Another Stimulus Stealth Move

This tactic is outrageous. Then there's the socialist bent.

I don't even want to think about the ones yet to be discovered. Like or dislike the move, the tactic is anti-democratic - and you won't like it when they unearth the ones maybe you don't like. On a practical level, the government has invested taxpayers in these firms and we are going to end up with the bottom of the barrel on the management side. Actually, how many will be family members of Congress before we are done? Then Congress just might reverse this, huh?

A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.

The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.

The pay restrictions resemble those that the Treasury Department announced this month, but are likely to ensnare more executives at many more companies and also to cut more deeply into the bonuses that often account for the bulk of annual pay. The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay. Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.

Comments

[Anon]

I don't have a problem with it, when you run your company into the ground and then get billions in taxpayer money, you should be fairly severely constrained, including your salary and bonuses.

As far as a so called 'brain drain', given that it was the Wall Street brainiacs who bankrupted the financial system in the first place, who mismanaged their own businesses into insolvency and who failed to mitigate or even recognize risk, I'd say not much of a net loss.

[anon]

Plus, where are these executives going to go? There is no other industry that awards the kind of outragious bonuses as they did on Wall Street. The AVERAGE bonus was $180,000!!! There is no other industry I am aware of that awards those kinds of bonuses or that awards multi million bonuses to anything beyond a handful of top executives.

[Dan]

You're missing the point, Anon. If they ran it into the ground, why the hello wouldn't you fire their azzes? his has nothing to do with that. WOuld the goal be to bring in new, competent management? Now try and recruit it when they can go elsewhere. We'll have bureacrats running this crap on our investment money as taxpayers.

[Anon]

Where is the 'elsewhere' that they are going to go? There is nowhere for them to go that will pay them anything close to what they were making.

The U.S. banking system is functionally BANKRUPT, the $$ figures attached to all those credit default swaps and securitized loans exceeds their actual assets and they know it. Plus, there aren't any actual "assets" that back securitized loans, so to begin with, it was pure speculation, and there is no way to get any asset back if the borrower defaults, the owner of the securitized loan can't take the house or the auto, so their paper is worthless. That is the reason why banks still aren't lending money, because they know that they are technically insolvent.

The entire banking system needs to be revamped from the ground up, new regulations on everything from derivatives to capital reserves. Then, we can talk about how to recapitalize the banks.

All we're doing now is pouring money into a sieve.

At this point, incompetant, corrupt bankers are no different to me than incompetant, corrupt bureaucrats. At least with the incompetant, corrupt bureaucrats running things, nobody is going to be getting a $30 million bonus.

[mark l.]

pretend 1000 execs in ny are affected by the salary cap...

let's give them an average salary of 5 million, pre-cap.

4.5 million*1000 execs= 4.5 billion dollars.

federal tax revenue lost?
4.5 billion*40%= 1.8 billion.

state tax lost?
4.5 billion*6.5%=293 million.

the effects of reducing the salary base to draw tax money from, on just a 1000 execs is over 2 billion dollars.

fewer dollars come in from a top bracket?

time to start pulling from the next-to top bracket. when these guys are tapped out, one can move on down to the next bracket, rinse/repeat...

[Anon]

Sorry, I can't countenance the people who bankrupted the financial system continuing to draw huge salaries only so they can pay income tax and their salaries being paid for by taxpayer dollars. Talk about being short sighted.

The system has to be reformed and that includes the system that paid exorbitant salaries and bonsues because the system is/was broken and the profits were illusory.

I mean if that's the case, if all we care about is income taxes, then why not shovel another trillion or two to the banks with no strings attached so they can just continue on selling worthless stocks and churning the market over and over, but paying their taxes along the way.

[mark l.]

I remember the kerfluffle about the bridge to nowhere, total cost-400 million.

Now we have the train to disney world, las vegas to disneyland-8 billion.

Some unintended consequences of the train?

Every illegal that makes it to los angeles will be able to make it to las vegas in less than 3 hrs, at a dirt cheap rice.

Every gang-banger, prostitute, and drug dealer will be able to commute to work.

yes, rich people might use the train, but providing mass transit for the miscreants of LA to las vegas is going to crush the beauty of las vegas.

remember Atlantic City?
well worth visiting by car...

the gambling zone looks great, while the city that surrounds it is a crumbling, decaying piece of sh*t.

The 'mystique' and 'safety' of vegas was that it built in the middle of nowhere. Thanks to harry reid, the gap to nowhere has been bridged, connecting one of the most socially plagued areas in the US to Nevada's greatest investment.

[mark l.]

"Sorry, I can't countenance the people who bankrupted the financial system"

what about the people they hire in the future? we are all 'shareholders' now.
I'm imagining the best and brightest going to work for the companies that didn't need a bailout.

In theory, the same people who bankrupted the system could go out and create another company, with no current debt and no restrictions on pay. What if all the execs at AIG just go to work for the fictitious company AJG, depleting the assets of AIG by steering investors to a new company?

