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The Bailout and CEO Pay: What's 'Excessive'?
Everyone knew this bailout was going to be big. Now the bailout has become even bigger.
Treasury Secretary Henry Paulson is not just talking about bailing out mortgage lenders and traders any more. The federal government, Paulson now envisions, will be buying up all sorts of troubled investments. Even foreign banks will be able to get in on the bailout action.
Meanwhile, a host of power-suited vultures are hovering overhead, anxiously awaiting federal contracts to manage -- for a handsome fee, of course -- all the bad debts the Treasury starts buying.
In other words, the bailout figures to drive a huge swatch of the U.S. economy for years to come. Indeed, the bailout could soon become the economy's driving force.
On the one hand, that's fairly scary. On the other, this could create an opportunity to restore some common sense to the crazy CEO pay dynamics that have so fouled up our American economy.
For three decades now, the incentive structure has rewarded top executives at outrageously high levels. To win these outrageous rewards, executives have behaved outrageously. They've downsized and outsourced. They slashed benefits and ended pension plans. They've extorted subsidies from taxpayers. They've squeezed consumers. And they've turned the mortgage market into a casino game rigged against average families.
All this wheeling and dealing has left us with an economy where the richest 1 percent of Americans now hold over $2.5 trillion more wealth than the bottom 90 percent combined. We have more inequality in the United States than we've had since 1928, the year right before the Great Depression began.
To prevent another depression, we definitely do need a bailout. But we need a bailout that takes away the incentives that created our current mess.
And that's doable. Our lawmakers merely need to say to every company that wants to put a finger in the bailout pie: No tax dollars to make top executives super rich.
In theory, outside of Treasury Secretary Henry Paulson and Republican leaders in the White House and Congress, just about everybody who's anybody on the national political scene already agrees with the notion that the bailout must include constraints on executive compensation.
Both of our major Presidential candidates, Barack Obama and John McCain, are insisting that the bailout must not enrich the already rich.
In Congress, top Democrats are singing the same song.
But the lyrics have been rather indistinct. The Democratic leadership plan so far, as advanced by Rep. Barney Frank, would give the Treasury Secretary the vague power to set "appropriate standards" over the pay that goes to executives at bailed-out companies.
Let's keep in mind that our current Treasury Secretary, Henry Paulson, spent his previous life on Wall Street, most recently as the CEO of investment banking giant Goldman Sachs. Paulson accumulated, as a reward for his executive labors, a personal stock stash that's still worth, even after the Wall Street meltdown, $523.5 million.
Is this the person we want defining what level of executive pay qualifies as "appropriate"?
We need a more impartial arbiter. Peter Drucker, the founder of modern management science, would have been perfect. Drucker passed away three years ago, but he did leave behind a body of wisdom that we ought now be tapping.
Business enterprises, Drucker preached, operate most efficiently and effectively when they keep the gap between worker and executive pay within a reasonable range. Wide gaps between executives and workers, as a Business Week appreciation of his work noted last week, undermine "the kind of teamwork that most businesses require to succeed."
What sort of gap did Drucker consider reasonable? No executives, he believed, should make over 25 times more than their workers. Top American executives last year, says a recent Institute for Policy Studies report, took home an average 344 times more than worker pay.
Imagine if we had a bailout that would only move tax dollars to companies where executives make no more than 25 times what their workers receive. The executives at these companies would actually have a vested personal interest in sharing rewards with their workers. The more their workers make, the more they could make.
Today, the incentives in our economy all run the other way. Executives make their money by exploiting workers, not sharing with them.
That's the incentive structure that put us in our current economic predicament. That's the incentive structure the emerging bailout could -- and should -- start ending.
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22 Comments so far
Show AllIf a company needs a bail out, why is there any discussion of their pay? Average pay for their position world wide ought to do it. Bonus....forget it. Golden parachute....forget it.
And if one person from the xcompany loses their pension, so do these bottom feeders.
Personally, I think that since the rich and ultra rich have made so much in profit over the last 8 years (especially, look at the last 28 years for a more realistic time frame), that they should have to cough that up to fix the mess that they made. Why should any of US, the ones whose jobs were sent overseas, the ones whose wages have been stagnant or gone down, the ones whose taxes have gone up, pay for any of this? THEY made the mess, let THEM clean it up.
Seriously, letting the rich and ultra rich keep what they have stolen from us sets the precedent that you can steal the country blind, and we will pay so that you can keep your jets, your 13 homes, your collector cars, and your kids will get to inherit the rewards of your thievery. Meanwhile, I grew a few medicinal plants for my own use in a state that HAS a medicinal cannabis law, and I'm on probation for another year and a half.
