Wait Until The Masters Of The Universe Hear About This

Interesting if true:

Kenneth Feinberg, the Obama administration's pay czar, said on Sunday he has broad and "binding" authority over executive compensation, including the ability to "claw back" money already paid, and he is weighing how and whether to use that power.

Feinberg told Reuters that Citigroup Inc (C.N) included the contract of energy trader Andrew Hall in submissions due Friday by seven major companies still locked in the federal government's TARP Program.

Feinberg said he hasn't looked at Hall's contract, which reports have said could pay him as much as $100 million this year.

"Whether I have jurisdiction to decide his compensation or not, we will take a look and decide over the next few weeks," Feinberg said after speaking at a public forum in Martha's Vineyard, Massachusetts, part of a newsmaker series hosted by the Martha's Vineyard Times newspaper.

I agree that we have to do something about the problem of rampant income inequality, which is an epidemic that, if unchecked, will absolutely destroy the greater economy. But I'm not sure I find claw-backs like this to be the best method, especially when we've seen banks react to rules on bonuses by turning them into salary. Rather, the best way for government to encourage greater equality is not through after-the-fact takings, which can be scammed anyway, but through large marginal tax rates at the high end. This created massive productivity and prosperity in the 50s and 60s. Doing it through claw-backs feeds this notion that Democrats are illegally taking money out of the pockets of the wealth creators. Why not stop the hoop-jumping and just tax heavily at the top end? Also, you could make banking a much more staid and boring business through regulation and leave the ability to make lots of money to the risk-takers whose risk will actually create middle class jobs.

The Easily Removed Cap

I always considered the $500,000 executive pay cap for firms who receive TARP money to be a symbolic gesture and woefully inadequate in the face of what the White House was considering doing to bail out these companies. Now it appears that even the cap itself is symbolic:

Pair that with this, from the regulations themselves:

These new standards will not apply retroactively to existing investments or to programs already announced such as the Capital Purchase Program and the Term Asset-Backed Securities Loan Facility.

And this from the existing terms of the CPP:

The maximum amount of capital eligible for purchase by the Treasury under the CPP is the lesser of (i) an amount equal to 3 percent of the Total Risk-Weighted Assets of the applicant or (ii) $25 billion.

And it sounds as if some big banks will still be eligible for tons of money without having to defer a penny’s worth of compensation for their top executives. Good times.

This actually exempts most major firms, not just some banks. And there are no claw-back provisions to get the bonuses or any retroactive pay. Guess the TARP-receiving banks got their money's worth with that $114 million in lobbying and campaign contributions. I'm assuming the "scrutiny" of corporate perks like private jets and such will be similarly riddled with loopholes. The same for the Senate's efforts, though at least in theory they'd be better.

But Sen. Claire McCaskill's (D-MO) executive-pay cap bill is retroactive, applying to companies that have received past as well as pending bailout infusions. And McCaskill just said she has no intention of giving up her push to attach her version of CEO pay caps to the economic stimulus bill. Here's her statement:

"Everyone is on the right track here. I'm proud the president made this announcement in terms of the rules changing. I'm gratified that my colleagues also agreed that something must be done to restore the confidence of the American people that we have some idea of what's going on. I stand willing and ready to work with everyone to change the arrogant, greedy culture that created this mess in the first place."

McCaskill's office added that she would still push her CEO pay proposal "as a fallback assurance" that the new Treasury Department rules would be heeded. Sen. Bernie Sanders (I-VT), another leader on the executive-pay issue, also weighed in to call Obama's move "a good step forward, but we have to go further."

Late Late Update: Sens. Olympia Snowe (R-ME) and Ron Wyden (D-OR) aren't giving up either; they just announced plans to offer an amendment forcing bailed-out companies to repay already distributed executive bonuses that exceed $100,000. The subtle message from Congress to the administration on these executive pay caps seems to be, "Good start -- but not enough for us."

That sausage-making process has just begun, so it remains to be seen if it'll be as seemingly worthless as the Obama-Geithner rule. And yes, I see the hand of Summers in this.