This exclusionary salary rule will only apply specifically to the companies that are bailed out, not the execs for the rest of their lives. The 500k salary cap would effectively put these companies out of business as we are simultaneously trying to resotre them with federal investment. This is like having a home invasion and deciding to brick up every point of entry...you won't get robbed, but you also will never be able to get out of your house.

"The system has to be reformed and that includes the system..."

repeal glass-steagall. don't let financials function simultaneously as the insurers of their clients investments.

"then why not shovel another trillion or two to the banks"

the derivative market that they created is beyond our govts ability to insure. There is easily over 40 trillion dollars in options out there. Not all the options are bad, but just on the theory that 55% have to be paid out on, while 45% can be collected upon provides shortfall of about 4 trillion dollars. Even after Tarp II, we still have Tarp III and possibly Tarp IV.

[Todd]

Oh, let me try to summon up some outrage about top-level banking execs who can't make their usual $5-20 million a year, while their shareholders get shredded and American taxpayers get left holding the empty bag. I think you should summon up some outrage, Dan, about how the banks profits were privatized and their losses socialized. Yet, their was no clawback of bonuses received on phony profits in the previous years. That personally outrages me - they get to keep their hundreds of millions. Dan, do you think Angelo Mozillo deserved the compensation he received this decade, not to mention the $400 million of vastly inflated Countrywide stock he sold? Or, Stan O'Neil, Jimmy Caine or Dick Fuld for that matter? I call for equal opportunity outrage.

As you wrote, Dan, the cure for these banking execs to not have their pay capped is to repay the TARP funds their banks borrowed ASAP. If not, they still have the opportunity to be well rewarded through owning restricted stock if they profitably manage their companies for the long run, and not simply to juice earnings for the next year to get yet another gargantuan bonus. 10 years from now when that restricted stock is fully vested, it's entirely possible the stocks could be worth 5-10x what they are now. What is the flaw in forcing these execs to finally manage their businesses prudently for the long run?

[Steve]

My only problem with this is that it is pure emotionalism. Until someone is man (or woman) enough to honestly deal with the totality of factors which led to this mess I simply don't give a crap about the executive compensation of a small cadre of bankers.

[LOL]

The pay restrictions are only for banks that accept bailouts from the government. I fail to see what is wrong with this. If they're asking for welfare, well, there's going to be stipulations attached.

[mark l.]

"Oh, let me try to summon up some outrage about top-level banking execs who can't make their usual $5-20 million a year..."

I feel your pain, but-

there is no impediment to execs making 5-20 million, just not at the specific companies that the govt hs invested in. We need good management, but a salary cap on the govt firms will produce the following effects.

The govt finanacials will serve as the training ground for the new, up and comers, who after demonstrating their ability to manage funds, will be scooped up by the non govt financials. We hurt the companies we have invested in, and are promoting every other firm.

The good execs worth more money will find work elsewhere. The crappy execs who can't find work will have to fill in those 500k slots at companies that we have stake in.

[Dan]

"The good execs worth ..."

Careful Mark. You're getting into things like free market labor and supply ad demand. Those are concepts well beyond liberal's comprehension.

[Anon]

What good executives? Where are they? All of these banks are insolvent, that means, by definition that the senior management at ALL of these companies are worthless, incompetant, greedy fools. Who is going to want to hire the guy who ran AIG or Bear Sterns or Citibank into the ground at the same salary structure he had before?

I would hope that these moral and ethical criminals will not simply be able to go out and start another hedge fund or bank and continue on their merry way.

If your company is bankrupt and you require billions of money from the taxpayer then you don't get a bonus, if you want to shop your resume around, go ahead. But, I somehow don't think the market is going to be snapping these guys up right and left, agreeing that yes, indeed, you can expect another set of $10-50 million bonuses come next year.

[mark l.]

The problems occurred within sections of the financial firms.

I bought some AIG the other day, because the insurance side alone was a solid investment. Doesn't hurt to know the govt is backing my baby. The risk that the smaller departments exposed to the larger company wiped them out.

The guys who were running the options/derivatives/reinsuring dept sold out their co-workers, but they fail to repreent the company at large. This may come as a shock, but there are honest people working for financial companies. A lot more than the number of criminals.

[Todd]

The govt finanacials will serve as the training ground for the new, up and comers, who after demonstrating their ability to manage funds, will be scooped up by the non govt financials. We hurt the companies we have invested in, and are promoting every other firm.

The good execs worth more money will find work elsewhere. The crappy execs who can't find work will have to fill in those 500k slots at companies that we have stake in.

Posted by: mark l. | Saturday, February 14, 2009 at 04:30 PM
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This happens anyway, it's a part of capitalist society, so it's not a reason against instituting pay caps at TARP recipients. Mobility in the financial services industry has always been a big part of getting ahead. You're dreaming if you think the creme de la creme would stay at mediocre Citibank or BofA if they have the opportunity to move over to Goldman (which is likely to repay TARP funds sooner than anybody) or a hedge fund like SAC, salary cap or not.

