My husband and I just made out a check to the IRS for $5,021. It’s more than usual because of solid investment returns in his native Canada, where their quaintly regulated banking system continues to hum along. Normally, though, we don’t mind paying our tax bill. We believe that strategic government investment is the way out of this crisis, and we’re happy to contribute our fair share.
But this year I cringed as I dropped that check in the mail, thinking about how I might as well have just handed it directly to a Wall Street executive.
Congressional efforts to recoup the most outrageous of all the outrageous examples of bailout profiteering — the $165 million in AIG bonuses — have stalled in the face of White House opposition. And now comes the news that Obama officials appear to be resorting to money laundering to help companies elude even the extremely modest compensation restrictions that Congress has already enacted.
A House oversight committee is investigating reports that the Treasury Department is creating special entities to receive bailout funds and then channel them to corporate recipients — no strings attached. Obama officials have reportedly already reversed a Bush administration decision to apply pay limits to one bailout initiative aimed at boosting consumer lending.
If you listen to President Obama’s speeches, you wouldn’t expect this kind of backsliding. He has spoken powerfully about how the current compensation system has “contributed to a reckless culture and quarter-by-quarter mentality that in turn have wrought havoc in our financial system.”
In other words, the president rightly sees bloated paychecks as not just a moral outrage, but also a cause of the crisis.
The president also said that “in order to restore our financial system, we’ve got to restore trust. And in order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”
So why the disconnect between the president and his own economic advisors? Treasury’s argument against stronger pay rules has been that financial firms will turn up their noses at taxpayer support if it means having to limit pay for their top brass. They argue that while these firms might not go bankrupt without the aid, they wouldn’t be able to increase lending enough to get the economy rolling.
But wouldn’t other companies see their competitors’ voluntary withdrawal from the lending game as an opportunity to take over the market? I say call their bluff.
Officials are particularly protective of hedge and private equity fund participants in the most controversial bailout program, Treasury Secretary Timothy Geithner’s plan to provide heavily subsidized loans for the purchase of up to $1 trillion in toxic assets. These firms may not be getting emergency aid, but as many noted economists have pointed out, they are getting a sweetheart deal. Nobel prize-winner Joseph Stiglitz recently described it as a “win-win-lose proposal: the banks win, investors win — and taxpayers lose.”
Since they’re shouldering nearly all the risk, taxpayers have every right to demand that their government prevent excessive amounts of their money from going into financial executives’ pockets. A recent poll showed that 81 percent of Americans support such restrictions.
I’m hoping the Congressional inquiry into the money laundering scandal will prompt a change of course at Treasury and even a renewed effort on Capitol Hill to tighten up existing pay rules. Otherwise, I’ll have to keep wondering what a Wall Street executive might do with our $5,021.
For my husband and me, it might have meant finally fixing our gutters. For them, it wouldn’t mean much. It amounts to roughly 0.05% of the average $10 million bonuses enjoyed by the top 10 Merrill Lynch executives last year and 0.001% of the average $464 million pocketed by the top 25 hedge fund mangers.
The out-of-control executive compensation system is one of the reasons we’re in this economic hole. By protecting this system, Congress and Treasury will just dig us in deeper.