I’m sure this will come as a major surprise:
When the Obama administration imposed restrictions on executive pay last year at some of the largest companies the government had bailed out, officials said they were aiming to set a new standard for compensation across corporate America that would discourage risky business practices.
But as firms begin to disclose last year’s bonuses ahead of annual shareholder meetings, it is becoming clear that companies across a wide range of industries are paying executives in ways that officials worry will not discourage the kind of excessive short-term risk-taking that led to the financial crisis.
The Treasury Department said it is not looking to limit the total pay executives receive. Kenneth R. Feinberg, President Obama’s special master for compensation, wants to change pay incentives, giving executives a greater stake in the long-term performance of their firms. That would mean, for example, smaller up-front cash salaries and fewer perks, more compensation in the form of company stock and a longer wait to receive it.
“I see no indication whatsoever that the business community is paying any attention to the administration’s suggestions,” said Nell Minow, co-founder of the Corporate Library, an independent corporate governance research firm. “On the contrary, I think pay is worse this year than it’s ever been.”
Long time readers will know my aversion to populism, and I think that is, to some extent, something Obama instinctively shares (for better or for worse). He just isn’t very good at demagoguing issues like this, and it isn’t something that comes naturally. He makes a stab at it every now and then, but overall, his performance in this regard is pretty weak. The only real effort at populism that stands out to me was when he told the banksters that it was him standing in between them and the pitchforks.
At any rate, before I start to ramble, this is a time when some populism from the Democrats is radically needed. One of the major recurring themes of the new Michael Lewis book, The Big Short, was that a lot of this was not so much caused by outright criminality, which would be easy for the American people to understand, but by a lot of groupthink and a system in which horrible short-term decisions are rewarded with great wealth. Basically, what Lewis is arguing is that the financial system is what it is because of the way incentives have been set up. In other words, greedy people behaved precisely as you would expect them to behave when you set the system up this way.
In short, this Washington Post piece about the big money boys and girls skirting the rules should surprise no one. They are going to keep doing what makes sense for them in the short run, because quite frankly, there is no incentive for them to change. And that is where the Democrats and this administration need to act.
Some Guy
Yes:
cleek
i have a long-held belief that any plan which requires the Dems to “act” is a plan that will fail.
Keith G
Now that Obama Administration 2.0 has been released, I hope he gets back to a few issues like going “after the financial system on their criminal [and short sighted] behavior.”
I hope, but I am not sure I would bet on it.
Alex S.
The companies, especially financial companies haven’t learned. Populism for populism’s sake is dangerous, but the long-term health of the economy is at stake. I don’t think a little populism would be out of place there.
demkat620
This is where I really get pissed off at the Dodd. He’s not running for re-election. He could come out with a bill that makes the banksters and the GOP scream and instead he is snuggling up to Corker.
There is no downside politically to going after the crooks in the financial system.
Marc
The only real solution is radically increased taxes on very high incomes – and radically increased taxes on very large estates. It has to be made unprofitable to loot.
General Egali Tarian Stuck
Phil Gramm, fellow wingnuts, with help from Clinton and some fellow democrats plopped a big dollop of cheese down in the rat factory with Gramms legislation and amendment to exempt derivatives trading from regulation. The rest is history, sad and expensive to the tax payer history.
The dogs of mindless greed were unleashed in the empty souls on Wall Street and will be hell to call them off and put that genie back in it’s bottle.
And yes, populism isn’t Obama’s strong suit and it takes the talents of a bullshitter to be most effective. Obama can bullshit sometimes to tweak his brain fu on the wingnuts, but not the sustained and concentrated kind needed now to wrap all this shit up in a ball and shove it down the wingnuts throats. Maybe other dems can take up the game for that.
EconWatcher
@demkat620:
I’ve thought about Dodd, and here’s my conclusion: He wants a bill passed with his name on it as his legacy, and he’ll give away the farm to get it.
But for the Dems as a whole (and for the country), it makes more sense to push for a really aggressive bill that actually addresses “too big to fail,” even at the risk of not passing it because of Republican obstruction. Then they can run against Republicans as shills for Wall Street this November and return to the bill next year. It will be a lot easier to peel off a few Republican votes once the pressure of the mid-terms is past.
Conclusion: Obama and others need to squeeze Dodd and avoid any watering down.
Taylor
That was said in private. They tried to have some orchestrated kabuki with Obama on 60 Minutes mouthing populist platitudes, with a follow-up meeting where bankers were called to DC to be lectured. Several bankers refused to show up for the meeting in DC, complaining of weather…..and Slope of Hope showed a picture of clear blue skies over Manhattan…..those that did show up reported a pleasant conversation….
