NEW YORK (Reuters) - President Barack Obama's "pay czar" said on Friday he will not cap compensation for the top employees at bailed-out companies, and will not reveal names, when he releases the first wave of decisions within a few weeks. "We don't want specific names next to dollars," said Kenneth Feinberg, who was appointed in June to decide compensation packages for the highest-paid personnel at companies that received U.S. government bailouts....the pay plans should also be generous enough that the companies can retain top people and become profitable enough to repay taxpayer investments, Treasury has said.
Is this a great country or what? You can be a speculator working for a failed company and still earn tens of millions of dollars. And the Pay Czar will bless it. And the taxpayer who is footing the bill won't be able to find out who's getting how much.
Since they won't give us the real information, let's try to imagine the conversation that might take place between the Pay Czar and Andrew J. Hall, the CitiGroup oil speculator who is about to waltz off with $100 million.
Hall: Am I to understand that our conversation will not be recorded, that it will not be subject to FOIA or legal discovery, and that no compensation numbers or names will be revealed by you or your staff, or by any other official?
Czar: That is correct. Anything you say to me will be held in strictest confidence. You have my word on that.
Hall: OK. I'm not sure that will ultimately be the case. Things have a way of leaking. But I will take a chance. I'm a risk taker by nature. And I want you to understand precisely what's going on. When you see better how our financial world works, you will understand why I will get my $100 million. Shall I proceed?
Czar: Please do.
Hall: Approximately a year ago, the government could have done whatever it wanted with the financial sector. We were on our knees all the way through the spring. Traders like me, especially in the mortgage area, had so screwed up, that the entire edifice of finance crashed. Most financial institutions were on the verge of bankruptcy. Credit froze because none of us trusted each other anymore. The real economy was starved for credit and fell off a cliff. Auto sales, for example, fell 40 percent worldwide in a matter of weeks. We were desperate for capital, for liquidity, for help.
Czar: I don't want to be rude, but we all know this. Why bring it up now?
Hall: Because at that moment you could have slapped a wage cap on us and we could have done nothing about it. You could have said, "No one in the collapsed financial sector shall earn more than the President of the United States until the unemployment rate comes down below 5 percent." Or something like that. What could we traders have said?
Czar: What do you mean?
Hall: How could I have asked for $100 million from Citigroup, a bank that is virtually owned by the US government? Millions were losing their jobs and Wall Street was getting trillions in TARP funds and asset guarantees. What am I going to do, go to the American public or Congress and plead poverty? That I can't live on what the president makes? No way. I was cooked. You had us all by the short hairs.
Czar: But we would not have proposed a cap because that would have frightened the markets and made the situation worse, wouldn't it?
Hall: Ah, that's what you and your boss thought, but I'm not so sure that would have happened. Remember, unemployment was shooting through the roof, 401ks had lost at least half their value, and the financial sector was choking on the toxic assets it had created. Confidence was already at an all-time low. I doubt investors would have cared if I got $100 million or $400,000. In fact many of the losers would have loved to see me take a hair cut.
Czar: Ok, we didn't do that, but I still have the authority to give you a close shave if I think your compensation will add too much risk to CitiGroup or the economy.
Hall: No offense, but you won't do anything of the kind. It's too late. You see, we took the trillions in taxpayer support, and because you demanded nothing important from us in return, we could show enormous profits. After all, you let AIG -- bankrupt in all but name -- pay its debts to banks at 100 cents on a dollar. Lo and behold those banks (like Goldman Sachs) booked record profits. You didn't stop that. You also did nothing about "too big to fail." Banks got bigger, not smaller. And investors realized that they could come back into the markets because the government was going to bailout the big banks if things got rough. The stock market went up. 401ks came back to life and now you'll be afraid to mess that up by slapping tough controls on people like me. You had your shot and you blew it.
Czar: That answer is not going to sit well with someone like Barney Frank who may not think you're entitled to your full $100 million.
Hall: Ha! I don't think we need to worry about Congress. By not coming after us right away, we've had time to regroup. You see all of us traders have put together quite a little lobbying fund to help Congress see how important it is to keep talent like ours in this country. It's obvious that without honoring our contracts and giving us our full bonuses, we'll go abroad or to private hedge funds and you'll have even more failed banks. I mean, have you been listening carefully to Frank and company? They bark a bit but now they're saying that they don't want to discourage innovation or drive talent away. They think that people like me are part of the solution, not part of the problem. It's amazing what lobbying can do.
Czar: What do we say to the 29 million are unemployed or underemployed?
Hall: We don't have to say anything because as you put it, you won't be publishing "specific names next to dollars." But if someone on your staff happens to leak the information, I would tell the American public that I'm doing them a big favor. The taxpayer will be getting their TARP money back much sooner because of my hard work. I'm speculating on their behalf. And besides, Americans like to back winners. I'm an oil gambler and I win big.
Czar: But we could take the sting out of this by restructuring the deal so you got your money over a few years and took some stock options instead of cash.
Hall: Sorry. No can do. I have a contract, and now CitiGroup has to pay. That's the rule of law. That's America. You missed your chance and I don't have to compromise at all. You see, I have to stand up for the principle of the thing.
Czar: If the public sees you with a $100 million payday during the worst year in our financial history since the Great Depression, they might call for something like a 90 percent income tax on people like you, just like we had during the Eisenhower years.
Hall: Please, you know that will never happen. People hate taxes. People hate government. They'd rather see me make $500 million on oil speculation, which I hope to do this year, than to have the government raise my taxes.
Czar: Are you telling me that I do not have the power to reduce your compensation? That's just not true! I'm the Pay Czar!
Hall: On paper you have some power. But you already gave most of it away when you said you wouldn't institute caps or reveal names. And besides, it's too late. If you attack us now, you really will lose investor confidence, the markets will crash, 401ks will collapse and the American public will crucify you, not me. By the time all this is over they won't even remember that Wall Street caused the crash in the first place. Instead they'll be returning to the nation's favorite pastime -- blaming big government.
Czar: Well, it's good to clear the air. Thank you for your candor. Now, one last question: You want cash or check?
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
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