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Banking for Dummies

If not wiser heads, then at least richer heads seem likely to prevail in the dispute over limits on executive pay in the stimulus package. The Obama version contained some restrictions on pay for top executives of banks that get “exceptional assistance” from the government. For instance, any compensation over $500,000 a year would have to take the form of stock, and couldn’t be cashed in until the government has been paid pack. Led by Sen. Chris Dodd (D-Conn.), senators insisted on inserting tougher restrictions and applying them to more people at more banks -- any, in fact, that have received so-called TARP, or bailout, money.

As a general principle, executive compensation ought to be set by supply and demand, just like other goods and services in a free market. In practice, the machinery that sets the pay for America’s top business executives is badly broken. Whether we want the government in there fixing it is a good question we can debate in a more leisurely economic period. But meanwhile it is a sign of how far we have come, and how fast, that any government bailout of a bank, no matter how few billions may be involved, can be officially considered “unexceptional.”

There is general agreement that some pay restrictions are justified, or at least unavoidable, if the bailout is to proceed. “Populism” demands it. (And it’s nice to see populist anger redirected back toward bankers and business executives after recent decades when the Republican party managed to point it at hard-working politicians.) But a consensus is emerging that Dodd, and even Obama, go too far.

The critics make three general points. First is that restrictions on things like bonuses are easy to evade, simply by relabeling them as salary, which is either unrestricted or less so. This, the critics note (with exasperation, and some justification), will break the connection between pay and performance that was considered so crucial during other banker-burning festivals of recent years. Second, compensation ceilings limited to executives at troubled banks that have received government money will put these banks at a disadvantage in the competition for talent -- just when they need talent the most. And third, the rules give these bank executives a strong incentive to pay back the government too quickly, in order to be free of the restrictions on their pay.

So let’s put this all together. Here is what supporters of the Bailout Bankers are saying: These bankers, who ran their banks into the ground, asked the taxpayers for money to save themselves, and got it, will -- if given the opportunity -- use that money to give themselves a back-door raise in order to maintain their incentive to do their jobs so brilliantly. If they don’t get their traditional bonuses, they will flee to banks that are not under these restrictions, because they did not need to be bailed out. And if, for some inexplicable reason, these other banks don’t wish to hire bank executives who ran their previous banks into the ground -- and into the reluctant arms of the government -- these bankers will stay where they are, nefariously pay back the government in full, and then -- out of either malice or incompetence, or some lethal combination of both -- they will wreck their banks and need to be bailed out all over again.

That’s quite a threat. The banks have been buying full-page newspaper ads (and God bless them for that!) to express their patriotism and humility. Their CEOs have been up on Capitol Hill eating crow and promising to be more careful from now on. Yet in this side argument, they are in essence promising that their selfishness and/or incompetence will continue.

Having never tried to run a bank, or wished to, I’m not saying it’s easy at any time, let alone now. But it’s hard to believe that the people at or near the top of the banks involved in the bailout are so irreplaceably qualified that incentives to keep them, and keep them happy, must be a major concern. In fact, of all the world’s seven billion people, these are the ones who have established better than anyone else that they aren’t qualified to run a bank.

By Michael Kinsley  | February 16, 2009; 6:24 PM ET
Categories:  Kinsley  | Tags:  Michael Kinsley  
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Comments

There is a problem with very high salaries,
If I had a stressful job and somebody paid me tens of millions of dollars I would take the money and run.

"Satiability" is one of the definitions of Sanity

By paying huge salaries you SELECT OUT the sane people

When you do this you are left with the loonies

Why are we surprised when the loonies screw it up?

Pay Peanuts - Get Monkeys
Pay Millions - Get Loonies

Posted by: duncancairncross | February 17, 2009 12:12 AM | Report abuse

Best punch line, so far, of 2009!

Posted by: rjoff | February 17, 2009 12:15 AM | Report abuse

The bankers - or I should say, the auto industry chiefs, were still using private jets to travel to the bailout hearing, which just hit the congress the wrong way, and justifiably so. But even before the trouble started, investors were protesting the huge salaries and golden parachutes that corporations were paying their top talent. The final straw for me was the huge payouts for the CEOs of the corporations that failed. Understandably, they contracted for such terms, and as a result received their compensation. All this added fuel to the fire when taxpayer funds were used to such purpose. I still believe that bonuses for failure is wrong. But also understandably, the administration is taking this opportunity to limit this use of taxpayer money, and rightly so.