If rolling over and letting the bankers scratch your tummy is “acting populist,” then yeah I would say that particular piece of bullshit kabuki worked pretty well.
The sad part is, if the Republicans take back the House and/or Senate in November, they will be riding voters’ rage at DC’s failure to rein in the bankers. If they could think rationally, I would bet a lot of the Tea Baggers would understand that their rage is at the obvious fact now laid bare that this is a country of elites and everyone else, where the elites are managing to screw up everything they touch.
Brick Oven Bill
This is why it will be nice when we finally get a President that is not likely completely compromised, and subject to blackmail. Consider:
1. Mark Patterson, Goldman Sacks lobbyist, was presented the printing presses. This was part of the likely deal. So now Mark loans the money to his co-workers for free, and then buys it back from his co-workers at 3%. This is a good business model for Mark and his co-workers.
2. Goldman Sachs will receive a fee for any future cap and tax exchanges. Tabbi covered this well. I think Goldman is set to get a 20% cut.
3. Immigration reform is all about lowering the cost of labor, and increasing profit margins for those holding capital. Do not forget that wages in Central America are $3/day, while the American minimum wage is over $50/day, for those who can still find employment.
Sullenberger for President.
This Administration cannot act John, even if they wanted to. We again come to understand why we are told to not bear false witness.
Michael
The deciding deciders deserve to be filthy rich enough to go to champagne rooms every night. They work soooooooooooo much harder than everybody else, y’know.
russell
And of course, the reason it’s the Democrat’s responsibility to step up and rein in the banksters is because the Republicans will not do it in a million billion years.
They’ll run on populist rhetoric (“Obama is the bankers friend!”) but they will not do jack sh*t about it.
A very good incentive for the bankers and/or other executive management to not take excessive risk would be, when they drive their companies into a smoking hole of bankruptcy, to take their companies away from them and sell them off for parts.
Another would be to claw back some or all of their compensation.
Another would be the threat of aggressive prosecution for any activities that have any whiff of fraud or other impropriety.
Another would be ban them from working, ever again, in the financial industry, or holding any position of fiduciary responsibility.
In short, kick them in the nuts, repeatedly, as hard as we can, until they take the hint. They’d do it to us, and in fact they have.
I have no problem with populism. Take their money, their companies, their ability to hold any position of responsibility. Take their companies away from them and throw their asses in jail.
They’d see any one of us broke and homeless if it meant they could have a couple hundred million bucks. Isn’t that clear?
Kick them in the nuts, as hard as we can, repeatedly, until they get the message. And I do mean really f*cking hard.
danimal
but, but, but, but that would be….(cue scary music)…. CLASS WARFARE!!!
Ash Can
What blows me away isn’t so much the high reward for (foolish) risk-taking as the absence of punishment for failure. As the title here says, people sympathetic to the Wall Street twits insist that these bonuses are necessary to retain the talent. What fucking talent?? These people tanked your fucking company. How on earth can you even stand to look at them, let alone pay them shit-tons of money?
I don’t care how much someone gets paid if they’re somehow worth it to their company. These ninnies not only aren’t worth it, it’s as though they’re looting their companies twice, first by blowing up the balance sheet, second by getting paid for it. In a perfect capitalist-paradise world, these companies would be too fucking stupid to live, and would just go away. Unfortunately, as we’ve seen, these particular companies are well outfitted with explosive vests. If they go, they take an awful lot of innocent folks out with them. It should be a no-brainer that defusing those vests saves both us and them from themselves.
EconWatcher
@Ash Can:
THIS.
El Cid
Populism may be a style of politics, but it isn’t populism to impose policies upon the wealthiest which are better for the nation and better for the vast majority.
That isn’t “populism”, it’s reasoned decision-making, and of course, in our stupid-and-supine-beyond-belief political culture, rational policies become a ‘style’ of policy called “populism”, in order to make them sound alien, artificial, and askeery.
sparky
um, what makes you think they want to act? you need look no further than that Obama already gave them the UST. also, Obama got way more money from Wall St. than McCain did. NFW the Ds are going to touch that. we will see more crap sold as reform and then a couple of years from now everyone here will be clamoring for more reform.
incidentally whoever is doing BOB today is too much on the mark in the numbered points. no facts, just the crazeee please.
edit: @El Cid: well yeah, except that it’s pretty rational to hire people to call something populist if you don’t care for a policy that might impinge upon yourself. not to mention it’s fairly easy when the argument for the policy threatens everyone’s dream of becoming a 1 percenter.
lacp
Interesting that our executives view their obligations so differently (and with such different results) than those in India:
http://www.philly.com/philly/blogs/phillyinc/Managing_the_India_way.html
Ash Can
@General Egali Tarian Stuck: I was in the business when that stuff passed. The consensus on LaSalle Street was that it would all turn out fine; we were all grownups and professionals and the companies could be trusted to police themselves. Yes, I’m serious.
