The $200,000 Insult: Come to Chicago
Kenneth Feinberg, President Obama's compensation czar for bailed out banks, appears to have taken some genuine steps to rein in excessive executive compensation at the basket case banks that received the most TARP money. He cut cash salaries by 90 percent in some cases and reduced overall compensation for the top executives at the seven institutions that received the most government money.
This is a good first step, but it is only a first step. The pay caps involve only a relatively small number of people in an industry where hugely bloated salaries are the norm. Even in these cases it is too early to know that the pay caps will actually prove to be binding. After all, Wall Street's main craft is evading regulations and taxes. It is entirely possible that those clever Wall Street boys will find a way to get around whatever pay restrictions Mr. Feinberg puts in place.
Whatever happens to the pay of this small group of executives the real problem goes much deeper. The Wall Street folks view the wreckage from last year as a minor distraction and are eager to get back to business as usual. This attitude was best expressed by "a person close to A.I.G.'s board," who said of plans to restrict pay at the AIG division that wrecked the company to $200,000: "that's insulting ... why wouldn't anybody quit?"
Of course, this "insulting" pay package would still give our AIG executives more pay than 99 percent of the work force. They would be getting more than three times as much as the average teacher, firefighter, or nurse. They would be getting more than five times as much as the average factor worker and more than ten times as much as minimum wage worker.
Furthermore, if anyone among these other groups of workers mess up so badly that they bring down their employer, they lose their job. They don't get to go somewhere else because a $200,000 paycheck is "insulting."
Wall Street badly needs fixing. Fortunately we have the tool to do the job. It's called a financial transactions tax (FTT) - a modest tax on trades of stock, futures, options and other financial instruments. Such a tax could easily raise $100 billion a year, while cutting the financial sector down to a manageable size.
An FTT is not an alien concept. We actually had a tax on stock trades until 1964. The United Kingdom still has a 0.25 percent tax on stock trades that, relative to the size of its economy, raises the equivalent of $40 billion a year in the United States.
If we follow the lead of the UK, we will a great revenue source that will barely touch most of the population. Investors who buy and hold stock for 10 years will barely be affected, as is the case of a farmer hedging her wheat crop. However, someone who buys stock at 2:00 with the intention of selling at 3:00 would pay a substantial price.
There are many other good arguments for an FTT, including that it is the fairest way to fix the damage to the budget caused by the recession and the bailout, but an FTT will not get an airing in a Congress where the banks continue to wield enormous power. Congress will only consider an FTT, as opposed to more regressive proposals like a national sales tax, if the public demands it.
The public will have an opportunity to express their outrage at the banks and the need to rein them in at the Showdown in Chicago beginning on October 25. If this protest proves successful, and there are hundreds more like it around the country, then Congress may start thinking more clearly about measures to change Wall Street culture and to get back our money.
Robert Reich: Breaking Up the Big Banks, and Why Congress Won't Do It
Two ideas are floating around Washington regarding how to handle 'too big to fail' banks, but only one is supported by the Treasury and the White House. Unfortunately, it's the wrong one.
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I think it would be great if these bankers get upset and quit. They caused this mess. Surely there are very intelligent, honest people out there that can do a better job. There are probably at least millions of us that could run a bank into the ground and not paid great sums to do it. What we need in this country is less arrogance.
If you earn income from money invested and someone else earns income from WORK, it does not mean your income from investments should not be taxed the same as someone whose income is from work. It is still income. If the Courts has ruled that Corporations have the same rights as individuals, then they should also have the same responsibilities. Corporations over the years have been given super rights over individuals. These rights have been given to them by the Supreme Court. The individuals rights were given to them by the Constitution.
Here is another bad idea. I buy and sell stocks. Why should I be taxed more? Why shouldn't we tax every person who crosses a street or posts on a blog? Maybe we should have a poor tax like there is in Monopoly on the "Chance" card.
This is how the limited learned think....d
Yes. And guess what? It is a bad idea. If you want to insult me, please give a little bit of explanation rather than "This is how the limited learned think".
it's called reigning in the speculator
If speculators lose money, they stop. What business is it of yours to try to restrict someone from trying to make money? Do you have any stocks or mutual funds? If you do, you should get rid of them because it is unfair of you to try and make any money that way.
Jail 'em, don't bail 'em, tax 'em, too. Thank you, Dean Baker.
Not to belabor the point made by Woodshedder, but I do want to make clear that tax cuts do not create jobs regardless of what research regarding the multiplier effect tells us.
While tax cuts may create a multiplier effect, they do not create jobs. Investment creates jobs. If the tax cuts are invested in foreign countries, jobs are created in foreign countries and the multiplier effect will bear fruit only in those countries where it creates jobs. So long as investment in foreign countries remains high, more tax cuts in this country will be fruitless for the American worker.
We as a nation cannot depend on corporations receiving tax cuts to invest tax cut money in jobs in America. If you need evidence to support that statement, you can begin your research by looking up outsourcing.