Posted by: jbleenyc | February 17, 2009 12:36 AM | Report abuse

I'm certainly not qualified to run a Bank, where do I go to start a Bank?

Posted by: Lilalee | February 17, 2009 12:50 AM | Report abuse

It is amazing that something so self-evident is, in some people's minds, a matter of debate. Unfortunately, Mr. Geithner seems to be one of those people. So, we must keep repeating the self-evident, no matter how superfluous it seems to us:

-- The pay of corporate executives is a matter of critical public concern. It IS our business.
-- The greedy thugs who run our banks and financial institutions have proven themselves to be beyond a shadow of a doubt incapable of self-reform. Their brains seem to be hard-wired to perpetuate their self-serving belief that they are entitled to massive compensation, no matter how incompetent they have proven themselves to be.
-- It defies human logic that anyone would believe that these people, the creators of the train wreck we now face, are essential to our recovery. If they threaten to leave if their outrageous demands are not met, they should be told not to let the door hit their butts on the way out.
-- These people deserve the scorn of the American people. We have a right to despise their guts, no less than we despised the guts of the white racist bigots who denied blacks their civil rights and murdered civil rights workers and beat up peaceful demonstrators. The Wall Street thugs are the same ilk of humanity. They are cut from the same cloth.
-- If these people take their marbles and leave, where on earth would they go? What company on the face of this planet needs executives who have a track record of insisting on multi-million dollar compensation while running their company into the ground? What company would dare hire someone who carries with him the scorn of his fellow Americans?
-- Every bonus paid to the employees of any company that has received federal bailout funds needs to be returned. It's not their money. It's our money. They got our money on false pretenses--that they would use it to rebuild the financial sector, not pay themselves lavish bonuses. It's my money. I want it back.
-- The simple solution to all this is to nationalize the banks. Then we can hire and fire at will. The first to be fired: the bank CEOs whose combination of unfettered greed and gross incompetence created this mess, and every single employee who received a bonus over the past year and refuses to return it.
-- President Obama should immediately appoint a recruitment commission to begin searching worldwide for replacements for all the above.
-- State and federal law enforcement authorities should launch an aggressive crusade to discover if banking and financial CEOs and executives have broken the law. Look first at the issue of receiving public money under false pretenses. A Justice Dpt. task force should be created and devoted to this task.

Posted by: tbarksdl | February 17, 2009 5:11 AM | Report abuse

We left the compensation to the market and we had bankers (and other executives) run their companies into the ground and STILL they received huge bonuses. In the economy of yesterday these bankers and other executives could not fail. If performance improved, they got a bonus. If it went down, they got a bonus. The market did not work.

Posted by: nyrunner101 | February 17, 2009 5:44 AM | Report abuse

The Law of Supply and Demand should be used to establish their salaries and bonuses as the author stated.

The rationale behind the bonuses is to keep good talent so the talent will not leave and go elsewhere.

Clue number One, there is nowhere to go!
Do not pay the bonuses and see if the executives flee to other banks. The banking industry is shedding jobs at a record rate.

Clue number two, let them eat cake. If they do not want the taxpayers money, do not take the money and give as many bonuses as the bankers want. Spend what the bankers have and let the chips fall where they must. Apology or not, let the bankers and investment bankers eat cake!

Patrick

Posted by: patmatthews | February 17, 2009 6:16 AM | Report abuse

Perhaps the bankers should be allowed to leave the banks they run, if they believe are not compensated well. If they and their defenders believe that nobody else is capable of running these banks, then maybe they forgot we live in globalised world economy (which ironically they seemed to heartily endorsed not so long ago), which includes labour. One can be certain that good bankers from abroad might jump at the chance to take the "pay cut" and "lesser compensation" to run some of these traditionally U.S. institutions (though nowadays their legal status may be a different matter). After all if globalisation of labour is good for "working goose", it should be good enough for the "golden gander".

Posted by: najatig | February 17, 2009 7:08 AM | Report abuse

Hang them...hang them high.

Posted by: georgewbentley1 | February 17, 2009 7:08 AM | Report abuse

If you were an owner of a manufacturing company whose executives decided to rewire the electrical system, resulting in the factory burning down and the inventory being destroyed, would you be worried about making sure that the executives continued to be paid well?

Posted by: SDWalters | February 17, 2009 7:36 AM | Report abuse

This so called "talent" is a myth. There is nowhere for them to go.

