I posted information on Kenneth Feinberg yesterday as a way to generate some debate and discussion about the practices of the National government’s activities lately. Today I followed up on my previous post and found some disturbing discoveries. As I discussed yesterday Feinberg’s authority to cap executive pay, stops at only those institutions that accepted tarp money. But the fun doesn’t stop there. To my utter disbelief, yesterday the Federal Reserve released a little nugget of information that I think we should all be aware of.
The Federal Reserve released a proposal to cap the pay of employees in all financial institutions weather they are large, or small, and whether or not they accepted money from the federal government. It’s called “Proposed Guidance on Sound Incentive Compensation Policies” to discourage “excessive risk-taking” within financial institutions. This regulation doesn’t just target executive pay it targets anyone’s pay that may have some impact on the risk assessment of the institution. Don’t believe me ask the Federal Reserve
“Flaws in incentive compensation practices were one of many factors contributing to the financial crisis. Inappropriate bonus or other compensation practices can incent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm. With that in mind, the Federal Reserve's guidance and supervisory reviews cover all employees who have the ability to materially affect the risk profile of an organization, either individually, or as part of a group.” [Underline added for emphasis]
http://www.federalreserve.gov/newsevents/press/bcreg/20091022a.htm
This is not about executive pay it’s much deeper than that. This is about control. At the risk of sounding like a conspiracy theorist, I can’t seem to understand it any other way. Maybe someone else can give me a good reason to think of it differently. This is the beginning of the slippery slope of government dictating what people can earn within institutions that they deem vital to economic stability. Where will it stop? I do find it odd that the Federal Reserve would release this the same day Feinberg dropped his happy news to the corporations that took the TARP money.
Oh and speaking of Feinberg he says that he understands his limited jurisdiction, but hopes that other institutions will adopt the policy voluntarily (I kind of doubt that). He also bragged about the fact that the Whitehouse had nothing to do with the decision. Oh yeah and like the below Politico.com article so kindly reminds us even if the Whitehouse did object, the president has no veto power in this case. This is way too much for me. I find it strange that Feinberg takes offense to the term Pay Czar. He wants to be called by his title “Special Master” instead. I’ll get right on that Kenny. Is anyone else disturbed by this?
http://www.politico.com/news/stories/1009/28635.html
Good post, Nick. I agree with you that the bottom driving the TARP phenomenon is control. Perhaps you will discuss in a future post the illegal collusion between the Fed and Goldman Sachs et al. I do not excuse government overreach, and I recognize that it often does. However, it is not a reasonable solution to go to the other extreme and permit corporations to wreak havoc on our national, and even the global economy. I believe the purpose of government ought to be preventing the strong from oppressing the weak. What Feinberg is doing, and what the Fed is proposing, is not the right way to do it. I am not advocating pay-caps. What I would throw out there is that regulation broke down and failed to protect most of us during the past 12-24 months. Capitalism is fair - everyone gets a chance. Laissez-faire economics is not.
ReplyDeleteWOW!!!!
ReplyDeleteAside from the obvious problem with pay caps, why is it happening? Learning more about the czars is disturbing. Really disturbing! There are plenty of examples around the world and on our book shelves of how this could ultimatly play out.
What would we as common citizens do to get it to stop? How do we go about that?
See, there it is again. Greed must be disciplined out of us, said father Buddha.
ReplyDeleteMike G.
JT...Well the choice between Laissez-faire economics and heavy regulation is a false choice. There is a such thing as smart yet limited regulation. I am interested to understand why you think that corporations are to blame for the current economic crisis. I would like to know what you base that on. That is not a challenge by the way, it is for my own curiosity. The financial industry is the most heavily regulated industry in the US. I happen to think that the financial crisis was in fact based on specific and irresponsible government regulation, but I also think that there is an assumption out there that the lack of regulation is to blame. I am honestly trying track down where that notion is coming from. I would be very interested to hear your understanding of the cause of the current economic crisis.
ReplyDeleteBy the way JT thank you for adding your comments to the new blog
ReplyDelete