Posted on 02/04/2009 8:55:28 PM PST by grey_whiskers
President Obama has decided to take time off from his busy schedule of refusing reporters' questions, nominating tax amnesiacs, and reading children's books to give his thoughts on the financial crisis. One of the ideas he has floated is the concept of limiting executive pay, for companies receiving bailout money, to $500,000 per year, and to control any stock options given so that they vest years in the future. The hue and cry has gone out from both sides. "Socialism, socialism!" cry the conservatives, and "Why not do this for ALL companies?" says Barney Frank. Obviously, the remark has touched a nerve. But before getting too worked-up in knee-jerk responses, or Pavlovian drooling, let us look a little more closely, at the likely consequences. Intended, and unintended as well.
First of all, can we agree that there is a great deal of anger over the present financial crisis, and at all players involved in it, going back a few years? People were getting all nice and comfortable with the idea of 0% interest loans, not having to document their income when buying a home, and all kinds of nifty payment plans to get them into their very own McMansion. And then, out of the blue, not only can they not refinance, but prices go DOWN, so that they are trapped, and cannot refinance. And then the stupid banks have the nerve to actually demand that they be paid back -- and what?!! they're raising the minimum payment to boot? And what do you mean my minimum payment on my credit card is going up as well? Highway robbery!
...and then the news of the bailout hit. How can the d*mn bloodsucking thieves need government money after all this? And on the heels of that, the news of billions in bonuses, for the same swollen hemorrhoidal tissues who ran the banks into the ground. No wonder Obama is lashing out at the executives: he is attempting to shrink the swollen executive egos, and apply cool soothing relief to the populist rage. (It doesn't hurt that doing so will help ease his Pork-and-Awe bill, and detract from the role that Christopher Dodd (Waitress Sandwich-CT) and Barney Frank (Banking Queen-MA) had to play in the subprime housing mess.)
So Obama is doing what Democrats have always longed to do; come down hard on capitalism and keep corruption where it belongs, in Washington. And politically, the CEOs do not have a leg to stand on. The public has been told that globalization was a GOOD thing, and that NAFTA and offshoring of jobs would lead to prosperity. But when the man in the street sees the new unemployment figures, and hears of tens of thousands of layoffs in a single day, he feel's he's been lied to. So for the moment it looks as though Obama's "Preparation H" for the executives may pass (sorry!)
What would the likely effects of such a measure be? Well, we often hear that "the quality of executives would drop markedly, since we have to pay this much to get the best candidates". OK, in theory, yes. But how in the name of Sam Hill is losing billions of dollars in a year, to the point that not just one company, but multiple *industries*, have to be nationalzed, a mark of "the best candidates" ? I myself would have been glad to run Citigroup, Bank of America, Lehman, Countrywide, or any of the other companies into the side of a mountain for a measly $5 million total. And I probably wouldn't have ruined the company beyond the point of repair, either.
But, nonetheless, it *is* true that the type of person who actively persues the CEO, CFO, or other high-level job is not the kind of person afflicted by the sin of humility or generosity. So the market of CEO's for companies owing megagigabucks to the government will be reduced. At least for the time being. One way to allow the CEOs to make money again, would be for the company to pay the government back. Yes, actually making good on one's commitments. What a novel concept!
Now there would be two ways for a company to do that. One would be to become patient, thrifty, and prudent, to guarantee an income stream, and pay the government over time. This would not be a job for a painfully swollen executive; it wouldn't give the money OR the ego boost. Another way would be to take reckless risks, hoping that one of them pays off, so that the government could be paid off in one fell swoop. An executive headhunter would negotiate a contract for such a person, so that in the event the company does pay off the government, then the CEO gets a billion or two. If the gamble works, they deserved it right? And if it doesn't--the CEO doesn't get the money. BUT--the taxpayers will be on the hook for the new risks and new debt. This looks like the same "socializing the losses, privatize the successes" which got us into this mess, doesn't it? So the companies which are subject to socialist controls on CEO salary will fall into two categories: slow-growing, moribund basket cases, and black holes. Just what you see with nationalistic enterprises the world over.
Ah, but that is not the whole story. You see, there are *other* companies as well. Companies who haven't taken a dime of government assistance. And they will be able to attract the best talent and the best CEO's, not being constrained to limit their pay. Somehow, I greatly suspect that they will be able to run rings around their state-sponsored competition. We will have the best possible contrast and comparison of socialism and the free market -- much as Rush Limbaugh's proposed re-working of the stimulus package. John Galt will have come out to play! (And, by the way, with the threat of nationalization by an activist government on the one hand, and lack of meaningful competition on the other, maybe the CEOs of the "free" companies will restrain their greed, and be satisfied for the time being with merely astronomical salaries. Stay tuned.)
