Does the Administration Care About Executive Compensation?

They certainly want you to think they do. Yesterday was Executive Compensation Day in Washington. The Treasury Department appointed Kenneth Feinberg to oversee executive pay at seven companies that have received extensive government aid – AIG, Citigroup, Bank of America, and the car companies and their finance companies. The administration, which always seemed uneasy with the popular outrage over bonuses earlier this year, seems willing to throw the seven sinners to the wolves, while letting the bulk of the financial sector off the hook. Feinberg will only provide advice to other TARP beneficiaries, and banks that pay back TARP money will not even have to deal with that.

This, of course, solves precisely nothing. The problem with “executive compensation” – no, make that just “compensation” – in the financial sector was its structure. Huge end-of-year bonuses tied to short-term metrics, with no corresponding downside risk, motivated people to take on excessive risk in hopes of maximizing those bonuses. And the companies we need to worry about most are not the ones that are most beaten-down today, but the ones that are (relatively) the strongest and will be taking the biggest bets.

So the administration is also thinking about addressing these structural issues. Tim Geithner made a statement on compensation yesterday that lays out five reasonable-sounding principles (compensation should reward performance, compensation should be “aligned” with risk management, etc.). On closer examination, it’s remarkably short on verbs that aren’t prefaced by “should.” For example, “I met with SEC Chairwoman Mary Schapiro, Federal Reserve Governor Dan Tarullo, and top experts to examine . . .” Or, “in considering these reforms, we start with a set of broad-based principles . . .” Or, “by outlining these principles now, we begin the process of bringing compensation practices more tightly in line . . .” (Emphasis added, obviously.)

At its heart, there are only two proposals: first, “say on pay” legislation, which requires non-binding shareholder votes on executive compensation packages and, according to Geithner, “would encourage boards to ensure that compensation packages are closely aligned with the interest of shareholders;” and second, new standards for independence of board compensation committees. 

If you’re wondering how a non-binding shareholder vote could possibly solve the problems with executive compensation, you’re not alone. I think “say on pay” is slightly better than nothing, because there is a chance that in some cases the additional attention will shame boards into more reasonable packages. But in general, shareholders’ ability to influence corporate governance is pretty weak. Outside shareholders, even major institutional investors, face many challenges: fragmentation of ownership, which makes it hard to build a big enough coalition; the control of information by management and the board; the usage of compensation consultants to insulate pay packages from criticism; and the tendency of small shareholders to either not vote or vote the way the board recommends. Even if dissident shareholders can muster a “no” vote, the likely outcome would be a cosmetically modified package that is simply harder to understand – or no change at all (non-binding, remember?). 

Independent compensation committees are also a nice idea, but without many teeth, at least in the proposal floated yesterday. They key question is, what incentive do the compensation committee members have to really crack down on executive compensation? The proposal draws a parallel to Sarbanes-Oxley and audit committees. But audits turn out to be right or wrong, and if there is a restatement, that is deeply embarrassing to the people involved. Excessive compensation is a matter of judgment, and it’s hard to see compensation committee members ever being held personally liable for giving away too much money.

Over at The Hearing, Brett McDonnell is similarly underwhelmed, although he does suggest some additional ideas, such as allowing regulators to evaluate the effect of compensation on safety and soundness requirements.

This reluctant approach to regulating executive compensation should come as no surprise. In his press briefing the day he announced the Public-Private Investment Program, Geithner responded to a question about TARP executive compensation conditions by saying, “the comp conditions will not apply to the asset managers and investors in the program.” When the Washington Post reported on April 21 that that was not what the lawyers were saying, Treasury rushed out a new FAQ (see the April 21 FAQ) trying to assuage investors’ fears.

This looks to me like a strategic choice. The administration has decided that the economy depends on the banks, and therefore it needs to keep the existing bankers happy. Or it has decided that executive compensation is just not such an important issue, and it would rather focus on others. (What, though? The Wall Street Journal reported on Tuesday that the administration is backing off plans to consolidate regulatory agencies.) Or, more likely, both.

