Obama's Pay Cuts Let Big Boys off the Hook
You knew this was coming. The Obama administration had to come down hard on the companies that received the most obvious bailouts -- Bank of America Corp., American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial. They had to do something to show they were not Wall Street patsies.
Unfortunately, the administration doesn't have the moxie to go after the most outrageous salaries and bonuses that are about to flow. First they let Andrew J. Hall, the oil speculator, escape from Citigroup so that he could receive his $100 million from his new employer, Occidental Oil. No one has yet provided an explanation for how he "earns" his money and what value he contributes in exchange for his speculative gains. It seems his riches flow from helping to raise oil prices for the rest of us. Why should he receive his bounty? Had Citigroup not been rescued by the taxpayer, Mr. Hall would have been just one more creditor waiting on line to get pennies on the dollar. Instead he's going to get it all, now that he's been allowed to move out of plain view.
Also in plain view are the dons at Goldman Sachs, JP Morgan Chase and Morgan Stanley who are going to get big fat bonuses that also derive from taxpayer welfare. Our bailout of AIG saved their butts. In fact, when the government allowed AIG to pay out its credit default swaps in full to these "profitable" banks, it poured $13 billion of booty directly into the bottom line of Goldman Sachs alone. Each of these banks is also benefiting from a wide variety of additional, below-the-radar government programs that provide them liquidity, guarantees for their bonds, and support for their toxic assets.
This was a chance to slap a "President's Wage Cap" on the entire financial sector: no one earns more than the President of the United States until the unemployment rate goes below 5 percent. But the President and Congress blinked.
More importantly, the administration is reinforcing the myth that there's a relationship between Wall Street's outrageous pay packages and their economic worth. But, no economic theory (human capital theory, supply and demand, winner take all etc.) can justify in terms of efficiency why a bond trader earns 100 times more than a brain surgeon or 1,000 times more than a research scientist. That's because there is no connection between Wall Street's pay and real economic worth. They get their money because we have allowed them to create a vast fantasy finance casino. They get to bet with other people's money, lots of it. When they win they keep the profits. When they lose we bail them out.
Worse still, by allowing the fantasy finance casino to continue to pay outrageous sums to its croupiers, we do absolutely nothing to put our unemployed neighbors back to work. Everyone knows that the "profitable" financial firms are not moving money into the real economy. Everyone knows that their billions are not creating new jobs and industries in this country (outside of a few square miles of lower Manhattan).
I fear the White House is tacitly endorsing the ideology put forth this week by Goldman Sachs analyst, Brian Griffiths who frankly said, "We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all."
Been there, done that -- for the past thirty years! As I argue in The Looting of America, Mr. Griffith's theory failed spectacularly. His beloved inequality is at a record high and so is unemployment. The last time it was this skewed was 1929. That's not an accidental correlation. Excessive wealth in the hands of the few creates the demand for speculative investments. Deregulated finance creates the supply of fantasy finance instruments to suck up that excess capital. Severe crashes become inevitable. By not attacking the skewed distribution led by Wall Street's ridiculous pay packages, we are setting up the conditions for the next crash.
No, I'm sorry. I can't get excited about cutting the pay of a GM pension fund manager making $2 million, while we allow the biggest gamblers to walk off with tens of millions as 29 million of us are unemployed or underemployed.
Welcome to the billionaire bailout society.
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.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
Arianna Huffington: Barack Obama Is Doing My Job; Why America Needs Him to Do His
When it comes to dealing with Wall Street, President Obama seems to have traded in his position as our economy's commander-in-chief for a different role: pundit-in-chief.
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It was just a matter of time when the government was able to set a minimum wage they would eventually set a maximum wage.
Obama seems to be afraid.
we liberals are going to have to shake up the democratic party if there is going to be any real financial reform... no moxie obama and his apologetic obamacrats aren't going to do it...
A billionaire bailout society indeed!
It's stunning to read the comments of some, who argue in defense of the rampant greed and selfishness ruining our nation.
