Some of the nation's top political commentators, legislators and intellectuals offer some insight into the biggest question burning up the blogosphere today.
What can Congress do about pay and bonuses on Wall Street? Should lawmakers do anything at all?
Daniel J. Mitchell, senior fellow at The Cato Institute, said:
The American people have every right to be upset about generous compensation packages for executives at financial firms that are being kept alive by subsidies and bailouts.
But their ire should be directed at the bailouts, because that is the policy that redistributes money from the average taxpayer and puts it in the pockets of incompetent executives. Unfortunately, rather than deal with the underlying problems of bailouts and intervention, some politicians want to impose controls on salaries. This might be a tolerable second-best (or probably fifth-best) outcome if the compensation limits only applied to companies mooching off the taxpayers, but some politicians want to use the financial crisis as an excuse to regulate compensation at firms that do not have their snouts in the public trough.
This would be a big mistake. So long as rich people make money using non-coercive means, politicians should butt out. It should not matter whether we are talking about Tiger Woods, Brad Pitt, or a corporate CEO. The market should determine compensation, not political deal making. Markets don't produce perfect outcomes, to be sure, but political intervention invariably produces terrible outcomes.
John F. McManus, president of The John Birch Society, said:
The very existence of a "pay czar" to oversee the amount of compensation given employees by any company is completely abhorrent. But each of the companies whose pay practices are being judged accepted federal aid during the current crisis. The federal aid should never have been provided. Failing companies should be allowed to fail. What we have here is a bad development (the federal pay czar) treating an earlier bad practice (the doling out of federal aid). In a 1942 Supreme Court Justice Robert Jackson stated in one of his decisions: "It is hardly lack of due process for the government to regulate that which it subsidizes." Who can disagree?
Anna Burger, secretary-treasurer of Service Employees International Union, said:
It’s outrageous that after crashing our economy and taking trillions in taxpayer bailouts and backstops, big banks and Wall Street are raking in billions in profits and getting ready to pay out bonuses higher than during the boom years.
According to a recent poll, nearly 75 percent of Americans believe that the greed and risky decisions of banks and financial companies led to our financial crisis. And nearly 80 percent believe that Congress needs act to crack down on excessive compensation and bonuses at big banks and Wall Street.
That’s why more than 5,000 taxpayers from 20 states are headed to Chicago to protest the American Bankers Association conference next week and demand an end to Wall Street’s appetite for greed. And that’s why Americans across the country will be calling on Congress to act immediately to rein in big banks and Wall Street and create an economy that works for everyone again.
Congress must take steps to ensure banks stop foreclosures in order to save Americans' homes and state and local budgets; provide the same affordable loans to state and local governments that the banks receive from the federal government; restore small business lending to save jobs and tax revenue; lower interest rates on consumer credit cards, and stop charging abusive overdraft fees that take billions out of consumers' pockets. And Congress must pass the Employee Free Choice Act to ensure that workers can negotiate for higher wages and benefits, hold corporate executives accountable, and win their piece of the American Dream.
Dean Baker, co-director of the Center for Economic Policy Research, said:
Last fall, when the banks were on the edge of collapse, Congress could and should have put harsh conditions for bonuses on taking the TARP money. Goldman Sachs, Citigroup, and the rest were on the edge of going out of business. We could have put any conditions we wanted on the money -- we could have told the bankers to walk like ducks, to wear stupid hats, or to limit total compensation to $2 million.
Instead, Congress just handed them hundreds of billions no questions asked. It is also important to note that this would not have been interferring with the market. The market decision waas that these banks were out of business, therefore the CEOs and other big earners would get nothing. Taxpayers would be generous to have let them get $2 million.
Going forward, we should be clear that the basket cases, like AIG and Citigroup cannot give our big paychecks. There is no need to worry about losing good people, if they had good people, they wouldn't be bankrupt. Furthermore, there is no reason to believe that the people running these institutions can identify good people. If they could, then the companies would not be bankrupt.
We have to rein in the size of the financial industry. The best way that this can be done is with a series of modest financial transaction taxes, like the one that the United Kingdom has on stock trades. This would go a long way towards downsizing the industry and reducing the money floating around to pay huge bonuses. We also have to tell investment banks like Goldman Sachs that they can't gamble with the taxpayers dollars. This would also stop the huge bonuses.
Tom McClusky, senior vice president for FRC Action, said:
Can they? This Congress has shown little regard for the U.S. Constitution on what they can or can not do. Regardless Congress should clean up its own fiscal mess before they dive into issues that are none of their business.
Michelle D. Bernard, president & CEO of the Independent Women's Forum, said:
Congress should do absolutely nothing about pay and bonuses on Wall Street – it is none of their business how a private company chooses to pay its employees. Much of the public, after hearing about million dollar payouts and bonus packages, may think such compensation is inappropriate and undeserved. But that doesn't mean Congress should make such pay illegal. The free market is best suited to reward and punish companies for their policies, including how they pay staff. If a company over pays executives who deliver poor services, it is going to lose out to companies that pays their staff less since they be able to pass those savings on to customers.
As much as possible, the private dealings of corporations should remain private. Yet once the federal government starts handing out taxpayer money to these enterprises, taxpayers have an interest in company policy. That's one reason one should have been wary of the whole concept of corporate bailouts (and should be again in the future). It may be appropriate for Congress to set parameters for the activities (including compensation packages) of companies that still owe taxpayers money until the public is made whole. This would encourage companies to pay back the government as quickly as possible (and the government should welcome the payment of that debt). And once that debt is paid, Congress should step back from interfering in matters that are best left to employers and employees.
Glenn Reynolds, from Instapundit, said:
Given that the stimulus appears to have failed miserably at creating jobs, and given that the TARP Inspector General says that the bailouts have made things worse in the moral-hazard department, the best thing for the government to do would be to get out of the business of looking over Wall Street's shoulder, with one exception: Businesses that are "too big to fail" are too big to exist, and should be broken up under antitrust law. The miserable state of the nation's finances indicates that Congress and the Administration aren't anything special as money managers themselves, and there's no reason to think that they are any better at running Wall Street than they are at handling our money.
If Wall Street isn't spending our money, bonuses and salaries don't matter. And Wall Street shouldn't be spending our money.
Rob Weissman, president of Public Citizen:
Wall Street is mocking us. The giant Wall Street firms likely would be out of business had taxpayers not provided trillions of dollars in bailout money and supports. Now, within a year of these unfathomable bailouts, Wall Street has the gall to siphon off record sums in salary and bonuses. As troubling as the scale and audacity of these payments may be, what is most appalling is that they are, in large measure, the result of Wall Street resuming exactly the same speculative gambling and consumer rip-off strategies that crashed the financial system in the first place.
Wall Street is on track to pay an obscene $140 billion in bonuses and compensation, according to Wall Street Journal calculations.
Congress and the administration demanded no reciprocity for saving the financial system from the financiers. Now is the time to start.
Congress should act immediately to impose a windfall bonus and profits tax on Wall Street. Some substantial portion of the funds that Wall Street aims to pocket as bonus payments and profit taking should be returned to the public treasury.
Hyper-pay for executives and top traders is not just a symbolic issue. Crazy bonuses linked to this year's performance helped incentivize dangerous, short-term betting -- making it rationale to bet on housing bubble to continue to inflate, even in the face of certainty that it would eventually pop with devastating effects for financial firms (not to mention homeowners, communities and the national and global economy). Separate from addressing the scale of bonus compensation, it is imperative that Congress mandate that bonus payments be based on long-term performance over the course of a business cycle -- ideally 10 years, but not less than seven.