Another point is that if these guys are worth $5-20 million per year, let's see them claim their own stake in the world, start their own firms and risk their own capital. Shouldn't be a problem for them to continue making megabucks since they're so talented, and I'll have a whole lot more respect for people who put their own money on the line instead of the firm's money.

[Anon]

That's true, but it doesn't change the fact that ultimately the CEO/CFO/CRO, etc. are responsible for what has happened. This wasn't like Barclay's with some rogue trader, this was something that everyone had bought into, everyone knew the firm's exposure and leverage position and how many credit default swaps were out there. There is no excuse as far as I am concerned. All this psychological crap about the hows and whys of this particular boom/bust cycle is just that--crap--the NUMBERS never supported this stuff. Securitizing mortgages/auto loans etc. never made sense in the first place, it was always a gimmick, these profits were always based on monopoly money. Everyone knew it was a gimmick, a loophole, and all this further BS about 'sophisticated credit instruments' was PR speak for 'this is a faulty investment, ponzi scheme, but if everyone keeps quiet, we'll all make a ton of money, and when it goes bust the government will bail us out'...

Yes, AIG's insurance side was well run, and if they had stuck to insurance they'd be in great shape, but they didn't, and I don't believe that the management at AIG that presided over this fiasco is 'talented' 'good quality' or deserving of anything but the most draconian salary cuts.

[Mark Turner]

"Another point is that if these guys are worth $5-20 million per year, let's see them claim their own stake in the world, start their own firms and risk their own capital. "

Michael Bloomberg (now mayor of NYC) is a success story here -- Bloomberg Financial Markets, or whatever the company is called now. His net worth is a few billion dollars now.

[southdakotaboy]

Anon the problem with this isn't about the guys who run things now, but who will run things down the road. The best and the brightest will always go to where they can get the most. Now if there is a cap on executive pay here in our banking industry the best and the brightest of the next generation will do one of two things 1) move to different countries that don't have these caps or 2) find a different line of work that has no caps. The end result will be that the people who wind up running our banks will not be the smartest people for the job.
It is a fact that the smartest people around do not go into government work.

[Steve J.]

" we are going to end up with the bottom of the barrel on the management side. "

LMFAO!!! We should've SHOT the idiots on Wall Street
who got us into this mess.

[Steve J.]

"If they ran it into the ground, why the hello wouldn't you fire their azzes? "

Exactly! Nationalize the big banks, fire the top level management, dismiss the board
and start from scratch.

[Steve J.]

"What if all the execs at AIG just go to work for the fictitious company AJG, depleting the assets of AIG by steering investors to a new company?"

AIG is insolevnt, there are no assets the thieves can take.

[Steve J.]

"The crappy execs who can't find work will have to fill in those 500k slots at companies that we have stake in."

They are ALL crappy.

[LOL]

"It is a fact that the smartest people around do not go into government work"

NASA, the top university system in the world, the military

Not all government work is the DMV, idiot.

[LOL]

Didn't government scientists invent the atom bomb? Seriously, open your eyes.

[Frank]

I seriously do not get the handwringing of conservatives here. Pay people whatever insane-crazy salaries you want, but not on my tax money.

THESE CEOS FAILED. Failed. F-A-I-L-E-D. They are not talented or ethical or any other glowing adjectives you'd like to apply to them. So you're saying that if we don't let the bailed-out banks continue to give insane-crazy salaries, two things will happen:

1) The failed CEOs will go elsewhere.
First, I don't think this is too likely. Who in their right mind would hire these people who are failures on so many levels? And second, if they do, then you're arguing that the bailed-out banks are going to get WORSE people in as CEOs? Oh really, now? What are they gonna do, eat babies in their sleep? How could they be worse stewards?

2) All the best and brightest care only about maximizing income.
HA HA HA HA HA!!!!!!!!!!!! This is so wrong-headed, I barely know where to begin. But I'll highlight two basic wrongs here:
- Anecdotally, this just seems like nuts. I can name many hugely talented CEOs who make little money but have done great things for their companies. And, of course (like with our wonderful failed banks), I can point to quite a bit of the opposite.
- Many, many of us (unapologetically) bright and talented people do not just follow the money. I could have easily gone to Wall Street out of b-school. Or a top law firm out of law-school. But no, I'm making a tiny fraction of the money I could have been making and you know what? I'm a lot happier. I'm seeing the world. I have free time. I am not defending evil chemical companies or brand managing Cheetos or screwing the little guy.

Clearly, many conservatives just have an inexplicable blind spot when it comes to the topics of competence, money, and life value. Salary != ability. Money != happiness. After your first couple hundred thousand bucks, seriously, do you really think life gets that much better? Get a clue!!!