Compensation committees are a joke. It's a case of the rich protecting the rich.

Bonuses for performance never existed. If it had, then losses would have punished by withholding bonuses. This last decade, that never happened.

It just became an insulated world of entitlement, with execs hiring sons or friends and connecting them with other wealthy people to pretend they were "investors".

The fees generated from doing deals that threw thousands of Americans out of work should be a crime. We should be more like Holland and Scandinavian countries, where if companies merge, then every employee is entitled to a job somewhere. Otherwise, you force government to support them.

Bankers lobby from K Street to knock down regulations that hamper their profits, even if those regs protect workers and local economies. That needs to stop.

Robert Rubin was asleep at the switch. His convincing Clinton to sign the Gramm-Leach -Bliley Act led to disaster and shenanigans. So, bankers and the GOP aren't the only ones guilty.

Rein them in. Limit salaries and bonuses. Tax bonuses at high rates, like 75%. If they don't like the new rules, then they can go to work at a job where you actually produce something.

Posted by: bayern-guy | February 17, 2009 7:43 AM | Report abuse

Wasn't the law of supply and demand repealed?

Eagerly awaiting a similar revaluing of salaries/bonuses of the top-dollar athletes using "everyone else was doing it" excuses for performance enhancing drugs and media personalities who think their abhorrent behavior toward their partners and entourages is justified by their ability to look good while doing it.

Posted by: swazal | February 17, 2009 7:50 AM | Report abuse

bayern-guy is right: a Comp Committee comprised of CEOs of other companies decides on the appropriateness of the compensation of their CEO. It's as if you put a committee of other NFL QBs in charge of deciding what Peyton Manning should make. But the fact that the existing system is flawed does not mean government-established pay is better. That is just another flawed system. Let's say that Failed Bank A wants to hire away the CEO of Successful Bank B (this of course assumes the existence of B). Won't happen. That's the problem. A can only hire from Failed Banks C and D, where the CEOs are similarly limited. And to those who think any smart person can run a bank, you are wrong. If you don't know the business, you'll never be able to evaluate whether the people under you are doing the right thing. It would be like a Grey's Anatomy fan trying to debate actual surgeons about medical procedures. You have to be more than just conversant. So yes, we need experienced people and yes, they will be paid "too much." The banking system will not be fixed by limits on executive comp.

Posted by: Compared2What | February 17, 2009 9:07 AM | Report abuse

Bahavior in the capital market is directed by a balance of fear and greed. When fear is removed by bail-outs, golden-parachutes, and all the 'creative finanacing' why are we surprised that greed has no limit?

Posted by: snailgate_86 | February 17, 2009 9:46 AM | Report abuse

CEO comp packages were 90% a function of a rising market, copycat behavior, incestuous board appointments, and shareholder idiocy. The "talent" or "wealth creation" was bogus.

Treasury should assign bank supervision to the BATF, where the CEOs perk schemes and confidence games will be tracked by experts in gang kingpin behavior, instead of by revolving-door Weill-Rubin-Pandit wannabees.

Posted by: jkoch2 | February 17, 2009 10:53 AM | Report abuse

I was in the mood for a nice Kinsley piece today and so was pleased to find one. As always, a beautifully written sense with a good deal of common sense sprinkled in.

It certainly does look as if a wide variety of bank and financial firm folks were taking home "bonuses" that should have been put in reserve for tough times--otherwise when tough times arrive the firms fail.

Unfortunately, it appears that the Fed has been doing too good a job of keeping us out of recessions for the past sixteen years, so that the new generation of banker-financiers forgot that what goes up can come down as well.

That should also apply to their salaries as well if they are to be properly "incentivized." It is not clear that much talent was required to purchase all the toxic assets acquired nor to sell all the ones that were sold to pension funds and sovereign wealth funds. Throwing darts is easy.

Evidently their "good o boy" boards of directors (who are often senior managers of other firms) can see no salary or bonus that might be too high--while downside risks are preserved for shareholders (and now taxpayers).

Managers and stockholders should both share a bit of the pain in bad management if the labor market for senior talent (and glib salesmen?) is to work.

Posted by: rdco | February 17, 2009 10:54 AM | Report abuse

The bank officials and their overly compliant boards should be prosecuted under the RICO
laws that are used for organized crime.

