TARP Strikes Back

[Arcesious]

http://news.yahoo.com/s/nm/20091021/bs_nm/us_financial_regulation_payczar

 

The government wants 90% pay cuts to the salaries of the top rich guys of the bailed out companies. Insane or Genius? Ridiculous or Brilliant?

[Samuel Dravis]

Sounds like a good idea to me. The need to keep the pay competitive seems like an excuse to continue paying the extremely high amounts, nothing more. If you're motivated to make 14 million (IIRC, that's how much one CEO got), how much motivation do you lose if you "only" make 1.4 million? Even if it went down to 500 000, I'm certain someone competent would still be willing to get the job done. I'd so do it.

 

>_>

 

<_<

[jrrtoken]

This pretty much reconfirms the century-old theorem that no matter what administration holds the reigns, there will always be corporate-federal "cooperation" in America. Although I don't want to be a bother and come-off as a conspiracy-theorist nut, it's quite unsettling to see actions of the like and to not consider the possibility of bribery for legislative authority, and other appendages and organs of government going to highest bidder. While I can understand the reason and logic behind the action, it's definitely suspicious, to say the least.

 

[Ten-96]

Sounds like a good idea to me. The need to keep the pay competitive seems like an excuse to continue paying the extremely high amounts, nothing more. If you're motivated to make 14 million (IIRC, that's how much one CEO got), how much motivation do you lose if you "only" make 1.4 million? Even if it went down to 500 000, I'm certain someone competent would still be willing to get the job done. I'd so do it.

 

>_>

 

<_<

 

It's not one of Congress' enumerated powers to do any of those things. We are on a slippery slope with the advent of these ruling by Congress. Right now, there are those that think this is a good idea. Why? Would you want the government to tell you how much money you can make? Once you let the government start dictating how much anyone can make regardless of their profession, what's to stop them from branching out? I certainly don't hear anyone complaining about the salaries and bonuses of NFL, MLB and NBA players.

[Samuel Dravis]

It's not one of Congress' enumerated powers to do any of those things. We are on a slippery slope with the advent of these ruling by Congress. Right now, there are those that think this is a good idea. Why? Would you want the government to tell you how much money you can make? Once you let the government start dictating how much anyone can make regardless of their profession, what's to stop them from branching out? I certainly don't hear anyone complaining about the salaries and bonuses of NFL, MLB and NBA players.

As far as I know, no company that hadn't agreed to various types of restrictions (like this) to get bailout funds is being affected. In fact, those companies that have already paid off their bailout bill seem to be exempt in the article. I think it's perfectly reasonable that the American people are leery of funding someone's personal fortune when many of those "someones" are the same people that drove their companies into the ground and resulted in the bailout being sought.

 

My view: the government provided a contract (and let's be clear: the government is well within its rights to make contracts) that helped the business stay afloat. If the business signed it, then they decided to abide by the restrictions on the money. Kind of like scholarships where you can't legally spend it on video games. If you want to, too bad. Either abide by the agreement or don't accept the money.

 

It's actually somewhat galling that these companies are now complaining about this; they knew exactly what they were getting into.

[Ten-96]

My view: the government provided a contract (and let's be clear: the government is well within its rights to make contracts) that helped the business stay afloat. If the business signed it, then they decided to abide by the restrictions on the money. Kind of like scholarships where you can't legally spend it on video games. If you want to, too bad. Either abide by the agreement or don't accept the money.

 

The problem is that the government is changing the rules after the game has already began. The recent ruling to restrict CEO pay came a little more than a year after TARP was adopted. These are new restrictions that are being imposed upon these companies. As I have written in other forums, I was against TARP and the bailouts of Chrysler and GM. It's not the government's job to make sure that giant corporations succeed. Nor is it the government's job to dictate how much money someone can make; not matter how much that person earns.

[Darth Avlectus]

I don't mean to derail the thread but I just want to elaborate on Ten96's point.

 

It's not one of Congress' enumerated powers to do any of those things. We are on a slippery slope with the advent of these ruling by Congress. Right now, there are those that think this is a good idea. Why? Would you want the government to tell you how much money you can make? Once you let the government start dictating how much anyone can make regardless of their profession, what's to stop them from branching out? I certainly don't hear anyone complaining about the salaries and bonuses of NFL, MLB and NBA players.

 

I like your thinking in terms of cautiousness and awareness of the government intervening in salary. There is a difference between simply taxing like hell and actually dictating wages.