These are reasonable positions, even if I don’t agree with them. But they are more evidence that the financial sector of 2010 will look more like the financial sector of 2006 than anyone would have thought possible just six months ago.

By James Kwak

73 thoughts on “Does the Administration Care About Executive Compensation?

  1. Ridiculous. To say that executive compensation had something to do with the economic crisis is letting the real culprit off the hook – the federal government. Executive compensation was a *symptom* of the overheated housing market fueled by government policies. Limiting compensation is a pure populist political maneuver – to shift more of the blame to the market and especially to the people at the top of the market, while putting more power in the hands of politicians. The government *made* those people rich. And now it wants to say that those people were the cause? I don’t understand how anyone could fall for this nonsense.

  2. It is so very sad that the government needs to address this. This is something that people running the businesses that tanked last year should be scrambling to fix.

    The idea that business people educated at the very best educational institutions seem so dead set on maintaining business practices that left them dependent on the feds for money is pathetic.

    We need executive leadership on Wall Street that understands that improving their internal standards (including how they pay people) is essential for the recovery of their businesses, and thus, given the intertwined connections found in the global village today, the nation’s economy.

    (Didn’t Lloyd Blankfein talk about this kind of reform about a week before he sold GS stock to raise money to pay back the feds so he could hand out bonuses and thus retain the best and brightest for his firm?)

    Alas, poor Yorick…. (Let’s hope that our economy does not end up like him.)

  3. What is nonsense is the idea that people paid millions of dollars a year in compensation to engage in business are government victims.

  4. if the owners of businesses in any other industry decided to get together and talk about how to lower pay in that industry, how do you think that would be perceived?

    sounds like an anti-trust issue to me.

  5. Excellent analysis, as usual.

    The $500,000 “cap” on executive compensation that the White House announced back in February has now become a minimum. Under the new Treasury rules, the pay czar will automatically okay any paycheck the “seven sinners” dish out that doesn’t top half a million.

  6. When I read about the oversight, my first thought was that this could backfire politically. Where before the administration could feign surprise and outrage over executive compensation (see AIG) they will now be seen as sanctioning it.

    In response to Msgnet’s comment above, suggesting that executive compensation structures are merely a symptom of the government’s housing policies is just wrong.

    Paying executives for short term, illusory gains while ignoring the long-term consequences is EXACTLY the kind of thing one would do if one wanted to end up in the situation we are in. It is a flaw in the private-sector corporate structure, and pretending that this wouldn’t be a problem in some non-existent, alternative universe where government does not exist is both pointless and wrong. It solves nothing.

    Furthermore, the issue isn’t one of limiting compensation. Good executives need to to be compensated properly. There are two issues here. The first is identifying which executives are good, and we’ve learned that we can’t just look at the size of their balance sheets at the end of the year to determine that. The second one is how best to compensate them in such a way as to align their interests with that of shareholders and taxpayers. Especially taxpayers, since we aren’t given much of a choice in whether to be involved.

    In a sense, executive pay structure have the same flaw as political incentives in a legislative body that faces re-election every two years: they foster a tendency to do whatever it takes to make things look good today, while ignoring the damage done in the future.

  7. Hat tip to Kafka for a brilliant alliteration:

    “Regulation Not Revolution ! We Want More Red Tape !”

    — chanted the surly picket-waving populists.

  8. What is the legal authority for the administration’s pay controls? I thought that the TARP legislation specified salary caps for a small number (7?) of highest paid executives at TARP recipient institutions. Yesterday’s announcement sounds like they are now going to control pay of all employees. I’m not saying the legal authority doesn’t exist, I just don’t know what it is.

  9. First of all, I’m talking about executive leadership within a particular company taking a cold, hard look at the business practices that resulted in near-failure for the company…and changing them to prevent failure in the future. Nothing anti-trust about that!

    Second, it’s funny that when people talk about the meltdown, you can hear so many people saying they engaged in terrible business practices – practices they knew were terrible – because “everyone else was doing it.” So maybe a little TR anti-trust-busting might be in order for the financial sector….