Posted by: rkerg | February 17, 2009 11:14 AM | Report abuse

"...it’s nice to see populist anger redirected back toward bankers and business executives after recent decades when the Republican party managed to point it at hard-working politicians..."

Hard-working politicians? You can say THIS with a straight face? You're a bigger comedian than I thought, Kinsley.

Posted by: cynicalidealist | February 17, 2009 11:43 AM | Report abuse

I am fearful that restrictions placed on executive compensation will do irreparable harm to the solid gold waste basket industry. This could also have devastating ripple effects in the gold shower curtain, antique platinum commode and Greek goddess ice sculpture carved with chain saw industries. Congress must step in and provide relief to these critically important pillars of our economy.

Posted by: Candressuhmoose | February 17, 2009 11:47 AM | Report abuse

Bankers have broken the trust of their customers by putting at risk their customer's deposits. The various "money for nothing" schemes fueled by predatory lending practices, credit-default swaps, and "securitization" of mortgages and other loans is all considered risky.

Bankers must answer to more than stockholders, and boards of directors. Bankers must answer to U.S. taxpayers. Large national banks, that operate in many countries, and in many States ought to managed for the benefit of its U.S. citizens. Thus, I believe that large national banks ought to be "nationalized", in such a way, that bankers are in practice employees of the U.S. Treasury, and accountable to the U.S. Congress, and regulated by the General Accounting Office. In other words, let's put bankers on a very short leash.

It is, afterall, the responsibility of the U.S. Treasury to devise monetary policy. That we (the U.S. government of the people) has an avoidable econo-meltdown caused by a willful manipulation of financial markets has to be among the most embarrassing, and irresponsible blunders of all time in the banking industry.

Posted by: rmorris391 | February 17, 2009 12:06 PM | Report abuse

I have a suggestion:
Stocks on the National Mall - no not the investment variety, but the kind used in colonial times for miscreants. Put a few bankers in them for a day or so and let's see if they still complain about only being able to make a half mil a year. The fruits and vegetables to be thrown at them can be bought at the Farmer's Market, thus providing an economic boost as well.

Posted by: justaguy2u | February 17, 2009 12:51 PM | Report abuse

Why not change the system to allow shareholders a real determining voice in setting the salary and other compensation for bank executives? I'll wager they won't be so worried about losing the "talent" that brought their business to this pass.

Come to think of it, why limit such a policy to banks?

Posted by: RandyMoor | February 17, 2009 1:05 PM | Report abuse

Thanks for this article. The disincentive argument against capping executive pay really has been getting old and I'm glad it didn't win out in Congress, despite (and I'm a huge Obama fan here) the White House's opposition. The idea that any healthy bank would hire the nirmods that destroyed is preposterous. The government is lender of last resort because no one else will do business with them. And healthy financial institutions are, obviously, have better management than the failing ones. Some of these (overpaid) execs are legitimately brilliant, ethical workers who wouldn't hire the screw ups for any amount of money (Goldman, after all, did pass over Thain enough times to make him leave and do you think that they would ever hire Pandit to lead? Unlikely). For good measure, though, some form of financial "Megan's Law" or Scarlet Letter wouldn't hurt either, I think, and would go a long way to assuage populist rage. Make damn well sure that Chuck O'Neil, Dick Fuld, etc. get the public and private revulsion they deserve for their rapacious pillaging of the world's financial sector.

Posted by: Andoni | February 17, 2009 1:25 PM | Report abuse

Understanding the yardstick against which I will be measured, I'll happily run a bank (or even two) for only $500,000 per year. I have an undergraduate degree in banking, investments and finance. I never put it to use, but at least I have some qualification. After all, there really isn't any more money to lose. You can't do worse and you may even do better just trusting to dumb luck.

I still think extraditing a few bankers and Wall St wonders to China would be incentive enough. Taint some milk and you face a death sentence. Wrecking the global economy should at least be worth that.

Posted by: caribis | February 17, 2009 2:06 PM | Report abuse

"But it’s hard to believe that the people at or near the top of the banks involved in the bailout are so irreplaceably qualified that incentives to keep them, and keep them happy, must be a major concern. In fact, of all the world’s seven billion people, these are the ones who have established better than anyone else that they aren’t qualified to run a bank."

Yep

Posted by: HardyW | February 17, 2009 2:25 PM | Report abuse

Quite apart from the shocking amounts, the incentive structure of bankers' pay is crazy, and a huge contributing factor in the crash.