If poor people have income restrictions they have to meet in order to get food stamps or other types of help, then companies that are "bailed out" should be forced to limit the earnings of their officers. Nobody is talking about lowering the wages of the office staff - we're talking about putting an end to the outrageous bonuses and perks of those at the top.
Obama is a weak president. He should know that there is a time to camapign, a time to get things done, a time to be a nice guy and a time to bring out the big stick for some asswhipping.
I think the President is way out of his depth here. Why else would he not get rid of the people who helped engineer this disaster instead of putting them in positions where they can keep perpetrating these crimes with their buddies on Wall Street?
Now would be a good time for the Merril brokers to walk down the street and join Morgan stanley/Goldman/JPM.
When the brokers move, most of the time the accountholders move with them. :)
should be fun...
The pay cuts were not ordered or approved of by the Obama Admin. They were not even consulted. Mr. Feinberg was appointed, authorized and confirmed by Congress. He operates independently of the Executive branch. He is not obligated to seek the approval of the President before rendering a decision. Moreover, the POTUS does not have the power to veto Mr. Feinberg's decisions.
After making this decision, Mr. Feinberg notified Treasury, not for Geithner's approval but to inform them of the new rules.
Today, the Federal Reserve proposed new legislation that will allow the agency to set guidelines for compensation for the first time in history. If the legislation goes forward, the Federal Reserve would police banks' pay policies to ensure they don't encourage employees to take reckless gambles like those that contributed to the financial crisis, according to a proposal unveiled Thursday
Read more at: http://www.huffingtonpost.com/2009/10/22/bank-pay-fed-proposes-gui_n_330274.html
New legislation would allow the Fed to veto pay policies that could encourage too much risk-taking by executives, traders or loan officers. It would address the concerns raised by this article.
SPOT ON !
Thank you.
Sometimes its hard to enjoy any progress when I suddenly find a fresh article that downplays what I was just about to celebrate...
Celebrate anyway niblik, this doesn't mean you can't.
The Bonuses are the Scam.
The Banksters take the bonuses out of the accounts when their bets are doing well,
so that the coffers are empty when they go extorting money after the next crash.
Get it?
Well , we the peons will surely allow it! and it will be sanctioned by our government as it has before! Time to Organize or live with the status quo!
Watching the government re-invent the wheel is maddening.... especially when they keep coming up with square wheels! The answer is so easy.... the GS pay scale! They already have it!
The deal would be that if your company needs a government bailout, so long as there are funds owed to the government the company would use the GS pay scale. Lowest paid employee makes $17,605 highest paid makes $98,156 no bonus, no exceptions. http://www.suburbanempire.com or http://www.opm.gov/oca/09tables/html/gs.asp There is no need to play patty cake with the desperate!
A year removed from the global economic crisis they created, executives of the financial companies responsible have yet to disassociate themselves of the notion they deserve the obscene sums they pay themselves.
They simply move money from one place to another and take a cut. Yet even after being bailed out by U.S. taxpayers who will shoulder the bill for years to come, the delusional titans of Citigroup, Bank of America, AIG and their brethren believed they were still deserving of stipends that would make a king blush.
Obviously, Wall Street failed to understand Americans had had enough.
While the bankers who hatched the financial shenanigans in lower Manhattan continued to pocket paychecks in the tens of millions, ordinary Americans bailing them out were being handed pink slips as a consequence of the economic train wreck.
Now, a year later, with any grace from God, those who thought they were too big to fail are going to have to answer to those who were too small to save.
Hopefully in some kind of organized revolution.
The only reason these banks are still alive is because bribery is legal in this country. In order to solve any of our problems, we must first make bribery illegal.
yes, BRIBERY IS LEGAL in America.
LOBBYISM = BRIBERY and ultimately
ROBBERY of USA PUBLIC.
The executives at banks who received bailout money shouldn't even be working there anymore! They failed! They should be fired just like the CEO of GM! They should not be getting a single penny from the government. Their banks should be put through bankruptcy like the law demands!
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