I see Congress added a provision to the stimulus bill limiting CEO bonuses and the compensation of “all highly paid individuals at the 359 banks that are receiving government aid.” According to the NY Times, industry insiders are worried:
“This is a big deal. This is a problem,” said Scott Talbott, chief lobbyist for the nation’s largest financial services firms. “It undermines the current incentive structure.”
Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds
I can see how this provision might cause some weird incentives. I wish Congress didn’t have to do it, but the public outrage Congress must be hearing about CEO bonuses has to be deafening.
What’s interesting is that the CEOs and finance company executives apparently don’t hear it at all. This tells you just how disconnected these people must be from life as we know it. Consider a few facts:
- People are looking into the abyss of economic doom caused in large part by a dysfunctional banking sector.
- Wall Street stars paid themselves massive amounts of money over the last few years based on what we now know were phony profits. They made no attempt to pay this back.
- Unless they can fix their own industry, there is a very strong case to be made that the banking sector should be nationalized and reorganized—this means current executives would lose their jobs and shareholders wiped out.
Given these facts it seems like the banking executives would be launching a massive PR campaign to explain how they aren’t making much money anymore and everyone’s working together to fix the system. Instead they are apparently working as hard as possible to extract maximum dollars from the system EVEN NOW.
My prediction: all of the major banks–Citigroup, JPMorgan Chase, B of A–will be taken over by the government and reorganized. The guys running these institutions now just don’t get it. They are practically begging Congress to take them out.