They receive bonuses that get bigger if they get a bigger return on investment. The biggest potential returns, of cours, come with the riskiest investments. Private investors playing with their own money tend to shy away from these, because, well, they're risky. He could lose his money.

But the "performance-paid" banker feels no such qualm, because he's rewarded for good performance but NOT penalised for bad performance. Investment profits are reflected in the banker's pay, investment losses aren't. The riskier the better, as far as he's concerned. Insane.

Posted by: kenonwenu | February 17, 2009 2:54 PM | Report abuse


Why don't I get another job...and put my children in a cage after hours...and feed them
only twice a day, mac and cheese?

SO THAT that ugly bstrd on television today mouthing off and sneering about government intervention can keep his $50 salary and his $82M penthouse.

Just about enough of it. Enough.


Posted by: whistling | February 17, 2009 4:39 PM | Report abuse

"banks have been buying full-page newspaper ads..."


What!? How dare they spend taxpayers money that way without the democrats authorizing it first.

Posted by: ahashburn | February 17, 2009 4:43 PM | Report abuse

Limit salaries. It is the only sane thing to do.

Posted by: Heerman532 | February 17, 2009 5:00 PM | Report abuse

"Led by Sen. Chris Dodd (D-Conn.), "

Wow! Ol' Chris woke up and smelled some coffee! Too bad he slept through Fannie Mae and Freddie Mac ruining the global economy. But!!! He was awake when Countrywide was passing out those sweetheart loans and, by golly, fished himself one out of the money pit. Way to go, Chris!!! Score another one for team Blue!

Posted by: MDDem1 | February 17, 2009 6:05 PM | Report abuse

MDDem1 you sound like you've been listening to erroneous right-wing talking points. Greenspan admitted in testimony before Congress that Fannie and Freddie were not the problem. In fact they were latecomers. Did Rush mention that?

Posted by: RandyMoor | February 17, 2009 6:24 PM | Report abuse

actually running a bank is quite a simple business.It is trying to grow earnings beyond what the business can ethically and responsibly sustain that makes the business complicated.

I think it is high time that politicians and the general public realized that where finance is concerned small is in fact beautiful.

Posted by: rds7481 | February 17, 2009 9:31 PM | Report abuse

I would also add the whole "talent" thing is a crock of ****. The public's interest is that banks make loans, that requires loan officers and most of those will not be capped under the compensation limit proposals (they don't earn enough) and most of them are happy to just have a job. When they speak of "talent" what they are really talking about is investment bankers,traders and senior manager. The latter category are redundant to the process of making loans and former are those who gave us all these wonderful instruments. The best thing from a public policy perspective is if this "talent" actually left the depository institutions.

Posted by: rds7481 | February 17, 2009 9:38 PM | Report abuse

Whoa, fellas -- that's a mighty big brush y'all are using to tar every bank in the US. One, they're not all crooks; and two, why on earth do you lot seem to think that they WANTED to ruin their banks? Can you, like, stop and think about that?

Next: ya gotta love socialists who spout stuff like "The pay of corporate executives is a matter of critical public concern. It IS our business."

Since you've broadened your target to include all corporate execs and not just TARP-ridden banks, here's a clue, comrade: when you own stock in a corporation, you get a say in how its executives are paid. You sure as hell don't get a say in how much *I* am paid unless you're my boss and/or part owner of my company. Got that? If you don't like it, try Cuba; they buy your line there.

Further, Mr. Kinsley forgets that many banks were pressured to take TARP funds; see for example tinyurl.com/byfdlf if you're interested.

Finally: "Greenspan admitted in testimony before Congress that Fannie and Freddie were not the problem." Cite, please; he didn't 'admit' any such thing in this universe.

Posted by: PaulinNJ | February 17, 2009 10:21 PM | Report abuse

Listen, if the banks are seriously worried about losing all their talent, fine. Let them go and try their luck elsewhere.

Posted by: ravensfan20008 | February 17, 2009 11:56 PM | Report abuse

Greenspan denying Fannie and Freddie were the root cause of the financial meltdown:

http://www.youtube.com/watch?v=XjYDzyQNqX8&eurl=http://thinkprogress.org/2008/10/23/mica-waxman/

Posted by: bayern-guy | February 18, 2009 5:12 AM | Report abuse

The point is shareholders ARE owners of the company. The fact that they are treated as though they are not, except when it comes to paying the bills, is indicative of the fact that the system is broken. Insiders and interlocking boards really determine executive compensation and that is why executive pay has skyrocketed in recent decades while most US workers' pay has been flat.