No, I don't think I'm interested in paying to keep the rich in their present style of life. They stole mine from me, and I'm supposed to pony up so they can keep what they stole from my country? I don't think so.
Hear, hear. I also think that the ungodly profits that have been made on the "war on terror" by the likes of Halliburton and Blackwater etc. should be paid back to the people who funded the illegal invasion in the first place - us!
And the ungodly profits being made by the likes of Exxon and Shell should be used to rebuild our crumbling infrastructure and develop alternatives to fossil fuels.
What, am I a commie or something?
Bravo! General Strike and populist revolt now!
The only way to have the rich pay for these problems is to raise their taxes. I will not argue that these golden parachutes are not morally wrong, but lawfully, they are not wrong. We cannot break the rules against them or we become them ourselves. Tax the rich, investigate and prosecute the fraud, and cap the CEO pay.
“Power, however it has evolved, whatever its origins, will not be given up without a struggle.”
-- Shulamith Firestone
And while I'm at it, let me point out something in a way that even the right wingers in this country should be able to understand.
Ken Lay had 13 homes. Any ONE of those homes would have been the college educations for 100 of your kids. His annual salary was high enough to give hundreds of us raises for doing our jobs and keeping honest businesses alive. The things that he bought while robbing California blind would be enough to supply health care for how many of your children?
Why does his family get to keep billions, while the rest of us have to pay to keep them that rich? He's just ONE example, and he's dead, gone before the current batch of looting.
So in order to keep the ultra rich that way, WE have to pay out and hurt ourselves further for THEIR benefit? Our kids have paid far more than enough by giving up their own futures.
The rich took it from us, we can take it back. NO bail outs for those who screwed their own country. Our children and grandchildren deserve far, far better than this.
It's an election year, send this stuff to your reps and whoever is running against them. See who jumps on or just hangs words out in the wind.
Insatiable Greed Disorder cannot be controlled via "regulations" or "salary caps." There's a major difference between being "rich," and doing whatever it takes, in spite of the painful consequences of your behavior, to accumulate more wealth than one could spend in 20 lifetimes of excess.
That's why salary caps work in, say, the NFL - because most of the players are in it for the game, not the money. Sure, there are a few who suffer from IGD, but, for the most part, as long as they're paid well, the money is secondary.
Hollywood is another good example - most actors and crew members do it cause they love it; the money is secondary. Again, sure, there are a few IGD sufferers, but only a handful bring in $20M per flick, and, unlike the Wall Street IGD suffering criminals, artists at least entertain us and also tend to "give back" to society more than any other sector.
The point is, unlike sports or art, the financial sector is only about money-mongering, which is why such a mass amount of Insatiable Greed Disorder sufferers work in it. And until we find a way to cure, or at least medicate, this crippling mental illness, the rest of us will continue to be the victims of their never-ending pursuit of MORE...
Noam Chomsky said it best when he said they won't be satisfied until they have EVERYTHING and you have NOTHING. Another name for a person without warmth and no personal center except selfish desire is sociopath. No bailout for the sociopaths!
I'm always hearing that the richest 1% of Americans own 90% of the wealth in America. Then that 1% should shoulder 90% of the bailout. As for the outgoing executives of Fanny, Freddy, AIG etc.; no golden-parachute, nothing! In fact they should be forced to liquidate all their personal assets before the taxpayers have to give a cent. The wealthy in this country could pay this entire thing off with no effect on their lifestyles.
But if you're thinking this bailout could spark some sort of revolution in America (long overdue), be prepared for traitorous troops to be brought to bear against you.
http://www.armytimes.com/news/2008/09/army_homeland_090708w/
Be sure to pay attention to the part about, "They may be called upon to help with civil unrest and crowd control."
As for the outgoing executives of Fanny, Freddy, AIG etc.; no golden-parachute, nothing!
I believe they have already collected it.
As stated above all these pond scum critters that have screwed their own country and its citizens can cough up.
An economic traitor is just as bad as a physical or mental traitor.
At this point, what is the justification for CEOs making more money than the lowest tier of their workers? Isn't the rationale that they shoulder the responsibility and risk for the corporation, and therefore deserve compensation for their risky position? If we're going to socialize that risk, how can they justify their existence and pay? Far as I'm concerned 25x is perhaps acceptable assuming they actually do bear the risk, but if we're socializing that risk, they shouldn't even make 10x their lowest-paid worker.
Sioux Rose
WJM & BELLINGTON: Right on! There should be FINANCIAL COUNCILS OF TRUTH AND RECONCILIATION that indeed determine where the assets will be directed to bring down costs for all parties (US citizens) involved.
Now there at last is something we can agree on Sioux Rose. :)
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http://www.beachwoodreporter.com/politics/nader_predicted_wall_street_me...