  10. IMO, this is simply political maneuvering, making cosmetic changes. The gov’t does not want to micromanage any private institution. The public outrage over excessive compensation caught them off guard. (After all, people have been complaining about it for years. Why the sudden outburst of anger?) Congress, of course, responded rhetorically, ignoring the more pressing question of AIG payouts on gambling debts. Now the executive branch is doing its bit to assuage the anger without actually doing much of anything. SOP.

  11. executive leadership within a particular company can look at it, but if compensation practices (which favor individuals at the expense of companies in many cases) aren’t changed industry-wide then individual companies will find their hands tied — they will have no leverage over individual employees.

    so yes, the govt will have to be involved if there is any solution to this.

  12. Government shouldn’t enter the domain of compensation, except for TARP money recipients.
    If they do, then there will be a lot of subjective judgments made by regulators and at some point or the other, this will just lead to creation of incentives for the regulators that are aligned to allowing excessive compensation.
    And then that will just lead to another disaster.

  13. If I wanted populist pablum I would go to DailyKos – on this site I expect a bit more in the way of sound economic analysis.

    At the heart of this issue is the extreme disparity in income levels in this country – which is a monstrous problem – but no one with a brain thinks that the compensation of a few Wall St. execs either contributed to that, or if regulated, would solve it.

    If you want to talk about global systemic risk – what is moving all the risk, and jobs, to less/unregulated off shore entities really going to accomplish? – besides gutting an industry that performed pretty well for the 70 or so years since the ’33 and ’34 acts.

    And doesn’t regulating compensation seem like a pretty strange place to deter global systemic risk – which brings me to – yes, regulate more – put in place markets or clearinghouses for CDS’s and whatever alphabet acronym comes along.

    But lets keep a clear head – this is really about populist anger generated by agonizing income disparity. Lets create some high paying jobs, not move them offshore.

  14. Obama is a fraud. Exec. compensation was never a concern of his until the story broke that AIG paid their CDS counter parties 100 cents on the dollar with taxpayer money. Then Obama began the rable rousing on exec comp.

  15. The problem is stupid Tim & stupid Ben for not letting the market fix the problem. Why didn’t they just let these stupid bankrupt banks go bankrupt? I think that would have corrected a lot of problems, including executive compensation.

    We keep forgetting that the job of banks is simply to take the savings of producers (and those who say they help the producers produce) and lend it to those who will grow our economy. But, they failed. So get rid of them. Don’t give them trillions of OPM to keep on failing.

    Simon has been right all along.

  16. Unfortunately, the compensation issue has become nothing but a whipping boy. The tax-payer bail-out is a pittance compared to the damage inflicted on investors, who, coincidentally, happen to be the same people that pay taxes.

    What’s really at fault is weak or nonexistent corporate governance. The best thing the administration/Congress could do is to publicly examine and reform the governance standards for boards of publicly-traded companies and do it in a manner that doesn’t paralyze business’ creativity or gut productive incentive compensation but rather redirects both towards creation of sustainable long-term shareholder value.

  17. Sorry – I forgot something – fire the, etc

    The problem is stupid Tim & stupid Ben for not letting the market fix the problem. Why didn’t they just let these stupid bankrupt banks go bankrupt? I think that would have corrected a lot of problems, including executive compensation. Fire the greedy bastards.

    We keep forgetting that the job of banks is simply to take the savings of producers (and those who say they help the producers produce) and lend it to those who will grow our economy. But, they failed. So get rid of them. Don’t give them trillions of OPM to keep on failing.

    Simon has been right all along.

  18. Obama spoke about this issue long before AIG.
    From his Cooper Union Speech on March 27, 2008:
    “We need a shift in the cultures of our financial institutions and our regulatory agencies. Financial institutions have to do a better job at managing risk. There is something wrong when board of directors or senior managers don’t understand the implications of the risks assumed by their own institutions. It’s time to realign incentives and the compensation packages so that both high-level executives and employees better serve the interests of shareholders.”

