Administration Seeks Increase in Oversight of Executive Pay

[Richard Masters]

http://www.nytimes.com/2009/03/22/us/politics/22regulate.html?_r=1

"The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money."

 

[FlamingMoe]

The debate over nationalization will become moot when the government has so many micromanaging rules that it effectively controls every business around without having to pay anything to take them over.

 

[ravdin]

I fail to see how this will help. The way I see it, the problem is that certain financial institutions are too big to fail. If we're going to regulate, the goal should be either to keep the size of the institutions more manageable, or to keep an eye on the kinds of transactions that are being made (in other words, you can't put up half a trillion dollars in loan guarantees that you don't have, then expect the taxpayers to cover your risk). I don't see how putting a cap on executives who aren't taking a single dime from the government is effective oversight.

 

[Alex Libman]

Oh, the poor stockholders who are forced to invest in companies at gunpoint... The poor board members who cannot resist the urge to throw their money away...

 

[Foolmewunz]

Oh, the poor stockholders who are forced to invest in companies at gunpoint... The poor board members who cannot resist the urge to throw their money away...

Funny you should mention that. Isn't one of the major tenets of AnCap that essentially all rule is rule by force. So, by those standards, then....

Yes, Exactly! I'm being forced, at gunpoint, to invest in Citibank and AIG, to recompense those poor board members who scammed the public into paying for their adventure vacation in printing up money out of toilet paper securities.

Meh? I'd just as soon that they all went to jail for five or ten years and not get appointments to work for the Dept. of the Treasury or The Fed. Give 'em a few months of blowing smoke up the skirts of Congress and they'll be off on some other project to build sandcastles out of moose dung. And there will be the same devoted dreamers there cheering them on in the hallowed name of "the free market".

 

[Alex Libman]

You missed the point. This thread is about a government power-grab for all financial institutions, not just those that are getting bailout money.

Under regular circumstances, corporations are naturally regulated by their stakeholders. Compensation for executive talent is determined by supply and demand, no government intervention required. It was government intervention (i.e. "ownership society") and monetary monopoly that got us unto this mess - it is a mess that the economy will eventually grow out of, but the government will take the credit, even though in reality all it did is harm...

 

[Foolmewunz]

You missed the point. This thread is about a government power-grab for all financial institutions, not just those that are getting bailout money.

Under regular circumstances, corporations are naturally regulated by their stakeholders. Compensation for executive talent is determined by supply and demand, no government intervention required. It was government intervention (i.e. "ownership society") and monetary monopoly that got us unto this mess - it is a mess that the economy will eventually grow out of, but the government will take the credit, even though in reality all it did is harm...

Alex,
You live in a fantasy world that the rest of us don't get to take part in. This mess was not caused by intervention. It was caused by lack of regulation and oversight. Anyone not suffering from AnCap myopia (and not on the boards of Goldman Sachs or AIG) knows that.

 

[rwguinn]

http://www.nytimes.com/2009/03/22/us/politics/22regulate.html?_r=1

"The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money."

...because letting the Government setting pay scales and individual worth worked so well in the USSR

 

[WildCat]

Alex,
You live in a fantasy world that the rest of us don't get to take part in. This mess was not caused by intervention. It was caused by lack of regulation and oversight. Anyone not suffering from AnCap myopia (and not on the boards of Goldman Sachs or AIG) knows that.

Alex isn't far off on this one. The government put pressure on mortgage lenders to loosen their requirements to accomodate the government goal of a higher home ownership rate. Once the banks were forced to issue higher risk loans financial institutions looked for creative ways to mitigate that risk. Problem was those risk mitigation tools counted on real estate prices being stable or rising, but all that money pumped into housing drove the prices artificially high in much of the country, and we all know trhe rest of the story.

The goverment is at least as much responsible for this mess as the financial intitutions. They will, of course, never admit it.

 

[Alex Libman]

Alex,
You live in a fantasy world that the rest of us don't get to take part in. This mess was not caused by intervention. It was caused by lack of regulation and oversight. Anyone not suffering from AnCap myopia (and not on the boards of Goldman Sachs or AIG) knows that.

Bravo, your argumentum ad populum has made me see the light! I understand now that expansionary monetary policy is the basis of economic stability! The Community Reinvestment Act was just a figment of my imagination! Bankers want to lose money unless the government forces them to do otherwise! Two plus two make five, because everyone else believes it! Hallelujah I am saved!

