banks wall street goldman sachs activists

Bankers face activists' anger in the streets of Chicago
bailout bonuses too big to fail

Executive pay is only part of the problem

George Soros, one of the richest guys on Earth: "Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government, so I don't think that those monies should be used to pay bonuses. There's a resentment which I think is justified." (Reuters, Oct 23). Besides him, a major paper actually covered Americans demonstrating in Chicago against bankers while another proposed that stockholders set executive pay; we’d address the problem at its root. Below we trim, blend, and append three 2009 articles from: (1)Christian Science Monitor, Oct 27, on demonstrators by Mark Guarino; (2) Alternet, Oct 20, on pay caps by Sam Pizzigati (editor of the online weekly Too Much); and (3) The Los Angeles Times, Oct 24, on stockholder rights by the editors.

by Mark Guarino, by Sam Pizzigati, and by LAT editors

Some 5,000 union members and community activists marched through downtown Chicago Tuesday, protesting a lack of transparency and accountability regarding $350 billion in federal bailout money.

“What kind of recovery do we want to have in this country? Just for the guys at the top or everybody?” asks Tom Balanoff, president of the Service Employees International Union (SEIU) Illinois Council. “The banks got a lot of our tax money, and some of them certainly seem to be rewarding themselves greatly.”

The latest round of corporate bonuses occur as foreclosures continue to rise. Protesters asked Goldman Sachs to donate its entire projected $23 billion dollar bonus pool to prevent every foreclosure in America in 2010.

America’s biggest banks, amid the shakiest economic times since the 1930s, last week announced record profits -- and deposited record billions into bonus pools for their top executives and traders.

Welcome to post-meltdown America. One year and counting after last fall’s high-finance collapse, average Americans are reeling and Wall Street is rejoicing.

The boom's back! Goldman Sachs last week announced $3.19 billion in third-quarter earnings, about quadruple the firm's quarterly profit a year ago. Goldman now has $16.7 billion sitting in its bonus pool.

No other US financial firm is matching Goldman’s stunning success. But you won't find other firms complaining. One new survey, released last week, estimates that 23 top U.S. banks and hedge funds will shell out $140 billion in 2009 compensation, $23 billion more than their previous all-time record high set in 2007.

At a minimum, US authorities could insist, as British officials did, that every big bank in the nation either agree to modest executive pay reforms or lose the right to do business with the government. Going further, new French legislation, if enacted, would cap executive pay, in companies subsidized by tax dollars, at 25 times the pay of a company’s lowest-paid worker. In all other companies, boards of directors would set the executive-worker multiple that determines the executive pay ceiling, after a process that includes worker input. Shareholders would have the final say on what that multiple would be.

Cutting compensation of corporate titans saved by the taxpayers is fine, but there are bigger problems on Wall Street.

The financial industry has bounced back so strongly from last year's credit crunch that many Wall Streeters are looking forward to the kind of six-figure bonuses they enjoyed at the height of the housing bubble. But the Treasury Department's "pay czar," who was appointed to oversee seven financial companies and automakers rescued by the Troubled Asset Relief Program, slashed the salaries of the highest-paid executives at those firms. And the Federal Reserve proposed to oversee the pay of any bank employee who could significantly increase the bank's risk.

We have no quarrel with the government cracking down on compensation at Citigroup, American International Group, and other companies that were saved by the taxpayers. But the Fed's move to regulate the rest of the banking industry, on the other hand, is a decidedly mixed blessing. The Fed's record in spotting dangerous trends isn't reassuring. And pay structures don't encourage excessive risk-taking nearly as much as the incentives in tax and regulatory policies that encourage banks to borrow money instead of issuing stock and to bet on mortgage-backed securities instead of individual mortgages.

The most damaging factor may be the government’s protection for "too big to fail" companies. Without such implied guarantees, companies would make their pay packages more sensitive to results over the long term, including provisions to reclaim bonuses if deals go bad over time. In fact, some firms are doing this already.

Let’s make it easier for banks, shareholders, and regulators to gauge the risk posed by credit derivatives and other complex financial instruments; the House Financial Services Committee just approved a bill (HR 3795) whose goal is to do just that.

Also, publicly held companies should let shareholders advise them before approving pay packages and let them vote directly on board members -- a move that could make the directors in charge of compensation think twice before offering executives salaries that aren't aligned with the company's performance.

JJS: The above reforms might be necessary but far from sufficient. Bottom line, we must quit speculating in land. The value of land and resources is part of our commons. We all deserve a share of it, not just sellers, leasers, and lenders. Owners should pay in land dues and all of us get back “rent dividends”. At the same time, we should forgo subsidized services and enjoy all our earnings, zero-taxed. These twinned reforms -- replace taxes and subsidies with recovering and sharing site values -- constitute geonomics, a basic reform that transformed societies wherever used, to the degree implemented. We could use a lot of geonomics right now.


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Did Big Oil really need relief from royalties?

Forbes -- AIG's Larceny

The TARP Trojan Horse

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