  19. He’s still a fraud. He didn’t speak to it as president until conterparty story broke.

  20. Don’t misunderstand me, I didn’t say they were victims. We are the victims. I have no sympathy for those executives that will have their pay limited, none whatsoever. But the true villains are the politicians that caused the crisis, and who are now shifting the blame to some convenient targets simply for the purpose of keeping their own jobs.

  21. Ok, but it is not the role of government to do that. It is up to the investors of companies to ensure that their agents (executives and managers) have incentives and compensation packages that serve the interests of shareholders.

  22. I disagree. While the actual amounts of upper-level compensation figures are not that great in relation to the problem, the incentives that they create are a huge issue.

    Again, it’s not about limiting pay. It’s about incentive structures that don’t encourage management to gamble hundreds of billions of dollars of other people’s money in the hopes of hitting a risk-free (for them) jackpot.

    This gamble is risk-free because, in an environment where the taxpayer pays AIG’s counter-parties off, we are the ones holding the risk.

    Therefore, my response to all the free-market dreamers out there is that you have two options:

    (A) Guarantee that the taxpayer will have no further exposure to financial firms problems (This, of course is impossible; a constitutional amendment would not prevent this), or (B) limit our exposure through proper oversight and regulation.

    This issue isn’t about some liberal hatred of people who make lots of money. I, personally, wish I could make $100 million a year. It’s about the enormous power these executives wield in our society, and about how we better make sure they aren’t getting that money at our expense.

  23. Joe, it’s called the “golden rule”. He who has the gold makes the rules. Those bastard bankers are continuing business on the taxpayer’s dime. We don’t need a law to adjust the executive’s highly overvalued “compensation”, anymore than the New York Times needs a law to tell the best journalists in the business to take a 23% pay cut. I’d like to say more vulgar words to describe those overly “compensated” executives, but if I used all those my post would be removed.

  24. If the insolvent firms were allowed to go bankrupt there would be be a clear penalty paid for taking excessive risk and maybe the financial would have begun to reorient their compensation practices to align with value at risk rather than short term gains.

    Once again moral-hazard is raising its ugly head. Whoever came up with the term corporate welfare got it exactly right.

  25. shareholders’ ability to influence corporate governance is pretty weak.

    There’s your problem. Shareholders are supposed to own the company – literally – but instead, boards and executives are damn near unaccountable and shareholders are just along for the ride. So of course they’re going to make sure they get paid millions and the heck with the effect on shareholder interests.

  26. Part of the compensation problem goes back to the “Too big to fail” and other subsidies/guarantees of the private sector and it’s assets. Wall Street executives believed they could gamble heavily on risky, but lucrative ventures because the government would bail them out, and of course except for Bear and Lehman, it did.

    These guarantees rewarded the “Capitalize the profits and socialize the losses” Wall Street mentality with billions in compensation, and allowed those taking the risks to get away scot free when the marker tanked. The normal workings of the invisible hand in the market was neutralized, which in the end created huge and destructive distortions in securities market. The market information feed back loop function ceased to operate, and the market was blindsided by the collapse.

    Populist controls over compensation are attacking only a symptom, not a cause. The market guarantees and implied guarantees at Fannie / Freddie , the TBTF policy and other similar government guarantees subvert the market, and do not allow the market to function properly. That is the problem.

  27. Most of these senior executives have the vast bulk of their compensation paid in equity of the firms they run. They have been destroyed.

    Do you not think this is a disincentive?

    Virtually all the articles on exec compensation are exceedingly misleading as the pose compensation based on Black-Scholes or even equity values at time of issuance. Just look at today’s NYTimes – and the soft italic language where they try to correct the misreporting.

  28. I think the political moment for compensation reform is not yet here. The economic collapse is not well tied in the American people’s eye to executive compensation. That does not mean that the hazard of compensation that is not tied to long-term performance does not exist, just that it is hard to sell it to main street.

