Obama Goes Populist
There was a populist streak to the election, and it has finally crashed on the shores of the White House. President Obama has chosen a villain in the economic spin war, and they are Wall Street CEOs.
The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.
Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.
President Obama and Treasury Secretary Timothy F. Geithner plan to announce the executive compensation plan on Wednesday morning at the White House.
The new rules would be far tougher than any restrictions imposed during the Bush administration, and they could force executives to accept deep reductions in their current pay. They come amid rising public fury about huge pay packages for executives at financial companies being propped up by federal tax dollars.
This comes from nothing more than listening to the public. They are furious about these bailouts, Claire McCaskill's remedy for capping pay from companies that take TARP money was very popular, and Obama is moving to capitalize. While I think that executive compensation is pennies on the dollar compared to the massive giveaways that may be planned for the banking industry, there is a symbolic, cathartic feel to this. When you see Bank of America throwing a Super Bowl party or Wells Fargo sending their employees on a Vegas junket, acting like it's business as usual, you have to draw a line in the sand.
Oh, and James Reda? You're not helping your cause:
“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”
Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.
“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”
Hey, tell you what: I'll run your company for $500,000. Can I do worse than the guys who lost hundreds of billions? Also, the idea that top staff will leave financial companies for greener pastures would make sense if every single company out there didn't need TARP money and wouldn't be subject to the exact same rules.
Sorry, Masters of the Universe. It's a new era of responsibility out here. Now, if only that responsibility extended to the balance sheets of the banks, which are clearly insolvent and shouldn't be propped up without falling into government hands and wiping out shareholders.
Since the early days of the financial crisis, officials have struggled to unwind that knot. If the government buys the assets at prices that banks consider fair, the Treasury would take a huge loss when it ultimately sells the assets for much less. If, instead, the government insists on paying market prices, the banks may not survive their losses.
Instead of taking a single approach, the Obama administration plans to divide assets and other loans into three categories, each with its own solution, according to sources familiar with the discussions, speaking on condition of anonymity because the details are not finalized.
The government would buy and hold on to those assets whose falling prices are putting banks under the most pressure. Officials want to limit these purchases because of the vast expense.
The centerpiece of the plan would be a guarantee to limit losses on a second group of troubled assets that can be kept by the banks because they have more stable prices.
And it would allow banks to retain and profit from their healthiest assets.
Beyond these initiatives, the government also is likely to inject more capital into troubled institutions.
This is just a gift to banks that sunk the economy by turning a blind eye to obviously bad deals. The bankers may not be as rich as before, but they still don't deserve this treatment.