Posted by: RandyMoor | February 18, 2009 5:30 AM | Report abuse

"Let [the banks] go and try their luck elsewhere"? Seriously - you want banks to close?

Posted by: PaulinNJ | February 18, 2009 7:15 AM | Report abuse

"Greenspan denying Fannie and Freddie were the root cause of the financial meltdown" - whoops, my bad; I misread the comment. Too bad he didn't go further and point fingers at Democrats like Barney Frank.

Posted by: PaulinNJ | February 18, 2009 7:18 AM | Report abuse

"The point is shareholders ARE owners of the company." Well, yeah, but that's not what Comrade argued.

"why executive pay has skyrocketed in recent decades while most US workers' pay has been flat." If you're arguing that shareholders have no say, you haven't read your prospectus. As for the rest of our wages not merely flat, but declining: it's the tax burden, pal!

Posted by: PaulinNJ | February 18, 2009 7:20 AM | Report abuse

PaulinNJ unleashed a broadside against the idea that executive compensation is the public's business. His blinkered outlook is revealed by his incredible allegation that stockholders determine how much executives are paid. As a stockholder in numerous corporations who has a vote in the annual meetings, I know what a flagrant lie that is. So do 99% of my fellow Americans. PaulinNJ is either very stupid or deliberately misleading.

My main point: Capitalism rests at its very core on the idea of pain or gain. If you are a capitalist and you make the right choices, you reap the benefits of your genius. No one second guesses that. But the flip side is also supposed to apply: If your business fails, you suffer. Capitalism without pain is an oxymoron. And corporate executives who continue to reap massive compensation even as their companies fail, much less bailout with their golden parachutes, are violating the basic principle of capitalism. There are no golden parachutes in capitalism.

What the U.S. has had is the creation of a system that some people had thought was a liberal cliché: Capitalism for the middle class and the poor, and socialism for the rich. In fact, the system created by the current generation of corporate leaders is nothing short of neo-Communism. They continue to get the pay and the perks, no matter what a miserable failure their company is. Just like in the Soviet Union.

You, PaulinNJ, have become what you most despise. You and your like-minded comrades are the real socialists of the modern world. It's people like me, who remember that capitalism requires pain as well as gain, who are the true capitalists. It IS my business to rescue capitalism from the grip of socialists like you. One step toward reform is to restore the link between pay and performance.

Reading your misinformed post, I see why you and your comrades have produced the train wreck we now face.

Posted by: tbarksdl | February 18, 2009 7:24 AM | Report abuse

PaulinNJ, you are also misinformed about tax rates. During the decades in which executive pay has skyrocketed, and average pay has languished, both personal and corporate tax rates have fallen dramatically. If you really believe what you are saying I hope you will have the honesty to look it up and realize your mistakes.

Posted by: RandyMoor | February 18, 2009 10:17 AM | Report abuse

Given the constant "tax burden" mantra we have heard from the right since the Reagan Revolution it may surprise some to learn the top marginal income tax rate, which I believe is 35% today, was 91% or 92% every year from 1951 through 1963. Funny it was not a burden then, as the economy did pretty well.

Top US Marginal Income Tax Rates, 1913--2003
http://www.truthandpolitics.org/top-rates.php

Posted by: RandyMoor | February 18, 2009 11:42 AM | Report abuse

Another Mercedes Marxist.

According to WIKI, "Kinsley was born to a very wealthy Jewish family and attended the prestigious Cranbrook Kingswood School."

Perhaps, one day, Mikey boy could lecture us all on what it's like growing up with a golden spoon in one's pie hole. Ya' know, how tough it was eating filet mignon three times a week, the grand parties, the finest clothes and cars. The vacation homes, European weekends, etc., etc., etc.

Posted by: ej_smug | February 18, 2009 12:40 PM | Report abuse

Whoa, comrade; I didn't claim that "stockholders determine how much executives are paid." That's YOUR strawman. I said that as a stockholder, "you get a say in how its executives are paid" by way of voting for the board. (It's a representative democracy, like Congress; you dig?)

If you do indeed own stock, you should know that non-stockholders *don't* get a say -- and that's the point.

"It's people like me, who remember that capitalism requires pain as well as gain, who are the true capitalists."

