Obama not happy with Wall Street pay practices

By Peter Schroeder - 10/26/12 11:07 AM ET

President Obama would like to overhaul the way Wall Street executives earn a paycheck, according to a recent interview.

Obama told Rolling Stone that if he could change one thing about the financial system, he would like to overhaul how people are paid for their work so that their compensation reflects the risk they are taking.

"You still have a situation where people making bets can get a huge upside, and their downsides are limited. So it tilts the whole system in favor of very risky behavior," he said.

Obama went on to point out that when investment banks were partnerships, the partners were on the hook if the firm collapsed.

"They were going to lose all their money, they were going to lose all their assets," he said.

But now, traders can reap massive paychecks for years taking on risky positions, and do not have to be held accountable "by the time the chicken comes home to roost."

The president said he would like to see congressional legislation address Wall Street pay, but also noted that a new approach at the corporate level would also be necessary. Regardless, there is little indication that the divided Congress, if the arrangement remains intact after the election, has any interest in taking up such a bill.

The president also pushed back against a growing notion that the government should reimpose Glass-Steagall. That law, repealed in 1999, separated commercial banking from investment banking, and many Wall Street critics have pointed to its repeal as a contributor to the financial crisis.

But the president said there is no evidence that the crisis would have been avoided had Glass-Steagall been in place, and pointed out that the firms whose demise most fundamentally shook the financial system during the crisis — Lehman Brothers and AIG — would not have been covered under Glass-Steagall.

"The problem in today's financial sector can't be solved simply by reimposing models that were created in the 1930s," he said.

The president also went on to defend his attempt at Wall Street reform, the Dodd-Frank Act. He noted that many of its key pieces are still being implemented.