion of AIG's public assistance went anyway. But Feinberg sent the right message there.
The Feinberg principles fall short, however, by only focusing on a subset of the subsidized industry. The same firms that turned a profit and repaid TARP (on the back of federal aid) are leading the industry in renewed trading risk, the kind that crashed the system last year—only this time, it's with our money on the table. In essence, he’s green-lighting an increase in the kind of aggressiveness that leads to higher bonuses at the other firms. And that’s downright dangerous.
How Rich People Smoke Pot
Paul Schrodt is a writer living in New York City. He has contributed to New York magazine, Radar, and Esquire.com.
Justice Clinton?
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, corporations and causes, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono. McKinnon is co-chair of Arts & Labs, a collaboration between technology and creative communities that have embraced today's rich Internet environment to deliver innovative and creative digital products to consumers.
Obama's Half-Baked Bank Reform
Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street (Wiley, September, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics group at Bear Stearns in London.
Bernanke in Denial
Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street (Wiley, September, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics group at Bear Stearns in London.
Bring Back That Wall!
Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street (Wiley, September, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics group at Bear Stearns in London.
Genni2002
From the senoir rep of a great state to a freshman - Get YOUR hands out of my pockets. Am sick to death of hearing about these GS execs being able to basically steal their way to wealth. It is outrageous and this is not the United States of Goldman Sachs, or is it?!
numonk
When corporate "personhood" was recognized, the game was lost.
MetryJen
Exactly.
neroves1
"It is our interest and our task to make the revolution permanent until all the more or less propertied classes have been driven from their ruling positions, until the proletariat has conquered state power and until the association of the proletarians has progressed sufficiently far - not only in one country but in all the leading countries of the world - that competition between the proletarians of these countries ceases and at least the decisive forces of production are concentrated in the hands of the workers. ... Their battle-cry must be: "The Permanent Revolution". -Trot.-
Where are the people??
hockeydog
The problem is with the terminology. "proletarian" just doesn't cut it, it belongs to a different time. Same with terms like "socialism", "communism", and other outdated descriptives.
Perhaps the eventual solution to our ongoing problem with the investment banksters is to coin some new terms that better reflect the reality of today's America, and by extension World.
I will bet the Beastly bloggers would be a fecund source for this new terminology.
numonk
At home watching Fox and eating McDonalds in a Snuggie
neverlate
So pumping a king's ransom into a bunch of losers and then making it impossible for them to compete for top talent is smart government? No wonder I wish health care reform would just die. The only answer here is to break them up and deal with the toxic assets that are still on the books.
numonk
...heh, compete for top talent. That's good, like American companies have actually created jobs or produced ANYTHING in the national interest of the USA and the UK in over two decades.
You don't need top talent, that's why all of the jobs below these guys are designed to be interchangeable. When someone starts asking for more, you can them.
artsyfartsy
If that's top talent, then we need to redefine the term.
Ozone69
Democratic Governor of corrupt NJ running for re-election, Jon Corzine was an executive a Goldman not too long ago. He left with a golden parachute worth more millions than you and I will ever see or fathom. President Obama will stump for him today and Bill Clinton already did as well as VP Joe Biden. Hmphhhhh????????????
Godman=Corrupt Governor=Democrat Party=President Obama's endorsement=Bailout $$$$$$
I wonder why a governorship is so important to the WH. It's not like the gov can vote for healthcare. Oh, the bailout of Goldman. Got it now,
DakLak
Goldman is the U.S. government's puppet master.
All the good Obama has done is now reduced to setting the timer for the next collapse.
periscope
I don't care what GS pay themselves. What I care about and what every American and other investors should care about is the soundness and the integrity of the products they create and sell.
Without strict regulation of derivatives (amazingly, there still is none), our economy is sacrificed on the altar of greed to those at GS and other companies on Wall St. that only care about short term profits and immediate bonus gratification.
There should be NO INVESTMENTS - NONE - that are not completely transparent and completely government regulated. Until or unless that happens, we will have other trillion dollar busts that will take down our economy time and time again.
This isn't rocket science. This is arithmetic 101.
GL1234
Transparency from this administration? They do not even want to post legislative bills?
flyoverland
Our country's brightest and best no longer strive to "make things" they strive to shuffle paper for fortunes in a year it would take a lifetime to accumulate otherwise. A country that has driven its manufacturing base to the third world will soon find that paper shufflers historically have not ruled the world.
whipmawhopma
flyoverland - Well said.
al-nafs
This is probably the first thing you've said that I actually agree with.
flyoverland
I've been taking cough medicine.
Carole65
Get well soon, flyover.......... and you are right about our manufacturing, thanks to both parties. The only upside of those manufacturing jobs was cheaper goods for the consumers in this country.
flyoverland
Thanks. Just shaking the flu. If you have the choice, don't' get it.