But this analysis would not be complete without a word of warning. President Lincoln--upon whom the current occupant of the Oval Office based his inauguration--once warned that
"A house divided against itself cannot stand. I believe this government cannot endure permanently half-slave and half-free. I do not expect the Union to be dissolved - I do not expect the house to fall - but I do expect it will cease to be divided. It will become all one thing or all the other."
And so I fear it will prove here. The socialist leaders are very jealous of their reputations, and they cannot bear to be shown wrong: if it begins to become clear that the free market is outperforming their socialized Preparation H, look for a quick crackdown in the form of punitive taxes and excess regulation on the "free companies" -- to make it fair.
And if that happens, the successful companies, and the money behind them, will leave the United States, for other countries yielding a higher return. Success is not our birthright: it must be protected, cherished,an nurtured. Recall what another liberal, Thomas Friedman of the New York Times has written in The Lexus and the Olive Tree:
"But there is one way in which countries will never be like companies. Companies can rise, fail, fall and disappear. Countries can rise, fail and fall -- but they rarely disappear. Instead, they stick around as failed states."
Good Post, I would just like to add that I think that the banks could save further money if they replace their talentless executives with more competative H1-B visa holding workers.
From each, according to their ability. To each, according to Obozo’s whim.
Cheers!
If businesses take government money, they are more subject to government sanctions - let the dog in the house so expect flees. I would like to see the income limiting policy apply to Congressmen and recent ex-Congressmen or appointees. Leon Panetta made $700,000 in 2008 alone in speaking engagements? Ridiculous!
Cramer, Mad Money, suggested that Goldman Sachs hinted of doing exactly this. It would have to pull some deals to raise the bucks. Then he suddenly shut up. Didn't want to go further. I suppose there would have been some dilution involved.
Anyone hear about this?
yitbos
Wunderbar!
Dream on. The govt. will want to "level the playing field" so their charges will not do poorly in the public's eye. So look for either increased taxes upon the non-bailees or reduced taxes on the bailed-out banks.
Good try though. Too bad you assume the govt will be hands-off from this point on.
They should follow the rules and go through bankruptcy. If they want tax dollars, they dont get exhorbitant salaries. Those are only for the private sector, not for government employees, which they now are.
The banks still want it both ways. Private profits and any pay and perks they dream up. All the losses and risks go Public.
Ill care about this when Obama tries to dictate salaries for executives that are not on the taxpayers dime.
Nice post. I heard Obama saying we should not reward poor performance by executives.
It begs the question - why don’t we apply the same standard to government executives?
Our government debt makes corporate losses look trivial so using his standard what should a congressman make?
Great minds think alike--that's what the rest of my piece said, too.
Cheers!
“..there are *other* companies as well. Companies who haven’t taken a dime of government assistance”
Oh, that is coming! These other companies will get thiers too and the way things are moving it will be soon.
Everything being done here is to centralize the govt. We are being subjagated and beaten down to submission. I don’t care if these companies got bailout money, this wrong period!!
My God, all that is left to do is hang on tight and hope for the best.
Great post! I like your style, very much :)
You should blog methinks.
Once I've hit the Powerball and can afford to, I will.
Cheers!
They should make tracks for HOME. (FReeper metmom has as her tagline "Welfare was never meant to be a career choice." The same goes DOUBLE for politics -- the rise of the class of political clowns and hacks was not foreseen by the Founding Fathers, so they did not put up checks and balances against it.)
My new name for Obama is "President Barack Hussein Pinata"TM and the name for this new bill is "Pork and Awe"TM.
I had thought of writing that the new stimulus bill is Trickle-Down recovery, last week and I see today that Karl Rove wrote much the same thing in the Wall Street Journal.
Ah well, at least I'm not getting pressured to anwer Capitol Hill subpoenas, right?
Cheers!
“Pork and Awe” for the stimulus bill?
Good stuff! Agree all the way around and cheers. Hopefully that sticks somewhere.
Seriously, a wonderful piece of logic AND writing. Thanks very much for taking the time to write it.
Since you seem to be concerned with outsourcing, private FReepmail coming.
Cheers!
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