Is Obama Running Interference to Protect Bankers' Pay?http://www.nakedcapitalism.com/2009/03/guest-post-is-obama-running.html">Naked Capitalism
According to the NYT, the administration is considering all kinds of new rules in the wake of the AIG bonus scandal. These include tougher rules for mortgage lenders, new oversight powers for the Fed, and a new exchange/clearinghouse for derivatives trading. Most interesting in terms of intra-governmental politics, however, may be Obama's proposed restrictions for executive pay (emphasis mine):
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said...
The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies...
No specific policy proposals have been made yet, so it's tough to offer firm opinions about the above. Nevertheless, I'd like to chime in with early thoughts on the pay proposals. In a nutshell, I think Obama may be trying to wrest control of the pay debate from pissed off Senators and Congressman. This is a shame because Congress, in all its outrage, might actually have stumbled onto sensible policy...
The administration's proposed pay restrictions sound to me like a rearguard action. Friday the House passed a bill that would essentially confiscate bonuses paid to all employees making over $250,000 at companies that have received $5 billion+ of bailout money. You know Timmy Geithner and Sheila Bair don't like the sound of that. Both have made clear that Wall Streeters should get paid whatever amount appropriately incentivizes them to clean up their own mess. How to compromise with angry lawmakers that want stricter restrictions? Perhaps by cutting a wider swath in terms of companies affected while limiting the restrictions at any one company to only its most prominent corpulent felines.
The House proposal, remember, confiscates bonus income (including, potentially, non-cash bonuses!) for everyone making over $250,000. It would only impact a handful of companies in particular, but the total number of affected employees would run well into the thousands.
Contrast that with Obama's nascent plan, which, according to the NYT, affects
executive pay. "Executive" tends to be code for the top guys listed in the proxy: CEO, CFO, General Counsel, COO, those types. To placate House members who want more sweeping restrictions, the administration says it would regulate "all financials" and possibly other publicly-traded companies---not just those receiving the biggest bailouts.
The House's version is superior for two reasons: It hits the right companies and is appropriately draconian.
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