Pay Restrictions May Not Fix Underlying Risk-Taking

Washington Post:

With financial markets booming even as Main Street is still largely mired in recession, policymakers in Washington on Thursday were scrambling to contain growing populist anger by proposing new rules to curb runaway pay on Wall Street.

Treasury pay czar Ken Feinberg ordered big cuts in base salaries and perks at General Motors, Citigroup and a handful of other firms that were kept alive only through the government's extraordinary intervention. More significantly, the Federal Reserve proposed a set of broad new regulations to reduce the kind of reckless risk-taking at regulated banks caused by "heads-I-win, tails-you-lose" compensation schemes.

Read the whole story: Washington Post

Comments

[pompous]

01:20 PM on 10/23/2009

We have all heard the saying you get what you pay for. As consumers we have all learned that is hardly true. The world of black box trading on Wall Street has proven that the best and brightest have engaged not in the business of banking but rather the business of fraud. Wall Street is a forum in which incestuous business relationships have been carefully cultivated from the right graduate schools to knowing the right people. One only has to look at the individuals responsible for regualtion, i.e. SEC, treasury and the FED. Expertise is finance is surely required but our regulators could surely do without their Wall Street colleagues on speed dial or vice versa. Washington must abandon its inclination to garner talent for government service from the casino that is Wall Street.

[BlaineNelson]

10:41 AM on 10/23/2009

.
Will Wall Street Pay Restrictions curb risk-taking?

http://www.youpolls.com/details.asp?pid=6348
.

[denny8844]

09:47 AM on 10/23/2009

I have mixed feelings on this On the one hand the exec compensation compared to 40 years ago is absurd going from the CEO making on average 30 times the average worker to now about 400 times the amount of the average worker. On the other hand these people contribute a disproportionate amount to the Federal Income Taxes. The top 10% of Tax Returns make up 72% of Individual Income Taxes. This compares to the bottom 50% of Tax Returns accounting for under 3% of Individual Income Tax Revenue. Total Revenue to the Federal government last year was just $2.1 Trillion compared to $3.5 Expenditure. If the top 10% pay just 5% less in Income Taxes that is more loss than if the bottom 50% stopped paying altogether. Where is the revenue to support the Federal Government going to come from

[PhilipTaylor]

09:44 AM on 10/23/2009

STOP EXCESS1VE BONUSES QUICKLY AND REMOVE INCOME IMBALANCES IN ONE SIMPLE MOVE by RETURNING TO OUR HISTORIC ROOTS:

After H00VER cr_ashed the Economy with Low Top Tax Rates to 25% (effective rate for top 1% is 17% NOW)

Then FDR raised those TOP TAX RATES to 63% to 94% and it lasted for 50 years from 1932 to 1982!

For 50 years Pre-Reagan the Top Tax Rates varied from 63% to 94% on all income over $400,000!

In 1981 the Top Tax Rate was 70% on all personal income over $212,000.

PROPOSE: 2009 Top Tax Rate of 70% to personal incomes over $550,000 - Inflation adjusted from 1981!

Believe me the $100 Million Bonuses would stop immediately when 70% to 94% of them goes into Helping America Rebuild its Balance Sheet! $70 Million to $94 Million goes to Reducing Deficit and $6 to $30 Million goes to the GREED-MISTERS!

Here is a chart on historical tax rates

http://pol.moveon.org/budget10/chart/?id=15734-8599887-MahjTHx&t=1

[PhilipTaylor]

09:43 AM on 10/23/2009

G0LDMAN HAS PAID BACK ONLY 15.26% of the MONEY IT RECEIVED FROM AMERICANS

http://www.businessinsider.com/dylan-ratigan-how-goldman-sachs-made-3-billion-a-year-after-we-bailed-their-lucky-asses-out-2009-10

G0LDMAN got the Following:

1. $10 Billion from TARP
2. $11 Billion from FED
3. $30 Billion from FDIC
4. $13 Billion from A1G pass through

Total = $64 Billion

They have paid back only the $10 Billion in TARP money or 15.26%! When and where is the other $54 Billion!

Time to LIMIT their INCOMES just like CIT and BofA!

[JohnIII]

09:35 AM on 10/23/2009

I'm not sure risk is the problem. "Too big to fail" is the problem.
There would be less risk if these entities were smaller and really had to suffer repercussions of their risk.
Right now they can just go back to the Federal trough if things get dicey.

[sonofsamphm1c]

10:41 AM on 10/23/2009

Systemic risk does not give a flip how big the banks are. One bank; 40,000 banks, systemic risk can take all of them out either way.

[badkingjohn]

09:21 AM on 10/23/2009

I see exec pay/ bonuses as just a symptom of wealth disparity that has been established in our country. Starting with reagan and advanced by every adminstration and congress since. From busting unions (reagan) to removing glass-seagal (clinton). The current stir over exec bonuses is a distraction

[chocolatecity]

09:10 AM on 10/23/2009

I don't think that anyone believes that just cutting salaries is going to curb excessive behavior. That is why congress is working on financial reform. From what I have heard, the biggest incentive for sound risk taking will be that these folks will have to have enough money to cover their bets or they can't make them. I think people will behave more responsibly when they know that they are playing with their own money instead of using a obscene amount of leverage. The devil is in the details and we have to see the loopholes to know if we are moving in the right direction.

[sonofsamphm1c]

10:48 AM on 10/23/2009

There is no way to have enough money to cover the bets. They can have enough to buffer a sour situation.

Your car insurer, as a for instance, does not even begin to have enough money to cover a situation in which all the cars were destroyed at the same time. He has a small reserve, and is betting that all the cars will not be destroyed at the same time.

A large number of cars being destroyed at the same time is the systemic risk as it would kill the car insurer. The insurer would be instantly bankrupt, and the policyholders would get a few pennies for their insured car.

[lily31]

08:53 AM on 10/23/2009

"May not"????

That's laughable ~ there is every sign that it will not.

The only thing that will address the problem is for Congress and the White House/Treasury to get serious about listening and acting on most of the recommendations from the people that saw this coming and knew where most of the systemic problems were born. Nudging around the edges because someone might be unhappy or stop the flow of cash to re=election coffers is clearly self serving..

Either act with courage or get out of the way!!

[raker]

08:51 AM on 10/23/2009

This is as much a story of how low The Washington Post has sunk as it is how vile the financial industry is, with all those snide, contemptuous jabs at us and our "populist" provincialism. The Post ought to stick to what it knows, that is, brokering assignations between politicians and any hot prospect who is willing to pay.

[vippy]

07:44 AM on 10/23/2009

Has common sense left this country? If you make a bad decision you should be held accountable
accordingly! That goes for our senate, too! Geez.