The idea that the U.S. government can make the decision on bankers’ pay better than banking boards and executives is ludicrous at best, and in reality, laughable.
Taking into account the unbelievable disaster the government has in its own financial affairs, where essentially it is bankrupt and running at deficits unheard of in history, it’s extraordinary that they even have the gall to assert they now will step in and provide guidance and regulation as to what’s the best compensation for bankers. I could stop here and already have made my case for the absurdity of it all, but let’s go on.
Ken Feinberg, the TARP or pay czar, even has recently admitted that he can’t even define what excessive risk as it relates to banking pay even is, yet that hasn’t stopped him from going forward based upon a mandate from the Obama administration, rather than usable information, data and facts.
So here’s a guy not even able to define risk itself, let alone excessive risk, saying he’s going to rein in executive pay in order to stop what he isn’t even able to define. I guess you could can him the ‘bizarre czar’ when taking this into consideration.
Others have noted that the real risk comes from the government itself, which over the last couple of decades have stepped in and bailed out large financial firms, setting the precedent for risky behavior, rather than pay being rewarded from risky trades and financial instruments which generate big gains.
This isn’t to say there hasn’t been excessive risk taking by some traders at banks, or its encouragement by banking executives, but it’s saying that the reason for that is probably the refusal of the government to allow the market to discipline and take care of the situation rather than the politicians attempting to swoop in and save the day, thereby gaining political capital at the expense of the market. We’ve all seen where that has led us.
The other major problem is the simple logistics of this. Are we to believe the U.S. government and the Federal Reserve will be able to manage the pay of bankers across the nation which could end up being in the thousands? Again, Feinberg stated he’s not even able to identify risk, so how is that even going to be done when seemingly shooting completely in the dark hoping to hit something? The answer is of course it can’t.
I think this is all a smokescreen to placate the public which has been outraged at the bailouts of the banks, while executive pay continues to include huge bonuses, and to take away the focus on the real problem: the government policy that some banks are too big to fail. That’s what has brought all of this to where we are to day, not bonuses which have allegedly encouraged risk-taking.
The real risk is that banking traders can’t lose when the government is ready to step in and save them if their accumulated trades go bad. That’s the real problem. And until that’s addresses, cutting executive pay in order to stem excessive risk won’t work, as it doesn’t deal with the problem of the U.S. government and Federal Reserve, which are the real culprits behind it.
