Stop The Legalized Theft

Alan Grayson has a controversial idea: rich corporate executives should stop stealing public money.

I introduced a bill - the 'Pay for Performance Act' - to put an end to this theft. It's on the House floor today. It bans unreasonable and excessive pay to employees of financial institutions that are running on taxpayer money. The bill is based on two simple concepts. One, no one has the right to get rich off taxpayer money. And two, no one should get rich off abject failure. If the government owns a chunk of a bank, that bank must pay its employees reasonably, and all bonuses must be performance-based.

But first, let's be clear about what has happened. The government owns stakes in many companies through the TARP program, and Congress tried to put executive compensation restrictions on those companies. Big banks, though, were able to carve out an exception for any contract signed before February. AIG executives drove a truck through that exception and stuffed their pockets with our money. This bill closes that loophole [...]

Everyone agrees that Congress must act to reign in these excesses. These bad banks have come close to destroying our economy. They did so to enrich the small group of employees who made horrible, and in some cases, illegal bets. Calling these bad banks "casinos" is a disservice to casinos, who must actually by law hold money to back all the bets they've taken in. Calling these con artists "bank robbers" is a disservice to bank robbers, who can only steal as much money as the bank holds at the time, without tapping into taxpayer funds, too.

It's time for action, and Congress is acting.

Jane Hamsher has the rundown of the conservative howling on the floor of the House. I believe there's a case to be made that the government shouldn't be setting compensation targets for private firms. But the sad truth is that none of these firms are private anymore. Many are almost completely reliant on public money, and so long as the government is a top shareholder, they ought to be able to set the rules to protect their investment.

London is overrun with protesters right now, with thousands of people demanding a change to the rules of global laissez-faire capitalism which have nearly destroyed this economy, and Republicans can go ahead and stick their fingers in their ears and choose not to hear it. I would not advise the Obama Administration to do the same, however. And there are some very disturbing signs. Picking as number two at Treasury the guy who wrote the law deregulating the banks, for example. And putting the taxpayer on the hook for several trillions of dollars solely to save the financial system, often in total secrecy, too. Joseph Stiglitz' op-ed today gets right to the point:

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency [...]

Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

Even if this thing works in the short term, we will have lost because the behemoth of the financial sector will be restored to its former glory. The need is to restructure and re-balance the economy.

...Grayson's bill, the Pay For Performance Act, passed the House by a vote of 247-171. Check out Grayson's floor speech. "We should not be paying arsonists to put out his own fire." Nice.