 

While, speaking of slippery slopes, it would be said that you are plotting on unknowns and using that fallacy regarding "if we let the government do this, what is to stop them from doing that?", the truth of the matter is that there are always opportunistic people who push the envelope.

 

So while others may chastise you and say "well, you don't *know* that allowing them to rule in just once will neccessarily lead to government control over wages in the long run", this has potential to cascade into it. Also that line of reasoning to refute your point cuts both ways--they don't *know* that it necessarily won't turn out that way. Once gone, hearing "sorry, my bad" is little consolation for losing your freedom; better safe than sorry. Cascading effect does happen--for example just look what happens when a case is ruled upon in uncharted territory when it concerns interpretation of the constitution or any of our rights.

 

Anyway, just thought I'd elaborate on that point. Carry on.

[Samuel Dravis]

The problem is that the government is changing the rules after the game has already began. The recent ruling to restrict CEO pay came a little more than a year after TARP was adopted. These are new restrictions that are being imposed upon these companies. As I have written in other forums, I was against TARP and the bailouts of Chrysler and GM. It's not the government's job to make sure that giant corporations succeed. Nor is it the government's job to dictate how much money someone can make; not matter how much that person earns.

Via this summary [PDF] of the bailout bill, it seems that limits to executive pay were already in the bill in October of 2008. Simply because enforcement of those clauses have been slow doesn't mean it was a new rule, unless I am missing something here.

 

The relevant portion of the bill:

 

SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.

(a) APPLICABILITY.—Any financial institution that sells troubled

assets to the Secretary under this Act shall be subject to the

executive compensation requirements of subsections (b) and © and

the provisions under the Internal Revenue Code of 1986, as provided

under the amendment by section 302, as applicable.

(b) DIRECT PURCHASES.—

(1) IN GENERAL.—Where the Secretary determines that the

purposes of this Act are best met through direct purchases

of troubled assets from an individual financial institution where

no bidding process or market prices are available, and the

Secretary receives a meaningful equity or debt position in the

financial institution as a result of the transaction, the Secretary

shall require that the financial institution meet appropriate

standards for executive compensation and corporate govern-

ance. The standards required under this subsection shall be

effective for the duration of the period that the Secretary holds

an equity or debt position in the financial institution.

(2) CRITERIA.—The standards required under this sub-

section shall include— H.R. 1424—13

(A) limits on compensation that exclude incentives for

senior executive officers of a financial institution to take

unnecessary and excessive risks that threaten the value

of the financial institution during the period that the Sec-

retary holds an equity or debt position in the financial

institution;

(B) a provision for the recovery by the financial institu-

tion of any bonus or incentive compensation paid to a

senior executive officer based on statements of earnings,

gains, or other criteria that are later proven to be materi-

ally inaccurate; and

© a prohibition on the financial institution making

any golden parachute payment to its senior executive officer

during the period that the Secretary holds an equity or

debt position in the financial institution.

(3) DEFINITION.—For purposes of this section, the term

‘‘senior executive officer’’ means an individual who is one of

the top 5 highly paid executives of a public company, whose

compensation is required to be disclosed pursuant to the Securi-

ties Exchange Act of 1934, and any regulations issued there-

under, and non-public company counterparts.

[Ten-96]

(B) a provision for the recovery by the financial institu-

tion of any bonus or incentive compensation paid to a

senior executive officer based on statements of earnings,

gains, or other criteria that are later proven to be materi-

ally inaccurate; and

© a prohibition on the financial institution making

any golden parachute payment to its senior executive officer

during the period that the Secretary holds an equity or

debt position in the financial institution.

 

As you are well aware, there is nothing in the bill that states that 90% of the executives salaries are subject to recovery. It determines that bonuses or incentives are subject to recovery. That's the gist of the bill enacted a year ago. It prohibits "Golden Parachutes" and provides for a means to take back bonuses or incentives. Now, Congress has decided that they want to limit Executive's "Salaries", as in how much an Executive can earn from a company in a given year, which wasn't in the original bill.

 

I have an ever better idea:

How about we cut the salary of the members of the U.S. Senate and the House of Representatives? Both sides of the political isle have been failing to follow the Constitution for decades. Both sides have been acting on behalf of Special Interest groups and not for the welfare of the citizens they are supposed to be representing. How about we remind those in Congress that they work for us; not the other way around?

[Samuel Dravis]

(B) a provision for the recovery by the financial institu-

tion of any bonus or incentive compensation paid to a

senior executive officer based on statements of earnings,

gains, or other criteria that are later proven to be materi-

ally inaccurate; and

© a prohibition on the financial institution making

any golden parachute payment to its senior executive officer

during the period that the Secretary holds an equity or

debt position in the financial institution.