    Political power eventually comes from main street. What then will get main street attention? Orange jump suits. Indictments take time to develop, but there is clearly significant activity at the state (NY, CT, CA, elsewhere) level and federal level. When the indictments start coming, they will start coming one after another (no DA wants to be last to indict). When this happens the political will to reform and regulate (and maybe increase the highest tax bracket) will appear.

    One thing that is clear from watching this administration is that they hoard political capital and expend it very wisely. Expect that to continue. They need to expend their capital on cap and trade and health care. Then they can leverage public outrage over the indictments to build capital for reform and regulation.

    My guess is that this will start happening in the fall and build through the spring. But that might be a bit on the fast side.

  29. Get rid of golden parachutes while you’re at it. The only thing worse than getting paid millions while using taxpayer subsidies is getting paid millions to just go away. Where’s the outrage? Glad to see Nardelli go.

  30. Love the site. I generally vote democrat at the local level, my best information, feel for a candidate at the national level. Having said that so I’m not immediately disqualified for bias, this is a coming election talking point at best. It’s superficious and supercillious which is quite a combination. And it’s offensive.

  31. The sooner the better. They’re both way too stupid. Pseudo-intellectuals, but stupid. And let’s not forget stupid Ben.

  32. Not much. But if you were Stan O’Neal and I was Merrill Lynch, it would have been a different story.

    “Merrill called its execution of CEO Stan O’Neal a retirement and carefully pointed out that the $160 million O’Neal got to take with him wasn’t severance, but just what the firm was contractually obligated to pay him. There was no mention that perhaps, if you lose $8 billion, you can be fired for cause and be denied the contracted pay package.”

  33. Get rid of stock options too!!!

    If the stock goes up 5 times, executives win.

    If the stock goes to zero, executives do NOT really lose.

    Nardelli should NOT be hired for anything ever again.

  34. That is another reason to put MER into bankruptcy. Get rid of a contract that should have never been allowed to begin with.

    How about a 100% tax bracket???

  35. Feinberg is only approving pay for 25 people at each of the 7 companies that took extraordinary assistance.

    They will need new legislation to do the stuff Geithner proposed.

  36. Give me Ben & Jerry’s: The highest paid person in an organization cannot make more than 20xs (including options & benefits) than the lowest paid.

    I love that model. Share the wealth. Share the pain.

    It would also effectively eliminate the need for a minimum wage.

    [Along with this, I’m all for major profit-sharing — primarily worker owned and worker driven companies. And while I’m asking for the moon – can we please bring an end to publicly owned companies, Wall St., and the financial (phantom) economy?? I know – how radical!]

  37. And in answer to the question:

    “Does the Administration Care About Executive Compensation?”

    The answer: A BIG RESOUNDING NO!!!

    Anyone who thinks the answer is a heartfelt “yes” is incredibly gullible and naive. The discussion of the issue is purely show. Banksters: “Mr. President, please attempt to appease ‘main street’ so we can finish the fleecing.”

  38. I’ve heard the idea proposed of capping executive compensation at 1:100 from lowest to highest salaries paid. Sounds fair and generous on the upper scale.

  39. the gov’t is simply trying to do something with the greed aspect in business. you know trying to fix what got us in this mess. there is no such thing as a true capitalist nation in this world. see the light!

  40. Some people are greater risk takers than others.

    Corporations filter applicants through hiring practices and select individuals based on desired traits and abilities. It is at this point in the process that a risk taker becomes part of the company.

    Once a risk taker is part of a corporation, the employee will engage in risk taking activity. Put a risk taker in a position to do risky activities, that person will do activities with greater risk.

    Increased compensation for risky behavior is an additional benefit, but it is not the cause of risky behavior. The employee’s enjoyment of the thrill of risk taking is the cause.

    Restructuring incentive compensation to avoid excessive payouts for risky behavior will not stop the undesirable workplace behavior. It is part of the employee’s character.