Ralph Nader elaborated a 10-point plan to cool off the financial markets meltdown:
1. No bailouts without conditions and reciprocity in the form of stock warrants.
2. No more lobbying for any company that is bailed out.
3. No golden parachutes and get out of jail free cards for guilty executives.
4. No bailouts without public hearings.
5. Reduce the moral hazard in U.S. mortgage markets by introducing covered bonds for the majority of mortgage products as they do in Western Europe. That gives institutions that finance mortgages an incentive to be prudent, because they cannot just unload them and wipe their hands clean of the liability, but are instead on the hook if the homeowner defaults.
6. Maintain neighborhood stability and housing security by passing a law with a sunset clause allowing below median-value homeowners facing foreclosure the right to rent-to-own their homes at fair market value rates.
7. Avoid future housing bubbles by removing implicit government guarantees for new mortgages that exceed thresholds of greater than 15-20 times the annual fair market rent value of the home.
8. Make the Federal Reserve a Cabinet Position, so it is accountable to Congress, as well as making sure all Federal Reserve Bank presidents are appointed by the President and answerable to congress.
9. Reduce conflicts of interest by taking away power for auditor and rating agency selection from companies and placing it in the hands of the SEC to be administered on random assignment.
10. Implement a securities speculation tax, starting with derivatives to deter casino-style capitalism.
http://www.votenader.org/issues/
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Bring back/extend progressive taxation.
99% above 1 million a year.
No one can possibly work hard enough to legitimately "earn" that much per year so they are really only thieves anyway.
Mikk
No gods No masters!
No one can possibly work hard enough to legitimately "earn" that much per year so they are really only thieves anyway.
Exactly. Especially in light of recent events, anyone with that kind of money needs to pony back into the system that gave it to them. If they don't want to pay to play they can move overseas.
Hank Paulson should be imprisoned and impoverished.
There needs to be another war, this one on the rich. They've already been fighting one on us.
The idea, totally deliberate, is to recreate the 1929 depression and instead of having an FDR to humanize and help, we'll have a Hitler (Bush, McCain, Palin, whoever the GOP has up their sleeve at the time) to further the totalitarian agenda.
The Bush family has been involved in promoting fascism and racism for generations. Anyone who did their homework already knew this years ago, but the spinmeisters are so effective, Rove is so smart even though he's a moral insect, that most people in the US just kept watching American Idol or Football or whatever crap they were watching, and WE allowed this to happen.
The bad news is that yes we did allow this, but the good news is that we can change it. Stop paying taxes. General strike. Relentlessly contact your congressional delegation. Refuse to accept what is being pushed upon you. It is not true that all is lost. It is not true that we have no power. In fact we have way more power than the fascists, but they have convinced people that they are powerless, and so...that's how it plays out. Refuse to be powerless. It's not going to be easy but it is doable.
Hear, hear! The soft liberal left might want to rethink the gun control thing as well.
http://www.george-orwell.org/Homage_to_Catalonia/index.html
When this actually happened in Spain in 1936 the people didn't just fight back with Kumbya or slinghshots you know...
The timing, and the usual suspects claiming that there is no time to debate, tells me that this is just another GOP Facist scam..
dont believe the hype, dont bail out the crooks.
"The only means of strengthening one's intellect is to make up one's mind about nothing, to let the mind be a thoroughfare for all thoughts." - John Keats
As Warren Buffet has said, there is a class war going on and his side is "winning". Not to worry, the oracle of Omaha is somewhat pissed about the ever widening wealth and income gaps in the country. These gaps have increased substantially in the last 7 years however this war began 27 years ago with the ascension of Ronny Raygun. Seems the poor, middle class etc. (OK, 90% of the population) cannot be trusted therefore we need trickle down economics from the ultra wealthy and their handmaidens - the corporations. The main problem of course is there is no trickling down, trickling becomes plain old trick. I simply can't believe the electorate could be this stupid all these years but the proof is right in front of us.
You Decide
I am an economist, business person and an American. Here are 10 points to send to your congress people.
1. Let the investment banks fail. Someone will step forward if the function is needed.
2. They were the experts at risk management. They failed. Let them fall.
3. The money went somewhere. Where did it all go? Who got obscenely rich and where is the money?
4. The bailout plan will devalue the US currency by over 10%
5. The bailout plan is not needed. Businesses fail. Others step forward.
6. If we can consider $1 trillion in bailouts to the lambskin wallet crowd, let's bailout through infrastructure projects around the world, people desperate for food and work.
7. See No. 1
8. The devaluation of the US currency if the bailout goes through means $5+ gasoline and higher food prices.
9. See No. 1
10. No one is above the law or the review of the courts. If Paulson is granted such authority, you may check the box that says you now live in a fascist country.