 

As you are well aware, there is nothing in the bill that states that 90% of the executives salaries are subject to recovery. It determines that bonuses or incentives are subject to recovery. That's the gist of the bill enacted a year ago. It prohibits "Golden Parachutes" and provides for a means to take back bonuses or incentives. Now, Congress has decided that they want to limit Executive's "Salaries", as in how much an Executive can earn from a company in a given year, which wasn't in the original bill.

From what I can tell, they're using an interpretation of A) which includes salary AND explicitly cuts out golden parachutes, i.e., the Paycut Czar is able to determine how much a salary is cut - if at all - while he is forced by law to disallow parachutes.

 

I have an ever better idea:

How about we cut the salary of the members of the U.S. Senate and the House of Representatives? Both sides of the political isle have been failing to follow the Constitution for decades. Both sides have been acting on behalf of Special Interest groups and not for the welfare of the citizens they are supposed to be representing. How about we remind those in Congress that they work for us; not the other way around?

I'm afraid that probably wouldn't have the intended effect. As it is, most people in high level government are independently wealthy, partially because they have the finances to take off of their day job and campaign full time. If you cut their current pay, those people who are not already wealthy would lack much, if any sort of financial incentive to take off of their normal jobs in order to campaign for office, leaving government completely to the rich. I take it this would be undesirable.

 

I suggest removing the offenders from office. I have tried to do so ever since I was able to vote several years ago.

[Ten-96]

From what I can tell, they're using an interpretation of A) which includes salary AND explicitly cuts out golden parachutes, i.e., the Paycut Czar is able to determine how much a salary is cut - if at all - while he is forced by law to disallow parachutes.

 

I see what you're saying and I agree that they are using the wording in Section A to justify their actions. However, 90%; and people think that's a good thing? If I gave you $10 for mowing the lawn, how happy would you be if you had to give $9 to the government? Not very, I'm sure. I'm not a financial wizard and could tell you the current buying trends of overseas markets well enough for you to risk an investment that may or may not pay big dividends. I can't do it but I'm sure there are people that can and have done it reasonably enough to earn those mega salaries. It's the same as professional sports, in a sense. You have those that can perform certain skills at a consistently high level of proficiency. What the government is doing is tantamount to class warfare.

[Samuel Dravis]

I see what you're saying and I agree that they are using the wording in Section A to justify their actions. However, 90%; and people think that's a good thing? If I gave you $10 for mowing the lawn, how happy would you be if you had to give $9 to the government? Not very, I'm sure. I'm not a financial wizard and could tell you the current buying trends of overseas markets well enough for you to risk an investment that may or may not pay big dividends. I can't do it but I'm sure there are people that can and have done it reasonably enough to earn those mega salaries. It's the same as professional sports, in a sense. You have those that can perform certain skills at a consistently high level of proficiency. What the government is doing is tantamount to class warfare.

I am certain there is an element of "getting back at those greedy people" involved in this. The Paycut Czar is doing his job, which is to show The People that he's serious about, well, making those white collar people pay for getting us into horrendous amounts of debt. And he's doing it admirably well.

 

I can't say I'm really sad about it, though. $200,000 (from the article in the OP) is far, far more than virtually everyone ever makes in their lives. While it may take an exceptional CEO to lead to huge leaps in company wealth (and the associated risks), it merely takes a competent one to keep the place running. If the $200,000 is enough to attract reasonably competent people to be executives, then it doesn't appear to create problems. If it isn't, then the pay rate can be raised until it does (and note the Czar is obligated to ensure to the best of his ability that the companies improve so that the stock can be resold to regain taxpayer monies). After the company has paid their debt back they can return to their more risky behaviors without any governmental oversight.

 

I tend to agree with your skepticism of the government. The bailout shouldn't have happened. However, now that we're stuck with it I'm not interested in having the corporations dictate the rules. They seem to be even less interested in my opinion than the government; at least the government has to read my "fan" mail.

[Ten-96]

I am certain there is an element of "getting back at those greedy people" involved in this. The Paycut Czar is doing his job, which is to show The People that he's serious about, well, making those white collar people pay for getting us into horrendous amounts of debt. And he's doing it admirably well.

 

Therein lies the problem with this issue. The Execs weren't alone in getting us into the financial situation that we have now. High ranking members of the House and Senate were complicit in the events that resulted in the financial meltdown. Barney Frank refuted repeated attempts to reign in Fannie Mae and Freddie Mac. Chris Dodd vehemently opposed attempts to have Fannie Mae and Freddie Mac audited by the GAO and CBO. Currently, House members are stalling on an investigation into Countrywide Mortgage.

