A Haircut for the Big Banks?

Robert Reich is trying to take the banks and Obama to the woodshed for a sound thrasing over their idiocy and foot dragging. But from the sound of the wood chipper, I think it is Robert Reich who has met his maker. The big boys wan't be denied...

Citigroup -- the giant Wall Street bank still on life-support courtesy of $45 billion from American taxpayers -- wants to pay its twenty-five top executives an average of $10 million each this year, and award its best trader $100 million. Whaaat?

Second only to healthcare reform as a test of Obama's toughness and resolve is reform of Wall Street. And like the healthcare industry, Wall Street has platoons of lobbyists and an almost unlimited war chest to protect its interests and prevent change. So what can we learn by what's going on now, regarding pay for the top brass at big "too big to fail" banks?

After the bonus plan for AIG executives blew up last year, a law enacted last February requires that any "too big to fail" institution that's received bailouts get Treasury's approval on pay for their top earners. Companies are supposed to file their pay proposals no later than today. So far, most are seeking around $7 million each for their top twenty-five.

As you can expect, Citi and the rest argue that $7 to $10 million is necessary in order to keep and attract "talent."

Tragically, Treasury has already given in on this one. In judging whether a proposed pay package is appropriate, Treasury has decided to be guided by "comparable" pay packages in the industry. This means Ken Feinberg, appointed as special master to decide on a case-by-case basis, will be the flak-catcher. He'll take the heat when he approves pay packages that, while perhaps not as ridiculously exhorbitant as the ones the banks seek, are still bonkers because they're roughly "comparable" to the wild pay on the rest of the Street -- thereby protecting Geithner and Geithner's boss from the public's outrage about bailing out these bankers and then having them earn princely sums at a time when most peoples' jobs are at risk and their earnings are shrinking.

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The insurance these "too big to fail" banks are receiving makes them more like public utilities than private firms. As such, not only is it entirely appropriate for government to review their pay but also to make sure pay is kept within strict bounds -- not $100 million, not $10 million, not $7 million, but far, far less. As long as you and I are cushioning them, their top brass should be earning just about what the top brass of any public utility earns (which, when I last looked, ranged from $100,000 to $600,000).

... Note how easily Treasury caved in on the "comparable" pay standard. In coming months, other financial regulators will decide appropriate pay guidelines for the institutions they supervise. Two weeks ago, the House passed legislation giving regulators even greater authority over compensation packages. Given what's happened to date, there's no reason to suppose Wall Street pay will be reined in at all.

When I was a kid, stories of corruption were always about other countries and faraway places. But as I get older and more jaded, I have come to realize that corruption is rampant here. Inside your own culture there is always a hushed tone and meaningful silences about your own corrupt practices. All the noise and moral posturing is saved for talking about "others". This is a tragedy.