I hope no one ever makes that mistake again. I know I won’t.
Maude
@General Egali Tarian Stuck:
Let’s not forget the repeal of Glass Stegal, Citi got huge off of that.
Clinton became worth over $100 million within 8 short years.
I have to add that he harmed the poor while he was at it. He pulled a Reagan and then said, “I feel you pain”.
OT
Are your sleeping bag comforters Deep Purple?
General Egali Tarian Stuck
@Maude:
Once were. Now more like faded purple.
PTirebiter
Group think wasn’t the only pernicious effect of the incentives. Even the bankers who may have understood the dangers were forced into a corner. If they didn’t go along they stood to lose all their business. In a town without cops, how does an honest dealer compete with the guy selling stolen goods?
Luthe
What there needs to be is a change in the tax structure to encourage “vesting.” Something like any bonus/stock options earned and cashed in the first year has a 90% tax rate, year two is 80%, year three is 60%, etc. If the execs can’t cash out without a big penalty, there’ll be more incentive for them to stay and keep the ship running smoothly, rather than grab the money and run.
russell
From lacp’s cite:
Executive management in this country have no positive incentive to do anything other than maximize shareholder value. And in some cases they only give lip service to that — in the financial sector in particular, they treat publicly held companies as if their assets were their own, personal money.
For “populism”, I think we can and should read “making sure people in responsible positions consider the broader public interest”. Making as much freaking money as you can get away with is very, very rarely — virtually never — in the broader public interest.
The current corporate culture in the US is, IMVHO, going to drive this country into the ground. It’s in all of our interest to nip that in the bud.
If “kick them in the nuts” seems overly harsh, feel free to substitute some other turn of phrase, but I don’t see that anything short of that is going to change the freaking impermeable sense of entitlement these people display.
It’s not their money, they aren’t their companies. Neither the country nor the world is their damned toy. Nobody needs to make tens or hundreds of millions of dollars each and every year, particularly not when those sums come off of everyone else’s bottom line.
If these folks want to make a hundred million dollars a year they need to create much more than a hundred million dollars of value. Real value, not accounting BS.
As it is, they’re parasites.
Justin
Totally agree. It’s not about limiting compensation. It’s about making sure the compensation is actually in line with the performance of the individual. (long term not short term)
Michael
My question to them is this – when is enough enough? Hell, this even applies to Warren Buffett, who does seem to be at least a more responsible player.
But seriously – when one acquires hundreds of millions or billions of dollars, what mental defect makes them think that they are so indispensible that they must keep acquiring wealth?
Um Yeah
I think Obama is in a bind because he can’t get angry (righteously or otherwise) without being portrayed as an angry scary negro by the usual suspects.
ThatLeftTurnInABQ
@russell:
At some point this stops being mere populism (“give the howling mob what they want”) and simply becomes good policy. If we want to stop the Looting 2.0*, we have to do this, all of it. There is no other way to get the job done.
*Looting 2.0 is a term I’m lifting from Yves Smith’s excellent book Econned. If you liked Michael Lewis’ The Big Short but want more background, you must get Smith’s book. It is crammed with details and references, and she broadens the scope to show how the ideology of worshipping “Free Markets” and neoclassical economics developed over the course of decades to get us to this point, in a much more political way than The Big Short. Yves’ book is to The Big Short like Nixonland is to Fear and Loathing on the Campaign Trail.
ThatLeftTurnInABQ
@russell:
Ditto that, but the situation is even worse than this. One of the big takeaways from both Lewis and Smith’s books is that a major turning point on Wall St. was the conversion of the investment banks from private partnerships to public companies. All restraints on their use of leverage went away when that happened, because the company assets went from being the personal wealth of the major decision makers to other people’s money, and the banks became engines for converting other people’s money into personal money for the execs and traders. And gearing up to high levels of leverage made the engine run faster.