 

I can't say I'm really sad about it, though. $200,000 (from the article in the OP) is far, far more than virtually everyone ever makes in their lives. While it may take an exceptional CEO to lead to huge leaps in company wealth (and the associated risks), it merely takes a competent one to keep the place running. If the $200,000 is enough to attract reasonably competent people to be executives, then it doesn't appear to create problems. If it isn't, then the pay rate can be raised until it does (and note the Czar is obligated to ensure to the best of his ability that the companies improve so that the stock can be resold to regain taxpayer monies). After the company has paid their debt back they can return to their more risky behaviors without any governmental oversight.

 

No government should be in the position to dictate how much someone should earn; regardless. By that logic, if you received a government backed student loan; then the government would have a say in what courses you are able to choose. After all, the government doesn't want you behaving irresponsibly by choosing to major in something the government doesn't condone.

 

I tend to agree with your skepticism of the government. The bailout shouldn't have happened. However, now that we're stuck with it I'm not interested in having the corporations dictate the rules. They seem to be even less interested in my opinion than the government; at least the government has to read my "fan" mail.

 

We just disagree on that point. The government hasn't shown thus far that it is capable of running a business effectively. Look at the Post Office. Look at what happened with the "Cash for Clunkers" debacle. There are still thousands of dealers still waiting on their government reimbursement. Social Security will accrue a debt of approximately $60 Billion this year alone. Medicare has to contend with $34 Trillion in unfunded liabilities, thus far. Just a few of the reasons I don't want the government dictating salaries, taking over companies or managing health insurance.

[mur'phon]

No government should be in the position to dictate how much someone should earn; regardless.

 

While I agree in general (state employed being the exeption), they certainly can (and should) have a say in how said someone earn it, especially as the problem leading to the crisis was more about "how" than "how much". I also have little problem with the goverment influencing wages with for instance a steep progressive tax.

 

By that logic, if you received a government backed student loan; then the government would have a say in what courses you are able to choose. After all, the government doesn't want you behaving irresponsibly by choosing to major in something the government doesn't condone.

 

I don't see a terribly big issue with this as some courses are way more popular than they "should (how many can actually make use of said courses). Why should my taxes help fund for instance a glut of arts degrees?

 

Considering the bailout, I support the "bank" bit of it, though I think it was poorly managed, for instance I would have loved to see any bank recieving help having to give the govt a som shares). The car bailout on the other hand could use some creative destruction.

[Totenkopf]

I don't see a terribly big issue with this as some courses are way more popular than they "should (how many can actually make use of said courses). Why should my taxes help fund for instance a glut of arts degrees?

 

While I agree w/you that some degrees are much more useless than others, if it's a loan, that means the student has to pay it back. Ergo, the goverment has no business telling you what to do just b/c they're lending you money. Now, when it gives out grants, that's different.

[Parmenides]

One small good, at the expense of a greater evil. Kreia would not approve. Echos in the force WILL be felt.

 

 

 

Tyranny cannot come about by pure evil. Some good must accompany it. Secretly I have no care for execs and almost find this appealing. But this will come back to burn us all!

[Det. Bart Lasiter]

We just disagree on that point. The government hasn't shown thus far that it is capable of running a business effectively. Look at the Post Office. Look at what happened with the "Cash for Clunkers" debacle. There are still thousands of dealers still waiting on their government reimbursement. Social Security will accrue a debt of approximately $60 Billion this year alone. Medicare has to contend with $34 Trillion in unfunded liabilities, thus far. Just a few of the reasons I don't want the government dictating salaries, taking over companies or managing health insurance.

The Post Office delivers letters across the country for 44 cents. I can't get a soda from a vending machine for 44 cents. The Cash for Clunkers program's only problem was that it was too popular. Social Security has made sure millions of seniors are able to afford housing, medical care, or basic necessities they wouldn't be able to otherwise. Medicare has done the same. Almost everyone is in debt right now, so saying these programs are worse off than they would be if they were privatized isn't very persuasive, especially considering the number of private companies that have gone out of business or don't accomplish what these government programs do.

