In a recent interview with Bloomberg (Simon’s commentary here), President Obama compared bank CEOs to athletes–a analogy favored by Goldman director Bill George, among others. However, Obama got the analogy right:
“The president, speaking in an interview, said in response to a question that while $17 million is ‘an extraordinary amount of money’ for Main Street, ‘there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.'”
That is, Obama is saying that some bankers are overpaid, just like some athletes are overpaid. Maybe he read my earlier post?
There, I wrote:
“So yes, bankers are like athletes. Their individual contributions are overrated relative to their supporting environments; they are overpaid; they are paid based on where they randomly fall in the probability distribution in a given year; and paying a lot for bankers is no guarantee that your bank will be successful in the future. Team sports, like banking, are an industry where the employees capture a large proportion of the revenues. And one with negative externalities, like upsurges in domestic violence around major sporting events. Neither one should be a model for our economy.”
More generally, Obama is trying to strike a balance: put pressure on Wall Street while not appearing to be wielding a pitchfork himself. This is why he felt compelled to say, “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.” At the same time he feels compelled to advocate for relatively mild reforms, such as paying bonuses in stock instead of cash, which is at best a partial solution. (Top Wall Street executives were already paid overwhelmingly in stock rather than cash before the financial crisis.)
I’m not sure why he needs to strike that balance. CEOs are overpaid, bankers are overpaid, and bank CEOs are overpaid. Why not just say it plainly?
By James Kwak