Executive pay caps that survived in the stimulus

Cross-posted from Congress Matters. If you've got a Daily Kos account, you've got a Congress Matters account. Log in with your existing Daily Kos user name and password.

Seems some executive pay limits for TARP recipients did survive the conference after all:

A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.

The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.

[...]

The provision, written by Senator Christopher J. Dodd, Democrat of Connecticut, highlighted the growing wrath among lawmakers and voters over the lavish compensation that top Wall Street firms and big banks awarded to senior executives at the same time that many of the companies, teetering on the brink of insolvency, received taxpayer-paid bailouts.

"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence," Mr. Dodd said Friday. "These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses."

I note, again, with some alarm that:

Top economic advisers to President Obama adamantly opposed the pay restrictions....

Why? For reasons very similar to this:

"These rules will not work," James F. Reda, an independent compensation consultant, said on Friday. "Any smart executive will (a) pay back TARP money ASAP or (b) get another job."

I love this guy. He's so hilarious! (Reda is the guy who famously said that $500,000 wasn't a lot of money.) I mean, I read his statement, and I said to myself, "That's funny, because those two things sound to me like the rules will work." Those are two things I really would like to see come out of the TARP, actually: that TARP money is paid back ASAP, and that these guys go get other jobs.

That sounds fantastic, actually. I know that a lot of people think it's awful, and that there'll be a brain drain, but it's not like these guys are going to go into taxidermy. They'll stay in the financial sector, and if they're such geniuses, then what's so bad about moving them to healthy firms that don't need the federal crutch? That those firms that do will take longer to pay back that federal crutch? I thought Reda just told us that quick repayment was bad news.

I understand that the thinking is that too-quick TARP repayment may mean that firms that rush to pay (so that their executives can get their bonuses back faster) may mean that they will no longer have a cushion of extra capital that they can lend out, meaning the credit crunch goes on longer. But of course it also means that we get the TARP money back faster, and we have a capital cushion that can be put into a program that actually requires that some lending be done. And in a larger sense, it tells us something -- something we already know, in fact -- about the super-geniuses we're worried will leave if they don't get their bonuses big enough and fast enough. It tells us that they have no long-term interest in restoring the integrity of the financial system, and that that was never where their genius lay. It lay in extracting personal wealth from the system. For themselves, not for their firms or clients. If they'll risk keeping the credit system in a deep freeze by repaying the TARP funds prematurely, in order to get their personal bonuses sooner, then screw 'em. Let them get the fuck out and get new jobs, and let the "healthy" firms that hire them go to shit by hosting these parasites.

Won't that mean we end up bailout out the next group of firms to go down the crapper? Probably. But that appears to be a given, anyway. At least we'll have some of the funds on hand to do it with, having recovered them "prematurely" the first time.

I'm sure there are permutations of this that would sound less than optimal if they happened. For instance, both things could happen -- that is, the "best talent" will get new jobs and their successors will be both less talented and motivated to repay prematurely. Naturally, you'd rather have the most talented people at the most troubled firms, so that they can recover more quickly. But I'm not so certain that the "free market" -- to the extent that a market with trillions of federal dollars directly injected into it can be described as "free" -- does any better in keeping top talent at firms rotting from the inside out. Why wouldn't they jump ship anyway? Wouldn't a "healthy" firm be more likely to pay better bonuses regardless of whether or not there are restrictions on TARP recipients?

Maybe not. But I'm reluctant to acknowledge the long-term genius both in continuing to insist that the people who drove this disaster are by definition the "top talent," and that they're a desirable vector for reinjecting capital into the market. Especially if the prediction is that they'll opt out of the program in ways that maximize their personal profit, to the detriment of the very system they're being entrusted to repair.