The public outcry over huge guaranteed bonuses independent of performance has pressured the Obama administration to attempt to do something about the practice, but the challenges are great if there will ever be any changes made there.
Before we get into all that, it must be mentioned that this is why government shouldn’t in any way, shape of form be involved in the private sector. If taxpayer money hadn’t been used to bail out the terribly run banks, this wouldn’t even be something we need to think or talk about.
But now that the problem is here is it generates even more problems, as there are now different strata of banks and financial institutions being run from different operational standards.
By Thursday of this week seven companies receiving the bailout cash must present their compensation plans to Feinberg who will then make a decision on whether to accept them or not within sixty days; an extremely poor way of doing business, and of which the government shouldn’t in any way be involved in. Feinberg has the ridiculous authority of being able to change any of the pay packages given by the companies to their top earners.
The Thursday deadline is for the top 25 earners at each bank, and after that it’ll extend to the next top 75 earners at the companies. What a waste of time and resources in what is basically a socialist endeavor.
On the other hand, banking or financial institutions not receiving bailout money are free to make offers of employment in any way they wish, making it ludicrous at best for the industry.
Even so, for the most part the banks are ignoring the pressure and going about business as usual, saying there’s no way to attract top people if they don’t offer guaranteed bonuses.
Now, what’s really wrong with this isn’t the guaranteed bonuses, it’s saving these banks in the first place. If the bonus practices weren’t good, it would show in the bottom lines of the companies, which it did. So the government use of taxpayer dollars to save them was counterproductive in that it rewarded poor practices and risk management.
So now that the banks have been saved, they simply are reverting back to these practices, which will ultimately lead to more problems in the future. That’s why, just like any other business sector, they should have been allowed to fail and the well-run companies allowed to go in and buy or merge with them and take over their assets and operations.
That didn’t happen, and so we have the same poorly run banks back with the same behavior, as they now know the government will bail them out if problems arise, and also know they can get away with it.
Word is that Feinberg has privately been pressuring the banks to lower the guarantees of their top earners and change their overall compensation so he can parade them before the public as an example of how the industry needs to work.
The cat is already out of the bag with this though, and most banks – whether they benefited from taxpayer funds or not – are already back offering big, guaranteed pay packages to star employees. I don’t see any way Feinberg or the Obama administration can change this. The free market, if you can call it that in this case, is moving far too quickly and fast for Feinberg in any way to get a handle on it, and when sixty days and beyond are over, there will be very little he can do but attempt to make it look like he tried.
The point is, there is no way to stop these practices because those banks that didn’t receive bailout money are continuing to offer these guaranteed bonuses to attract top people, so there’s no way the other banks will not follow in those footsteps.
Free markets are there to sort through the bad companies so that those that understand risk management and handle it the best will be awarded accordingly. Those that don’t should be allowed to fail and taken over by those that really know how to do it.
If guaranteed bonuses don’t work, it’s the market that sorts that out, not the government use of taxpayer money propping up bad practices and then attempting to micromanage the situation.