Tax increases, however, will increase government revenue and allow government at all levels to create the good jobs so desperately needed by Americans.
The right wing tax cut flimflam should be sufficiently exposed by now for the scam that it is.
And let’s put the research back where it originated-in the ivory towers of academia.
Great idea! take the money and put it back into our 401k's and pensions that Wall Street lost. Then once those are paid off, take that money and pay for Medicare for all. Let the Bush tax cuts run out and cut the military budget in half, bring the troops home, close the bases and this country is in the black again very quickly. Then we can turn our attention to the much needed improvements in our infrastructure and education.
Hold on. You may be someone who is wealthier than some others which is not fair. Perhaps they (the government) should be taking from you and giving to someone who has not earned it. In fact, you should be paying money to me because it is fair.
As a guy who does buy some stocks & ETFs online (with generally the intention to hold them for a while), and who would actually get hit with this kind of tax,... for the 2-3 trades I make each quarter,..
Do it,.... 0.025% (like in England) of the value of the trade works for me. I'll be happy to pay my teensy slice off the top of what I buy as long as the idjits on Wall Street pay EXACTLY the same percentage.
What is stopping you? You could just go ahead and pay the tax to the IRS right now. They take cash, check, and I do believe that they take credit cards.
These Tobin Taxes on stock transactions and currency speculation are a good idea. They've very small, but they bring in a lot of revenue from the sheer volume of these transactions, many of which are all automated and computerized now. The tax would simply be collected automatically in the same way.
IF you think Wall Street people like Geitner, Summers and Bernanke would go for such a tax, you must be watching different news than I do. I'm sure these taxes would hurt 'ability to retain talent' and 'stifle innovation' and are 'against free market principles'.
There are huge social advantages to taxing the sale of stocks and derivatives.
First, most states have a sales tax which taxes most purchases the middle class makes. Showing favoritism to Wall Street by exempting their transactions from taxation is fundamentally unfair and reduces the credibility of the tax system as a whole.
Second, the Wall Street Profiteers already suck 40% of corporate profits from our economy. To a large extent that is untaxed because they shelter and structure their incomes in such a way as to pay less taxes (as a percentage of income) than the people cleaning their offices. It is destructive to our society that the richest are taxed less than the people who work for them because it creates anger, frustration, and a sense of unfairness.
Third, the excess income of the Profiteers can be put to a better use, even if it is just paying down the national debt.
Great arguments!
I like the idea, but would suggest further incentivizing people to hold onto stock longer by scaling down the tax after longer periods of ownership - say, five to 10 years. After 20 years, it might go down to zero to help retirees.
Amen! Small wonder there's so much fear and foreboding out there.
Economist Marty Sullivan said it better than I could this morning at http://www
Our leaders are obsessing with politics rather than addressing real economic concerns. Over the objections of the economic team, political spinmeisters in the White House are pushing palliatives like a jobs tax credit and $250 checks to seniors. In Congress member keep reminding us how extremely busy they are but unfortunately most of their efforts are unproductive. Gimmicks and double-talk may help them get through their legislative days but are not really helping the economy
Oh good, It would be a "modest tax". They all are, arn't they? Just another Pythoneusqe thing. "Tis but a flesh wound.
And your obviously much better solution is . . .
And your evidence that a modest tax would be lethal is?
A small tax on a bunch of activity that gambles with other peoples' wealth - with huge upside for the gambler and huge downside for taxpayers who end up eating losses - that tax will not discourage the behavior being taxed.
Instead, the government becomes addicted to it too .... just like sin taxes on alcohol and honest gambling (ie., where people admit they're gambling rather than "investing")
instead, we need to suppress development of financial derivatives that involve promises the developer doesn't back up with his own cash
That's what I'm talkin' about - roll back to '98 and get rid of derivatives trading and default swaps entirely.
I vote for both. The Wall Street Profiteers need to pay back all the support we, through our government, have given them - with interest. The only way that will ever be done is through taxing stock and derivatives transactions. It will also reduce the total amount of profit Wall Street sucks out of the economy, approximately 40%.
I tend to agree with you, the writer is being far too timid. A much larger tax is needed to discourage the behavior of the Wall Street Profiteers. If taxes are much higher, that reduces the profit of the corporation, thereby reducing the amount of money available for the Profiteers to pillage from.
Are you arguing for a bigger tax then?
Or suggesting that sin taxes on alcohol, tobacco, gasoline, etc. things that impose high costs on society are bad?
Did I spend the last 10 years studying economics for nothing?
We don't need an "instead". We need this Tax.
$100 Billion could pay for health care. It will only affect those that do millions of shares over and over all day long, the very people that are screwing our economy.
For the small investor, a minimal affect and one which they will not regret.
The FTT is but one small step we need to reign in the speculative gambling going on. The "insult" is to the American people, who labor daily without any grand rewards for playing risky games with peoples money and lives.