Sorry, but "true capitalists" don't propose to control *all* executive salaries -- and I note that you didn't bother to deny that you did in fact "broaden your target to include all corporate execs and not just TARP-ridden banks."

Would you care to revise & extend your remarks??

Posted by: PaulinNJ | February 18, 2009 3:18 PM | Report abuse

"you are also misinformed about tax rates. During the decades in which executive pay has skyrocketed, and average pay has languished, both personal and corporate tax rates have fallen dramatically."

I didn't say "tax RATES" -- I said "tax BURDEN." There's a significant difference; it includes *all* the taxes you pay -- income, sales, excise, and hundreds of hidden ones. See, for example, http://articles.moneycentral.msn.com/Taxes/CutYourTaxes/HiddenTaxesYouPayEveryDay.aspx

If it doesn't make you simmer, it should at least make you think about it.

Posted by: PaulinNJ | February 18, 2009 3:25 PM | Report abuse

On that topic: Do you have any idea how much of your money goes to excise taxes and import duties?

Do you realize that Uncle Sam uses our tax money to subsidize sugar importers, beet farmers, dairy farmers, and corn growers? We're not talking family farmers - we're talking mega-corporations.

Seriously: look it up. Your tax *burden* is way more than your tax *rate.*

Posted by: PaulinNJ | February 18, 2009 3:31 PM | Report abuse

PaulinNJ, I suggested we should "change the system to allow shareholders a real determining voice in setting the salary and other compensation for bank executives." You wrote "If you're arguing that shareholders have no say, you haven't read your prospectus." tbarksdl noted your "incredible allegation that stockholders determine how much executives are paid," and commented "As a stockholder in numerous corporations who has a vote in the annual meetings, I know what a flagrant lie that is." Where do you stand on that point, without mixing it up with the broader question of whether non-stockholders should have such a voice? The stock market is losing appeal fast and if you want to save it letting the owners have a "real determining voice" in executive compensation seems to be an obvious necessity, not to mention just plain fair.

On taxes I would favor a full discussion not just on tax rates and hidden taxes but also including tax breaks. For example many claim we need to reduce corporate taxes in the US because we have the "highest in the world" without noting that when you include tax breaks we have relatively low REAL resulting tax rates. And it is not clear how our REAL tax BURDENS compare now to previous historical levels when all these things are taken into account, nor is it an easy calculation to make. Unfortunately our politicians and corporate media are dead set against any real, comprehensive, honest discussion of all these issues just as they have prevented any real, comprehensive, honest discussion of the economic issues facing America and what needs to be done. Instead we get slogans and political jockeying while America goes down the tubes. I believe the Dems are getting outmaneuvered by themselves, again, when they fail to gather the best economic minds in the country and have them hammer out IN PUBLIC a consensus approach to fixing the economy. That would not only be the responsible thing to do but also give them political cover against the obvious strategy of the Reps to oppose everything the Dems do then claim in 2010 and later that the economy would have done better if they had been in charge.

Posted by: RandyMoor | February 18, 2009 6:34 PM | Report abuse

http://www.taxfoundation.org/taxdata/show/335.html
Since 1977 this resource (the first I found) says the US state/local tax burden has averaged about 10% of income. "Every tax that is collected on both the state and local level is included in the calculation: income taxes on individuals and businesses; general sales taxes; product specific taxes such as those levied on gas, cigarettes and alcohol; property taxes on individuals and business; and a multitude of other taxes."

Adding that 10% to the 35% federal top marginal tax rate still leaves us paying much lower taxes now than we paid in many years of strong economic growth and large average wage increases. Where is the evidence that the current tax burden hinders the economy and keeps average wage growth low?

Posted by: RandyMoor | February 18, 2009 7:13 PM | Report abuse

"http://www.taxfoundation.org/taxdata/show/335.html
Since 1977 this resource (the first I found) says the US state/local tax burden has averaged about 10% of income."

Did you miss this caveat? "Local taxes are excluded, such as property taxes and local sales taxes." If it doesn't include *all* taxes, it's not a true measurement. But you're starting to get the idea; keep digging.

Posted by: PaulinNJ | February 19, 2009 7:22 AM | Report abuse

Whoops, your bad again PaulinNJ. The part you quoted about local taxes refers to some Census tables, in contradistinction to the Tax Foundation tables which DO include local taxes. You really should examine things more closely before assuming such a supercilious attitude.