 

fake edit: nm none of the programs you mentioned turn a profit so they are inherently bad they can all go to hell and so can the people who work for them

[Ten-96]

The Post Office delivers letters across the country for 44 cents. I can't get a soda from a vending machine for 44 cents. The Cash for Clunkers program's only problem was that it was too popular. Social Security has made sure millions of seniors are able to afford housing, medical care, or basic necessities they wouldn't be able to otherwise. Medicare has done the same. Almost everyone is in debt right now, so saying these programs are worse off than they would be if they were privatized isn't very persuasive, especially considering the number of private companies that have gone out of business or don't accomplish what these government programs do.

 

The United States Postal Service will run a $7 Billion deficit this fiscal year. While it's true that you can't buy a soda for 44 cents, there aren't many things that you can buy for 44 cents. However, the lost cost of postage doesn't justify the billions in debt; UPS and FedEx seemed to have figured that out. Social Security does provide benefits to seniors - right now. What about those of us who are still working? I don't have an issue with the program, I have an issue with the bureaucrats who have ruined the program. Medicare is the same, needed but managed poorly. There are numerous example of private industry out performing the government. I gave the examples UPS and FedEx because those businesses have to make money in order to operate. The government doesn't have that burden, the government fines or increases taxes on businesses and individuals to generate revenue.

 

fake edit: nm none of the programs you mentioned turn a profit so they are inherently bad they can all go to hell and so can the people who work for them

 

 

It's true that none of the government agencies I mentioned turn a profit. Those agencies are accumulating tons of debt at the expense of our children, grandchildren and great grandchildren. It's not about the people who work for these companies, either. My mother worked for the SSA for over 20 years. You misunderstand the focus of my argument. I don't want these programs abolished, I want them managed responsibly so that future generations aren't saddled with crippling debt.

[Totenkopf]

One can only wonder how much more nonexistent $$ congress and the administration want to spend before they completely derail the country. Moody's is close to stripping the USA of its AAA credit rating w/in the next 3-5 years. 6 months ago they estimated it might be as soon as only a decade. Roehmer is out there lying about the stimulus effect claiming a savings of 600K-1.5 million jobs this year. Too bad she can't prove any of that. Even the CBO write-up on the the proposed HC legislation (that even Pelosi argues isn't relevant anymore b/c that bill no longer exists) was based on an outline, not the details. As always, the devil is in the details. It's really funny that many people have savaged the previous administration for increasing the debt by >$3 trillion in 8 years, but think nothing of this administration's plans to 2X or 3X that in as much or less time. If govt were a business, they'd all be doing 20-life for fraud and grand theft (and numerous other charges, no doubt).

[ForeverNight]

Eh, sorry Tot, but that's only if we don't return to a downward trajectory on our debt once the recession is once and truly over.

 

So, knowing who we have in office....

 

Source

[Totenkopf]

I think that's the point, though. This administration and Congress are doing nothing to eradicate the debt or even to seriously counter the current downward spiral of the US economy except blame everyone else for their inability and general unwillingness to actually solve the situation in a constructive manner. The rating is "safe for now" doesn't mean that it will be in 3-10 years time. As you note, with this group, that is dicey at absolute best. No doubt, though, if rhetoric actually changed anything, we'd be in economic heaven right now.

[ForeverNight]

If rhetoric actually solved things, the Soviet Union would've won.

 

But, yeah, just pointing out that it would happen if we don't clear up that debt.

 

But, again, with who's in office..... I can't say that's a likely occurrence.... clearing the debt that is.

[Jae Onasi]

The banks who signed on for the bailouts knew what they were getting in to with executive compensation. I have no doubt their lawyers went over the legalese with a fine tooth comb before they signed on. So, this ruling on exec pay should have come as no surprise--caveat emptor. My view is that if the execs' performance was so bad that they needed a bailout for their banks, they did not earn or deserve 10 million of my tax dollars to pay their salaries. I'm glad the gov't is actually doing something to help recoup some of my tax dollars.

[Totenkopf]

In so far as the meddling in salaries is confined strictly to those 7 or so companies, I agree w/the caveat emptor sentiment. I also agree w/Sam that you could probably have little problem finding people who could do those jobs competently for less money. Of course it might not be bad to apply that logic to govt as well. They may not officially make millions like their private enterprise counterparts, but they appear to be equally overcompensated given their gross negligence and awe-inducing incompetence.

[El Sitherino]

Considering in the last 20 years CEO's earnings have risen nearly 304%, 90% cuts sound perfectly reasonable. So reasonable, in fact, it's unreasonable how much they'll still make.

 

Eventually we'll get back to a point where the profit of the corporations will go back to the workers like it did when capitalism was, well, capitalism. One small step closer toward fixing this bull**** economy.