Why should Wall Street bankers make $10 million a year when airline pilots have to work two jobs to make ends meet, doctors have to sell their practices because insurance compensation pays less than operating costs, and engineers watch their jobs shipped off to Bangalore?
Their entire value derives from the fact that they are in the USA and our dollar is still a desired currency. But if the rest of our nation becomes poor while they prop up their Potemkin Village of an industry, that inherent value will go away. Very very few people on Wall Street are actually good at investing money for any long period of time. Very very many people on Wall Street are no good at it at all.
Doctors, pilots, engineers, entrepreneurs have had to struggle for the last decade to make ends meet. Maybe if bankers had to join the ranks of the struggling we'd see some of that survival-o
They make that kind of money because income taxes are so heavily weighted in favor of the wealthy as to be laughable if it weren't so serious as to the future sovereignty of this nation. The first step is publicly campaigns funded campaigns. The next step is elected representative compensation based on 2X the average income of constituents in their districts which rises or falls based on how well voters are doing income wise. The third step is progressive income taxes of 95% on income over what would be considered a "self insurable" amount. Some suggest $3 million annually. I'm a little more generous and suggest about $5-6 million annually.
I disagree with some of your other posts, but I actually like what you say here.
I agree with all of your points totally. However, the reason the Wall Street Profiteers get paid so highly is two-fold. First, Wall Street sucks 40% of total US profit out of the system and the Profiteers are rewarded handsomely for diverting so much money that could be put to better use elsewhere. Second, the directors who set compensation are wholly captured by the people who are getting paid. I would love it if my 4 closest friends got to set my compensation, at least partially based on how much money I diverted their way from the company I work for. That's a pretty sweet deal.
So I would add one more item to your list. All compensation over 50x the minimum wage must be approved by the owners of the corporation - the stockholders.
Martin, why should favorite ball player make ten million dollars a year? why should your favorite actor make 20 million dollars for a few weeks of work? Should ALL pay be capped? or just the folks you don't approve of ? Maybe Tom Cruise should not be allowed to make more than 10 times what the guy who gets coffee for the director gets paid for his next movie. Would that make you richer?
Not a bad idea. Who needs that much cash, anyway?
Sorry. But that analogy is a tired and flawed notion. Athletes and actors earn their salaries through ticket sales and advertising revenue. For the same reason, team owners and movies studios are worth billions. The athletes and actors are the creators of that wealth and deserve their rightful share.
An athlete who does not perform is soon relegated to a minor league team or dumped from the game entirely. The actor whose movies do not produce box office sales is reduced to selling used cars or waiting tables.
Not so with the CEO. Executive salaries are the result of the hard work of others who are too often inequitably compensated for their efforts. This kind of inequality can be described as exploitation. Also, CEOs frequently fire loyal employees to produce profits. Such callous behavior cannot be viewed as a skill. I have often thought a monkey could be trained to increase profits by firing people simply by pushing the correct buttons on a lighted panel.
Other inimical behaviors by senior level executives have included paper manipulation, false reporting of economic data and power grabs that result in control of boardrooms that irresponsibility consent to outrageous compensation agreements.
Athletes and actors who are successful earn their compensation. CEOs rig the game to enhance income that is largely unearned, unjust and frequently unlawful.
This is an awful idea. Let me tell you something that you don't know: this will widen bid-ask spreads because it will drive away layers of buyers and sellers in stocks that are there to seek profit. In other words, stocks will become MORE volatile, not less volatile. What does this mean for you? it means that instead of getting, say $100 when you sell your stock, you will get $99. And it means that your pension fund will pay for all of this with lower returns. The people proposing this tax have no clue how trading works. No clue.
No. Actually, it appears that YOU have no idea how taxing works . . .
ahh. I see. I'm going to venture a guess that you don't even know what a bid-ask spread is. In fact, i'm sure that my post above was the first time you ever heard the word. here is a suggestion: Why not try to learn a little bit more about how stocks actually trade before supporting a policy that will end up TAXING your investment returns and LOWERING your standard of living and the standard of living of millions of retirees in this country. If you can't connect the dots between a transaction tax, wider bid-ask spreads, and an increase in volatility in the stock market, then we cannot have an intelligent debate. maybe it is time to learn more wall street trading before you support policies that will hurt your retirement funds in ways you have not even considered.
spot on. this will have a negative effect for all Americans.
It is perplexing how so many on the left lament that the lower classes vote against their own interests and yet support ludirous tax schemes such as this. I imagine they believe they are supporting a tax that only affects other people, which is their preferred tax.
I'm way on the left, I pay my taxes, and I have no problem paying my share. Your comment is insulting and unfounded.
Yeah right.
The UK has had a financial transaction tax for years. So what is more volatile, the VIX (US) or the VFTSE (London)?
VIX. Chart right here: http://fin
pwhunter..
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