If had a magic lamp and only a single wish to ask the genie for, with regard to reform of Wall St, it would to outlaw the use of more than 10:1 leverage on the part of publically traded banks. That would push the investment banks back into the private partnership model – where they can (if they wish) be boutique operations trading exotic derivatives and gearing up as much as they like – because they are doing it with their own money. Then you will see a return to rational decision making. Anybody who cries “free market” in the cause of fighting against financial reform should be smacked in the face, because these companies were run in a way that would have horrified Adam Smith.
El Cid
@ThatLeftTurnInABQ: Exactly. The billion dollar news media keeps suggesting that any policies which rationally deal with policies designed to deal with the extremely wealthy are “populism”, and we shouldn’t let them get away with it, no matter what the billion dollar media’s owners and investors prefer.
Corner Stone
Some of us kind of hashed this out on a thread here back in
April 2009
Prescient person is prescient. That means prophet you know.
I still laugh my ass off anytime any one utters the Obama “pitchfork” ridiculuous bullshit. FSM, but that is funny.
Woodrow L. Goode, IV
John, I think you need to learn the definition of “populism”. You’re using it as a pejorative– as a synonym for “demagogy.”
There is a fundamental difference. Populism is expressing the needs or interests of the common people against the powerful interests. Demogogy does that by appealing to prejudices and fears– often (but not always) by twisting the facts.
A simple example: If I say “1% of the families in this country own 34% of the wealth– and the next 19 control another 51%. The bottom 80% has only 15%– and over the last 25 years, their share has dropped 25%. We need to change those policies” That is populism– the statements are true and there’s no ‘red meat’.
If I then say “The fat cats don’t care about you. They’ve gamed the system to take your fair share away from you– and we need to take what we deserve from them!” that’s demagogy. That’s three opinions, which might or might not be true– I certainly don’t know them to be true. And I’m certainly trying to inflame emotion.
It’s a little simplistic, but it would be fair to say that Sherrod Brown is a populist and Alan Grayson is a demogogue– and that anything Sarah Palin says is demagogy.
russell
IIRC Smith was not a fan of separating ownership and management.
Dollared
Wow, even here people don’t like “populism?”
How in the hell did vigorously advocating the interests of the vast majority turn into something bad?
Obama ought to be all but hanging the banksters in effigy. He ought to be showing the pictures of every US manufacturing CEO in mug shots.
Gang, there are 25 MILLION unemployed!!! And we don’t want to be “populist?”
Wow, yet another concept poisoned by strategic Republican language management.
JackieBinAZ
@Michael: You do realize it’s class warfare to even raise the question.
ThatLeftTurnInABQ
@Dollared:
You have a good point, but the GOP had help. Huey Long and George Wallace are two of the most famously “populist” leaders in the last 100 years of US political history. Is that really the association you want, or should we go looking for a different word meaning the same thing which doesn’t carry that taint?
Dollared
@that left turn:
Yes. Fix things, stop surrendering control of the language to psychopaths.
I’ll tell you something weird: tell me you’re a “liberal” and I’ll think you’re a good person.
Pooh
Cole’s summary of Lewis is about right, but to put it in starker terms, the banksters were paid to gamble with other peoples money. However their personal income was based not on “$ won” but rather on number and size of bets made, hence the situation.
Sloegin
It would be relatively ok if corporate officers were concerned about shareholder value over the long term. They’re not. The way the game works now, they’re only concerned about the value from quarterly report to quarterly report. They gut the company and sell the seed corn for a better report this quarter, then flee the corpse to find the next opportunity. Nobody wants to be a chump earning a small and sustainable profit over the long term anymore.
The current American business model is pump-and-dump, dynamic and energetic destruction. Means we’ll all be eating dirt and living in shacks sooner than later, wondering where all the jobs and businesses went.
Maybe tort reform of shareholder lawsuits, maybe changes in how business finances are reported; tax code changes in shares transactions, additional brackets, changes in overall tax rates. Serious changes to our business model are decades overdue.
jvill
Me in 2009: So, now that the economy has bottomed out, what are you going to do?
Business school classmate who works in NYC financial sector: Who cares. I made so much money the past 5 years… I’m just going to wait it out a few years and then pretty much just do it all over again.
True story.
Brachiator
Populism ain’t the same thing as effective regulation or reform. The Obama administration needs to stop worrying overmuch about secondary stuff like executive salaries and focus more on up front stuff (excessive and insane fees, credit card interest rates, transparent accounting practices).
Most of all, they need to get Treasury out of regulation and look more to Commerce. They need to look more to the practical side of FDR’s approach to dealing with the economy and get away from their overly abstract approach.
Sadly, I don’t think this will happen and their policy will be rudderless for some time.