Posted on 02/04/2009 2:42:44 PM PST by Technical Editor
Would be part of broader bill limiting hedge funds, credit-raters, and mortgage securitizers; 'deeply rooted anger'
----
Congress will consider legislation to extend some of the curbs on executive pay that now apply only to those banks receiving federal assistance, House Financial Services Committee Chairman Barney Frank said.
“There’s deeply rooted anger on the part of the average American,” the Massachusetts Democrat said at a Washington news conference today.
He said the compensation restrictions would apply to all financial institutions and might be extended to include all U.S. companies.
The provision will be part of a broader package that would likely give the Federal Reserve the authority to monitor systemic risk in the economy and to shut down financial institutions that face too much exposure, Mr. Frank said.
Also included in the legislation: registration requirements for hedge funds and proposals aimed at curbing conflicts of interest at credit-rating agencies such as Standard & Poor’s.
The bill, which the committee is working on in consultation with the Obama administration, also will require financial institutions that bundle mortgages into securities to share in potential losses. This would give banks and mortgage-specialists an incentive not to make bad loans, he said. Institutions that securitize loans improperly will incur tougher penalties.
“There have been too few constraints on major financial institutions incurring far more liability than they could handle,” Mr. Frank said.
The committee hopes to have a general outline of the legislation by early April, he said. It will be the panel’s first priority in its effort to restructure financial regulation in the wake of the worst economic crisis since the Great Depression.
Mr. Frank has summoned the CEOs of Citigroup, J.P. Morgan Chase and the seven other U.S. financial firms that got $125 billion from TARP to testify at a Feb. 11 committee hearing.
Mr. Frank seems to be in synch with the Obama administration in his plans for executive compensation.
Treasury Secretary Timothy Geithner said last month that he might try to extend to all U.S. companies a restriction that prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive.
The Troubled Assets Relief Program legislation enacted in October seeks to give companies receiving aid under the $700 billion bailout a number of incentives to curb what it calls excessive executive pay.
Mr. Geithner said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”
Under the legislation, banks receiving bailout money must limit golden parachute payments to senior executives to no more than three times the executives’ base pay. The companies also must subject any bonuses or incentives to clawbacks if the payouts are based on bank’s misleading financial statements.
In addition, bailout recipients can’t offer top managers incentives that “encourage unnecessary excessive risks that threaten the value of the financial institution.”
These limits apply to the chief executive officer, chief financial officer and the next three most highly compensated executives in a bank receiving rescue funds.
Mr. Frank said provisions on golden parachute payments and bonus clawbacks would probably be in the legislation, though he declined to provide more detail because “we’re early in the process.”
A congressional oversight panel headed by Harvard Law professor Elizabeth Warren also recommended last week that Treasury consider revoking executive bonuses at failed institutions getting federal aid.
Currently, these institutions must subject bonuses to clawbacks only if the payouts are based on banks’ misleading financial statements.
The top Republican on the committee, Spencer Bachus of Alabama, said last month he has reservations about giving the Fed new powers, such as the authority to monitor systemic risk.
Mr. Frank said today that after lawmakers address issues on systemic risk, they will consider how to bolster investor protection via changes at the Securities and Exchange Commission. The committee also will review proposals to assist struggling homeowners and expand the housing supply, and to strengthen international financial institutions such as the World Bank, he said.
Write to the editors at fw_editor@financialweek.com.
Without those high incomes, the Dems wont be able to pay for their big welfare states.
ughhh....
marker
“It’s actually not a direct cap on compensation. It’s a limit to how much executive salary a company can claim as an expense against income tax.”
It’s an attempt to tax the business income twice. Once as a corporate tax and then again as a personal income tax.
The United States Government already does this when corporations pay out dividends to their stockholders. The corporation pays corporate tax on the income and then that corporate income that is disbursed to stockholders is then taxed a second time (immediately) as a personal income tax. It is only until very recently that this second tax (the personal income tax) was given somewhat better tax consequences (a special very low dividend tax of about 10%).
I noticed that right away, DTD.
A lot of it directed at him!
Cheers!
Would a challenge get to SCOTUS before or after any 0bama appointee? Just sayin’.
They want a revolt, and they think they can win one, putting conservatism to death for good in their books.
This is what provacation is about. Its a fascist technique to divide and conquer society, one sector at a time. The Nazis used it effectively to cow the population, disunify Germans, so that ordinary men and women supported them.It was combined with jingoistic continuous bombardment of the public with propaganda, just like Obama is doing, a continuous presidential campaign that never stops.
The question simply is, when will we fight them to win? Who will help us, Canada?
“Bernie Madoff should be executed. And congress should establish certain financial crimes as capital offenses.”
We should also execute the investors in Madoff’s scheme. Without their greed, he wouldn’t have been able to use it against them.
“How long until it applies to...”
Wealth in general. Why does anyone need to have over $5 Mil in savings, anything more is pure excess that should be confiscated and absorbed by SSIP.
(is a sarc tag really needed?)
This same tax trick was pulled in the 1990’s. It was essentially the same except it was limited to $200,000. Companies paying executives in exces of $200,000 couldn’t deduct the excess, hence the payments in excess of 200K cost the company an extra 45% (or so depending on state tax rates) to overly compensate an executive.
It was interesting that at that time there was what was called a “rock star” exemption. The exemption wasn’t just limited it Rock Stars or even just stars, but people that were compensated by paying a fee or percentage of the gate. I thought this was an interesting way for the Hollywood crowd to escape this tax and the politicians were playing to that constuenticy.
If a concert promoter had a gate of lets say $1,000,000 and paid the “act” lets say $700,000 and had other expenses of lets say $100,000, his gross profit would be $200,000 and for sake of discussion his tax would be (at a total of 50%) $100,000 leaving an after tax profit of $100,000. If he couldn’t deduct the extra $200,000 dollars (in Obamas $500k limit) the promoter would have a Taxable Gross Profit of not $200,000 but $400,000 and his tax (at 50%) would be $200,000 leaving him a ZERO profit.
But it is okay to be that punitive to the evil “business community” as long as the preformers get full tax deductability and hence the promoters don’t have to discount the preformance fee to make money.
Not the wealthy, they already have their money, but the rich, who aspire to be wealthy.
Won't bother the Kennedys, Rockefellers, etc.
There’s some truth in that. I agree.
Mr. Frank has summoned the CEOs of Citigroup, J.P. Morgan Chase and the seven other U.S. financial firms that got $125 billion from TARP to testify at a Feb. 11 committee hearing.
////////////////////////
All those CEOs AND homoFrank should be handcuffed and taken to Prison.
This is the next curve on that slippery slope to Marxism.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.