    In most randomly selected groups, there are risk takers and risk avoiders. If a chance is offered to the group to engage in risky activity, the risk takers in the group will act risky. It is irrelevant that there is also incentive compensation. Risk avoiders will be uncomfortable in taking greater risk for more money and will not be successful at it.

  41. The problem is that the greediest people are drawn to the profession, not the best. Moreover, the present system keeps the best of the greediest, or, possibly, simply the greediest.

    Conceivably, the very best from which Wall Street might choose may well be offended by the company they would be forced to keep.

    Competent – very good and the best — doctors and lawyers and educators and consultants, etc. etc. do not aspire to the obscene amounts of money Wall Street players do.

    The best of Wall Street might get the highest salary, hourly rate, but paying as a percent of assets suckered out of the naïve should stop. Successful traders keep their jobs; failures are let go.

    However much one attempts to put bandaids and caveats on the present pay and bonus scheme of the Wall Street community, they will gnaw – and find or make – a loophole.

    The greed driven will always find a new way to milk the system, if they make other than a potentially increasing wage.

  42. The “true villains” is never quite as simple as people want it to be… The government played a huge part, you are correct in that. Wall Street rampant and unregulated greed played a huge part as well. Mistakes by the fed (I’m not sure if you are including them as well) played a heavy part as well.

    In general the government has no business telling private enterprise what a maximum compensation is (though the levels of compensation are clearly out of whack with what benefits (and costs) they are providing to society, so I don’t know what the answer is to get that correction to take place). However for businesses the government is bailing out dictating compensation is actually too small of move, management should have been removed entirely, let them go find their worth on the open market.

  43. Those bank management teams should be rewarded by taking the business of the banks who failed. That’s how the market works. It doesn’t work when the government bails out the failures.

  44. Our economy runs on profit-seeking behavior, or as you pejoratively dismiss, greed. When the government creates perverse incentives, and profit-seekers become rich by following those incentives, don’t simply dismiss that as “greed” that should have been regulated. Ask why the incentives were there in the first place and who created them.

  45. If you want to talk about trust-busting, the most problematic monopoly/oligopoly in this system is the collection of credit rating agencies. The government pretty much ensures that banks have to outsource their risk assessment to this institutions who have no incentive to actually be accurate.

  46. Since corporations are “commerce” and not people, and are to be regulated according to our Constitution when they seek to remove either freedom or property from the people, our government now is upside down to the campaign laws in this country, and the extension of what is called in the legal profession “corporate person-hood” which gave corporations in this country essentially equal rights under our Constitution as that of the people due to an errant Supreme Court ruling after the Civil War. You can research this if you wish, the 14th Amendment was extended to corporations thus the beginning of the corporate dominance and control in this nation, and was one of those “made up” progressive political decisions along with many others that have brought us to where we are.

    Corporations are not people, they are property and can be bought and sold. Thus, that entire finding is not “legal” on the part of the Supreme Court. And so each and every statute at the state or federal level giving them a privilege or immununity over the people which was granted without the people’s direct consent (since the 9th Amendment even supercedes the 10th) is unconstitutional on their face. So about 80% of the laws in this country are not constitutional at this point.

    But Congress should not be determining executive compensation, instead the disinterested shareholders should be determining such matters as owners of those companies. Congress has no business doing anthing but legislating that any and all executive compensation should be at the discretion of the owners, the disintereted shareholders. That would put the accountability where it belongs, and should never be bailing out private companies outside also the provsions of the Constitution through the formal bankruptcy process – which is then a matter of public record.

    So Obama and Bush and those Congressional members who “granted” the Executive Office authority over these bailouts are nothing but treasonous traitors to the founding fathers, and our intended form of government. And treason actually carries the highest penalty of all. Remember Benedict Arnold, because each and every Congressional member that voted for those bailouts, including our current Commander in Chief and his predecessor, are nothing more than common criminals.