 

[WildCat]

I fail to see how this will help. The way I see it, the problem is that certain financial institutions are too big to fail. If we're going to regulate, the goal should be either to keep the size of the institutions more manageable, or to keep an eye on the kinds of transactions that are being made (in other words, you can't put up half a trillion dollars in loan guarantees that you don't have, then expect the taxpayers to cover your risk). I don't see how putting a cap on executives who aren't taking a single dime from the government is effective oversight.

Exactly. No company should be "too big to fail", the ones that are should be broken up like Ma Bell was.

 

[ponderingturtle]

Alex isn't far off on this one. The government put pressure on mortgage lenders to loosen their requirements to accomodate the government goal of a higher home ownership rate. Once the banks were forced to issue higher risk loans financial institutions looked for creative ways to mitigate that risk. Problem was those risk mitigation tools counted on real estate prices being stable or rising, but all that money pumped into housing drove the prices artificially high in much of the country, and we all know trhe rest of the story.

The goverment is at least as much responsible for this mess as the financial intitutions. They will, of course, never admit it.

And when the goverment forced them to go from leverageing themselves 12 to 1 to 35 to 1 is when things really started going wrong.

 

[ravdin]

And when the goverment forced them to go from leverageing themselves 12 to 1 to 35 to 1 is when things really started going wrong.

"Forced" them? Not the word I'd use- the bankers eagerly took the 35 to 1 leverage when it became available!

The analogy that makes the most sense to me is a casino- but one where the odds are in your favor instead of the house's. So imagine you show up at the front door and I hand you a big pile of chips- and tell you to go have fun. If you win, I'll want my chips back but you can keep your winnings. If you lose, then you just walk away.

More leverage just means that I'm handing over to you a bigger pile of chips. You get a bigger reward without having to worry about taking a bigger risk. Why wouldn't you eagerly take it?

Real reform would mean that you don't get to make bets you can't cover if you lose. More than one executive has whined to Congress about how "bad" the market has been lately- meaning they lost their bets, even though they think they shouldn't have.

I think the system should be: if you win, keep your winnings. I don't care how much money you make. But if you lose, pay for your seat at the table. If you can't cover your losses, you don't get the chips.

 

[dudalb]

I am sort of on the fence about extending this to those not recieving federal aid. If you receive bail out government money, yeah, the feds have the right to impose some rules. If you do not, I am not so sure.
But I think that if I were a stock Holder in a company, I would really start taking a closer look at the compensation the execs are getting. Stock Holder laziness has been a major factor in the debacle.

 

[Richard Masters]

I am sort of on the fence about extending this to those not recieving federal aid. If you receive bail out government money, yeah, the feds have the right to impose some rules. If you do not, I am not so sure.
But I think that if I were a stock Holder in a company, I would really start taking a closer look at the compensation the execs are getting. Stock Holder laziness has been a major factor in the debacle.

I completely agree.

 

[Foolmewunz]

Bravo, your argumentum ad populum has made me see the light! I understand now that expansionary monetary policy is the basis of economic stability! The Community Reinvestment Act was just a figment of my imagination! Bankers want to lose money unless the government forces them to do otherwise! Two plus two make five, because everyone else believes it! Hallelujah I am saved!

No, you're not saved... , but don't all snake oil preachers say that just as they're sheering the flock? The CRA? This is the life raft of the rhetorically desperate.

Junk Bonds were not forced on the banks. B.S. derivatives were not forced on the banks. AIG was not forced into their blatant scamming of their fellow money managers. Many of each would not have been legal without friendly free-traders in the SEC, The Fed and Congress helping them through. Check the dollar value of the CRA and the percentage of loans that were floated under that program versus the trash that AIG was peddling and which the brethren in the banks gobbled up and sold back to each other and to shareholders.

Wildcat, government's to blame, but not because of over-regulation. Government's to blame because they fell for the investment bankers' screeds that they needed to be allowed to float nonsensical issues and cross over from traditional banking to securities.

The failure of government, both last summer and currently is in continuing to fall for the scam. Let them fail. I agree. But the watchdogs were not watching, they were waiting for their chew toys while Phil Gramm and the boys opened the patio door and let the burglars in.

 

[Darth Rotor]

The debate over nationalization will become moot when the government has so many micromanaging rules that it effectively controls every business around without having to pay anything to take them over.

I once heard that the fusion of business and government was fascist. (Or maybe that's only one of the forms it takes?)

Why, then is the usual band of harangue mad freedom fighters not standing up against this fascist Obama administration?

Where is Code Pink when you need them?

Did they forget their standard script?