Here is what it actually says:
About Tax Burden Data
People often ask how Tax Foundation rankings of state-local tax burdens compare to Census data, which include two popular state-by-state rankings. One of these popular Census tables covers only state-level taxes... Local taxes are excluded, such as property taxes and local sales taxes... Census also ranks combined state-local tax collections after it has amassed the local data... This is closer to the Tax Foundation rankings, which take the additional steps of projecting collections into the current year, counting out-of-state tax payments in the state of residence instead of the state of collection, and dividing total tax payments by total income to calculate the "tax burden."

Posted by: RandyMoor | February 19, 2009 10:44 AM | Report abuse

Gee, PaulinNJ, I hope you're having fun creating your straw man and then pummeling it to death. You keep wanting to catch me out that when I talk about executive pay, I'm talking about all executive salaries, not just those in TARP-ridden banks. I thought I was abundantly clear. That's exactly what I am talking about. But please stop attributing to me words that I did not write. What a dishonest gimmick, to claim a person wrote something that he did not, and then proceed to comment on your own words, as if you're commenting on the other person's analysis.

Nowhere in my post did I use the word "control," much less "control all executive salaries." Those are your words, not mine.

What I said, and say again: "And corporate executives who continue to reap massive compensation even as their companies fail, much less bailout with their golden parachutes, are violating the basic principle of capitalism. There are no golden parachutes in capitalism." And "One step toward reform is to restore the link between pay and performance." Inherent in those words is the concept of guidelines and limits--not control.

Let me see now. Tbarksdl says: "The public has an interest in preventing salmonella-laced peanut butter from reaching the market. Therefore, government should set the overall safety standards for producing peanut butter and the inspection regimen for seeing that those standards are met."

PaulinNJ comment: "Golly! Did you see what tbarksdl said!! He wants to control the production of all peanut butter in the U.S.!!"

How childish.

I'll give you one more chance to comment on my actual words. If you dare.

Posted by: tbarksdl | February 20, 2009 5:18 AM | Report abuse

I *did* comment "on your actual words," Tbarksdl. Direct quote: "The pay of corporate executives is a matter of critical public concern. It IS our business." Please address *those* words.

I will ask again: How, exactly, is the pay of public companies "our" business if, as I noted, we don't own stock in that company? (I specifically exclude TARPed banks, even though I disagree with Dodd's ploy.)

If you're agitating for *stockholder* control (or vote, or pick your own word) of CEO pay, we don't have any big argument there; I'm a stockholder too. But that's not what you said the first time, so I'll thank you to spare me your outrage.

Posted by: PaulinNJ | February 20, 2009 10:37 AM | Report abuse

PAULINNJ,

You ask me to please address my previous comments, "The pay of corporate executives is a matter of critical public concern. It IS our business." Man. Am I speaking Greek here? I realize that we're at the point of "there are none so blind as those who cannot see," so here is my last post. Read it slowly, and marshal all your mental capacity. Maybe some light will dawn.

1. Capitalism is the best economic system of all.
2. America's survival, much less prosperity, depends on healthy capitalism.
3. Therefore, ALL Americans all the time have a vested interest in the survival of healthy capitalism. Conversely, all Americans are affected by any practice that distorts and undermines capitalism.
4. A major distortion of capitalism in the U.S. in recent decades has been the disconnect between executive pay and performance. The distortion is magnified when those salaries are exorbitant. It is magnified even further when executives are able to walk away from those failed companies with massive golden parachutes.
5. Therefore, all Americans have a stake in the issue of all executive pay all the time.
6. Whatever argument might have been offered about executive pay being none of government's business went by the board when the average American woke up one morning to find themselves having to literally pay out of their own pockets for the failed practices of those overpaid executives. The public interest in maintaining a link between pay and performance has been driven home beyond question--except for those in the category of none so blind as those who cannot see, which seems to include you.

War is too important to leave to the generals. Capitalism is too important to leave to businessmen. Especially, the corrupt, greedy, and incompetent businessmen who have obviously risen to the top of American corporations.

Let me leave you with this simple analogy. All Americans all the time have a vested interest in seeing to it that everyone is inoculated against communicable diseases. Concern about possible violation of personal rights goes by the boards, because of the horrific consequences to the whole population if basic health concerns are ignored. Same applies to executive pay.

What part of that simple reasoning do you find so hard to understand?

Posted by: tbarksdl | February 22, 2009 8:38 AM | Report abuse

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