These jobs that our nation seems to not want anymore used to provide great jobs for all those kids we went to high school with who never went to college. My mom and dad had five kids, never went to college, she stayed home. He had a great job, with wonderful benefits in an airplane factory. We were not rich but we had everything we needed. Today, those kids we knew, good people, maybe not ambitious like some of us, but hard working are grown and jobless, sitting at home, looking out the window at the steel mills with broken windows and weeds growing up the fence and just hoping their wives don't lose their secretarial jobs down at the courthouse. They count the days till they turn 65. This desire to move to "green jobs" may sound good, but in the end, they will make windmills cheaper in China and batteries cheaper in Taiwan. We have to let industry come back and make a living here. Wall Street needs to stop raping companies because they can. Lawyers need to stop suing companies because they can. Government needs to set fair rules and get the hell out of the way. Does anyone who was alive in the sixties think its better now that you can buy a big screen TV so cheap? Americans want to work. Our work fueled the 20th Century. The fact that so many want to throw that away is very sad.
devilsadvocate
Goldman always seems to win. I understand there's outrage about pay and bonuses at banks, yet people still continue to do business with banks that treat them like crap. There are banks out there that have good customer service, don't cheat account holders with ridiculous fees, and pay their management more reasonably. True, they're a handful in comparison witht the majors, but they're still there. If you're outraged, drop your BofA, or your super-regional bank account and transfer it to one that has better service and treats its customers like human beings. Or if you're complacent or just don't care, keep your bank account at one of these major banks and keep getting screwed out of fee money and be kept on hold for hours while trying to talk with customer service, but don't pretend to be outraged. If the outrage really is there, these larger banks would drop so fast bc so many people moved their accounts to better banks.
djanimaequeen
Very true. We need to support our friendly neighborhood credit unions. But banks that received a bailout should not be allowed to continue business as usual until they have paid off their debt to the American people. Would you like to see someone who owes you money take a luxury vacation? Watching them live it up while you're stuggling to make ends meet? If they paid back the money they owe, I could care less how much they compensate their execs but as long as they are in debt, I don't want to see any parties or good times on my dime. Period.
magicman
@ djanimaequeen
I couldn't agree more. Keep up the pressure, they won't embrace 'voluntarism' or voluntary change anytime soon...so naturally, Government will have to hammer them into a state of reasonableness.
devilsadvocate
Or just hammer them our of business.
yogibeast
Amen to that.
But as the writer of this peice pointed out, capping pay for execs that took TARP money will not solve the problem. The problem is that the banking industry is geared toward taking ever greater risks (with shareholder money) in order to reap ever greater profits. The merry-go-round has to stop, and the only way to stop it is to create tough legislation that prevents these adrenaline junkie risk-takers from leaping off metaphorical cliffs with only a hope and a prayer that they can make another few cents on the dollar.
winston1
flyover I don't like what the United States turned into. Where are the jobs that brought stability, steady income and the desire to work and feel proud? I admit we didn't have much back then but we were more comfortable and happier. I look at these empty factories and it saddens me to think they may never be occupied again.
Something has to be done about outsourcing jobs, we are not getting the quality in items that we at onetime had, besides that, there is nothing to purchase that is made in the USA anymore. We need jobs here and now, and I don't mean green jobs that's not the answer.
mnemos
I'm not sure about this. Not that rediculous things are being done by large banks - that's beyond dispute. But the leverage depositors have. It seems the reason why banks no longer pay interest on deposits is because it's cheaper and easier to borrow the money from the government than to provide services to depositors. With the easy availability of government money, banks aren't really in that business anymore.
sophia5
Bush and Cheney "tight" with Halliburton,
Obama and Geithner "tight" with Goldman ?
Conservative or Liberal . . .
seems to be all about POWER and
the one party system . . . The "GREEN" Party.
So out of control.
djanimaequeen
If those banks that were bailed out are left in the lerch it's because of the result of their mismanagement and nothing else. The bailout wasn't meant for them to end up on top but to keep them from going under. We need to deter banks from making risky decisions that include, "we can always get a bailout". Well this is what happens when you do. Your competitors who were not bailed out are on top. I don't see that as a bad thing to keep those greedy idiots out of my pocket. It really adds insult to injury when you already get in the ass in bank fees but then have to turn around and bail the dipshits out. Can I charge an overdraft fee?
GPatton
Hopefully this comp cap is just the first step. It's time to start squeezing Wall Street's balls. Hard. George Patton
whipmawhopma
GPatton - What? And kill the magical money making bull that dumps crap all over us common folk? Are you out of your mind? You sir, fail to realize our place as fodder for this creature. Alan Greenspan would be ashamed of you.
Disclaimer: Ironic humor was used in the construction of this reply.
GPatton
Feel free to call me George, Whipmawhopma. George Patton
magicman
Capping pay for Banks and ignoring Bank Holding Companies, is simply foolish, as one benefits and the other suffers. Instead of capping pay, write pay guidelines which must be adhered to by all Banking and Holding Companies equally. For those Banks and Holding Companies that profitted from the run on the US Treasury, impose H.R. 1586, a tax on those companies and individuals that received TARP funds. These folks kept the money for themselves, and invested not a dime in the US Economy, or lent to their customers.
If Government rules the land, then let Government rule. Creating exceptions, like Goldman Sachs, only exacerbates the problem by making one interest superior to the other and skewing the playing field further. This is not the outcome we should be looking to impose.
DakLak
Goldman Saks is the US puppetmaster and the US government is the puppet.
All the good work Obama has done has been used by the banks to restart the timer for the next depression.
How pitiful. What short memories politicians have.
rhonda1309
How about Dear Leader taking over UPS and FEDX in order to save THE UNITED STATES POST OFFICE, we could have a czar and everything!
al-nafs
You know the irony is, the fact that no one intends to do this is a pretty good argument against the 'socialist' and 'dictator' charges. It's really all in your head.
GL1234
The Post office is already broke. Nobody would want to be the Czar it would be political suicide, which is why there is no Czar. The government controlling the banks, auto industry and seeking health care control should be in everyones head.
mcmchugh99
The Dems have nothing to lose by attacking big Wall Street banks and insurance companies after they led is into this depression. In truth, they have never been more unpopular at any time since the 1930s, so any politician with half a brain should be going after them.
Thank you.
As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.