The cap on compensation paid to top executives at companies that receive significant taxpayer money was passed this week. I suspect it will be greeted by a resounding round of applause from Main Street. Hopefully, it marks the end of an era that has brought shame, if not repentance, to Wall Street.
President Obama’s $500,000 cap on future salaries paid to government assisted companies is the most far-reaching attempt to regulate private sector compensation in the nation’s history. It came as populist rage with Wall Street has mounted, fueled by almost daily revelations of greed, avarice and down right thievery by those in the financial sector. This bill will help to usher in a new way of doing business among our nation’s top businessmen or at least those who take money from the government but don’t count on those guys turning over a new leaf anytime soon.
I can already hear the dissenters warning that without just compensation the best and brightest will no longer seek jobs in the financial sector. Well, go for it, I say, since the financial sector has certainly failed to contribute much in the way of productivity for this country lately. Better that the new talent go into areas of the economy that actually make things for a change.
I’m sure that there will be other articles decrying the cap as another blow to the capitalist system. Some business executives may cry socialism and lament that they will now only be permitted to make $100,000 more than the president. Isn’t it interesting that at the same time none of these so-called captains of the financial industry has stepped forward and taken responsibility for the havoc wrought by their actions?
At most, they have hidden behind the excuse that everyone was selling these sub-prime loans or leveraging assets. As Americans see their retirement savings halve in less than a year, others lose their homes and now millions more lose their jobs, the former heads of firms like Citibank, Countrywide, Lehman Brothers and Merrill Lynch have walked away with millions in severance pay. Let’s hope that someone will introduce legislation to end these golden parachutes as well.
I left Wall Street for the rural life of the Berkshires in 2003 after years on what I called the “hamster wheel”. Money was the guiding principal of every firm I worked for contrary to what might have been printed in their glossy annual reports. Your health, family, morals—all sacrificed for the good of the firm and of course your yearly bonus. I made good money back then but increasingly there were things I was expected to do that crossed a line I wasn’t willing to cross. So I left.
Over the next four years (until 2007) just five brokerage firms paid employees like me $145 billion. That, my dear reader, is larger than the gross domestic product of many countries. Of those five firms only two exist today while the others have been acquired or went bankrupt losing billions for their shareholders. During the worst year in this country’s history since the Great Depression, 2008, over $18 billion more was paid in bonuses. That breaks down to $109,000 per employee or twice the national median household income.
Now I’m sure some of those employees feel they earned those bonuses for pushing paper from one side of the desk to another. Others truly did kill themselves for the money, traveling three out of four weeks a month and working every weekend for years. Still, many simply got paid for showing up especially in the fat years. We know now that those fat year profits were really nothing more than a pump and dump scheme of global proportions that have ended in massive losses for everyone except a certain golden few.
The point is that the only thing we can do about the past is learn from it. We have learned that Wall Street, especially the banks and brokers, cannot be trusted. Alan Greenspan, the former Chairman of the Federal Reserve and a staunch free market capitalist, admitted as much in Washington testimony a few months ago.
Like greedy children who think that life is about getting as much candy from the other kids as possible, they need to be controlled, regulated and yes, sometimes spanked. Given they have failed to regulate themselves or even admit to any wrong doing, it is society through their government that must take up the task. As a former Wall Streeter and free market capitalist, I never thought I would come to that conclusion but even old dogs like me can change when the facts dictate it.