We've all seen the headlines heralding Obama's plans to impose limits for executive paychecks. "Salary can't exceed $500,000 for some getting federal aid" trumpets a frontpage article by Edmund L. Andrews & Vikas Bajaj in the International Herald Tribune (Feb. 5, 2009). The trouble, as indicated by the word--"some"--is in the details. The other problem is that Timothy Geithner--Obama's tax dodging Treasury Secretary and former President of the New York Fed during the financial meltdown--will be responsible for putting together the salary cap and enforcing it.
Problem area #1: Timothy Geithner as Treasure Secretary will overlook the writing and enforcement of the salary cap.
Remember that Geithner is ethically challenged to begin with. Recall his problems with about $25,000 in taxes owed. These related NOT ONLY to payroll taxes owed while an employee of the IMF (Geithner signed numerous forms from the IMF informing him that he was responsible for these taxes but still didn't pay them), but as the Wall Street Journal reported:
"Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify.
Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use."
Source: http://online.wsj.com/...
Oh, let's not forget the immigrant housekeeper problem Geithner had (those immigrant workers present so many problems!). Again from the same article in the Wall Street Journal:
"The other cloud for Mr. Geithner involved an immigrant housekeeper whose work-authorization papers expired during her tenure working for Mr. Geithner. For three months, until she stopped working for the family to have a baby, the woman was working on the expired papers."
Geithner as President of the New York Fed was also in charge when Wall Street Tycoons were raking in millions in salaries and bonuses. Kennis Lewis took home more than $20 million in 2007 as Chief Executive of Bank of America. Vikram Pandit, chief executive of Citigroup, to which Geithner has numerous connections, took in more than $3 million. Did Geithner ever sound any alarm bells, raise any red flags, take any action? Nope, probably because as a good friend and protoge of Robert Rubin, former head of Citi, these guys were all his pals, as will be the people he will be overseeing in any plan to limit pay for bailout recipients. Doesn't that make every taxpayer feel better?
For more on Geithner, see my diary, "Obama: Cut Geithner Loose" http://www.dailykos.com/...
Problem Area #2: the devils in the details
Ah yes, those headlines looked so good about plans to limit executive paychecks as did the 30 second clips of President Obama intoning the same message. But what exactly are the plans? Not much in the way of detail emerged but from what we have seen thusfar, there's enough loopholes for Refrigerator Perry, John Goodman and Oprah--all tied together with duct tape--to wiggle through.
So the AP reports:
The squeeze on big paydays for executives of bailed-out banks will probably leave Wall Street plenty of wiggle room. Consultants on executive pay say the caps imposed by President Barack Obama on Wednesday will probably apply only to a few executives — not star traders, brokers and salespeople who routinely earn whopping pay packages.Others note Wall Street typically finds ways to exploit loopholes and figure this time will be no different.
"You've got a lot of people on Wall Street who are not executives but still make extremely big salaries," said Mark Borges, a principal at compensation consulting firm Compensia Inc. "I suspect this doesn't impact them at all."
The new rules require banks that receive "exceptional assistance" from the government to cap salaries, including cash bonuses, at $500,000 for senior executives.
SOURCE: http://www.google.com/...
Another devilish detail: what in hellfire does "exceptional assistance" mean? Is $900 million "exceptional" these days? Definitely not, probably only something in Carl Sagan's "billions and billions" would qualify. The AP notes:
But the rules note that injections of federal cash similar to those given to JPMorgan Chase & Co. and Wells Fargo & Co., which each got $25 billion in bailout money, and many other banks would not necessarily trigger the new salary caps.
But guess who will decide? Tim Geithner, please pass me a roll of antacid tablets.
Note too that the rules will apply only to the future, not to banks that have already received money. So those banks that have taken from the first tranche of $350 billion--forget them!
Another huge loophole: banks that will receive bailout money technically would also face the $500,000 cap could avoid it by providing full public disclosure and holding a nonbinding shareholder vote. Guess who holds most of those shares? Yes, very likely the same groups pandering for more payouts and their buddies.
Yet another problem: the rules will apply only to a handful of people at the senior executive level. Again from the same story at the AP:
"There's plenty of wiggle room," said David Schmidt, a senior consultant on executive pay at James F. Reda & Associates. "There's no constraints below the senior executive level, so the question becomes, will the restrictions trickle down?"
"You've got a lot of people on Wall Street who are not executives but still make extremely big salaries," said Mark Borges, a principal at compensation consulting firm Compensia Inc. "I suspect this doesn't impact them at all."
Source: http://www.journal-news.com/...
And from the same source:
And the rules don't spell out how many executives would be subject to the cap. Compensation experts predicted anywhere from five to 25 executives per bank could face the new restriction. That would still represent only a tiny fraction of a large firm's brass.
Problem Area #3: Enforcement and Penalties?
I have seen nothing relating at all to enforcement (presumably this again would be done by the Treasury under Geithner) or penalties when these "plans" have been spoken about. Yet more toothless regulations and we know how effective the toothless SEC has been, for instance, in dealing with Bernie Madoff types.
In sum, when you appoint a guy who himself dodged rules and who as head of the New York Fed was a cheerleader for deregulation, the country will pay the price. Thanks for Tim Geither and the very clear plans for limits on executive paychecks, Mr. President! But you gave a great airy-fairy speech on the issue.