Biden aide defends big bank profits, bonuses
By Alec MacGillis
Jared Bernstein, Vice President Biden's chief economic adviser and the most liberal member of the White House economic team, on Wednesday night defended the enormous profits and bonuses being generated at Goldman Sachs and other big banks that have repaid federal bailout funds and will not be required to submit to compensation limits.
Bernstein has a distinctly different pedigree than the Wall Street veterans who dominate the administration’s economic team – a jazz bassist, he came to the White House via the left-leaning Economic Policy Institute. He is the staff director for the White House’s Middle Class Task Force. But during a question-and-answer session following a 25-minute speech at American University, he gave a fairly unflinching defense of the banks that have garnered such populist ire.
Senior international economics major Carolina Peguero asked him, "How do you feel about firms such as Goldman Sachs and JP Morgan Chase who took advantage of the bailout...and are reporting huge profits, ridiculous multibillion profits with money that taxpayers" provided?
"Well, mixed feelings," Bernstein said, before launching into a defense of Goldman and JP Morgan's big winnings. The firms, he said, were among those who had paid back their loans from TARP. "Once you've paid back the TARP you're a private sector firm out there and you can set compensation wherever you see fit," he said.
But he tried to make Peguero feel better by arguing that her question alone was sign of a welcome heightened sensitivity about high executive pay. "I would argue we are in the midst of a period wherein compensation norms in financial markets are very much under scrutiny, under the microscope," he said. "Even the fact that you are asking me that question suggests that assessment is correct."
Several policies being proposed by the administration, he said, could help moderate executive pay in the future, he said, including bigger say for shareholders and more independence for executive compensation committees. But he concluded with another defense of the firms. "I wouldn't cite any company out there and say ‘you're good, you're bad.’ I would point out that coming out from under the TARP is positive in terms of paying us back," he said.
This answer did not satisfy AU psychology professor Stanley Weiss, who asked Bernstein moments later why Goldman should be able to keep its profits after it had been aided not only by the TARP loans but also by the taxpayer bailout of AIG, which held billions in insurance contracts with Goldman. Goldman and others are “very much indebted to the taxpayers and owe this country any profits they have," Weiss said.
Bernstein stuck by his defense of the firm, saying the answer instead was to look forward to preventing the need for future bailouts. "There's definitely some truth in there, but where that takes you is to financial regulation reform," he said. "The point of financial regulation, which we're deeply involved in now, is to avoid getting back to that place again...In Japan they say since we can't stop earthquakes, we can build houses that can withstand earthquakes. Maybe we can't prevent 100-year floods from happening every 100 years but we need the ability for resolution authority, for the government to take a firm like that offline without a taxpayer funded bailout."
Weiss said afterward that he “did not think much” of Bernstein's answer, especially since some White House advisers, notably Larry Summers, had previously been deeply involved in deregulating the financial industry.
Peguero was also left cool by the Goldman defense. “It did not give me peace of mind,” she said. “There should be some kind of repercussions.”
Washington Post Editor
October 29, 2009; 7:40 AM ET
Categories: Obama | Tags: AIG, Goldman Sachs, bailout, big banks, bonuses, executive compensation
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