  47. The “overheated” housing market was not the cause of the GLOBAL financial crisis. The US could have handled the real estate “bust”. We have many times before. The real cause of the 50 or 60 trillion dollar crisis was the securitization(and creation of deriviatives on those securities) of the bad loans from that market. It was not government policy to make bad loans. Bad loans were made by GREEDY PEOPLE. Packaged bad loan securities were knowingly sold by GREEDY PEOPLE. Triple A ratings were given to these bad loan securities by GREEDY PEOPLE. These bad loan securities were sold over and over by GREEDY PEOPLE.

    It’s your position that is ridiculous. When will republicans get a clue?

  48. Well said, Betsy. Except for the part about hanging Bush and Obama.

    Regulating executive compensation for companies other than those receiving government assistance seems like socialism to me.

    If shareholders don’t like the way a company pays its executives, they should not buy the shares of that company. This includes Institutional shareholders. We might all be better off if Pension Funds went back to buying more low risk assets such as bonds and T-bills. Sure, there wouldn’t be as much so-called economic “growth”, but there also wouldn’t be as much capital destruction. And maybe there would be less concern about China buying our debt.

  49. No, lets get rid of the Federal Reserve and their usurous practices actually, since Congress had no inherent right to “privatize” our banking system back in the Wilson Administration – and those banks were never bankrupt, since they are owned by the Fed, which is the entity that bailed them out – so that whole scenario was simply a fabrication in order for those in Congress to pay back their campaign debts to those banks, at the American people’s expense.

    Wake up, for heaven sake. Goldman Sachs and Lehrman Brothers are part owners in the Fed!

  50. that’s very efficient i think, having one person whose only job is to decide how much to pay 175 people.

  51. This is absurd. Government deserves criticism for declaring derivatives beyond regulation, and for failing to regulate even where they could. But as much as I think James’s post missing the real challenges to reform, there is simply no denying that misplaced incentives for everyone on Wall Street played a meaningful role. Not as meaningful as interest rates that were too low, sure, but far more than anything else in the government did or didn’t do.

  52. This may be the best thing said in this string.

    The problem with James’s post is that it seems to assume that the government might have some way to say what compensation “should” be. Some countries have laws saying that executives can’t make more than Y times the minimum wage (or the average wage). There is simply no way that would fly here, and I just don’t see anything else meaningful that is politically viable.

    But the real problem is the stupid justifications that investors have largely bought in to. The CEO of a massive bank is not an entrepreneur, and shouldn’t be compensated like the founded the company in his parent’s garage and built it into an empire. He’s a manager and his first job is supposed to keep the empire from crumbling, something that every incumbent CEO on Wall Street failed to do because it was much more financially rewarding to add more leverage and more risk without regard to what could go wrong.

  53. I don’t understand the surprise that AIG paid it’s counterparties. That was the whole point of bailing out AIG — to keep it from bringing down the rest of the financial system.

    Paulson apparently learned his lesson from letting Lehman go.

  54. As a lawyer, please allow me to say: you have no idea what you are talking about.

    You are wrong on the law, wrong on the history, wrong on the history of the law, and wrong on the Constitution.

  55. I don’t know if my weird style of angry sarcasm gets through in posts sometimes, but really I am for lowering executive “compensation” ESPECIALLY for the bankers. I even wish they would lower executive pay for those banks that DIDN’T receive billions from the government. It’s also worth noting and pointing out Mr. Kwak that FEINBURG IS DOING THIS WORK PRO BONO. He’s not getting paid for this folks.

  56. “Our economy runs on profit-seeking behavior, or as you pejoratively dismiss, greed.” – msgnet

    Our economy runs on narcissism and abuse. The rich flatter themselves and the working stiffs flatter the rich, because they hope to become rich. That protects the rich from the rage of the under classes.

    One thing that has been destroyed in this crisis is the notion that the rich are deserving. Now the whole financier class is seem to have been stupid, immoral, and self-indulgent. They gambled with other people’s money, and almost destroyed the world economy.

    The collapse of confidence takes many forms and has many consequences. One that is not appreciated is the collapse in confidence in America as a meritocracy.

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