If the Obama administration’s breathtaking deference to Wall Street bankers needed any additional underscoring, Chris Dodd has provided it. As the Wall Street Journal reported over the weekend, the Connecticut senator and chair of the Senate Banking Committee inserted a last-minute provision in the bailout bill that will impinge on business as usual in the matter of paying lavish bonuses.
The Dodd rule, which is retroactive to the start of TARP last fall, would limit bonuses at companies that have received federal aid to no more than one-third of an employee’s total compensation. The Journal’s reporters cite the heart-rending case of Bank of America CEO Ken Lewis, whose $16.4 million package in 2007 might have been reduced to a subsistence-level $2.25 million under Dodd’s terms.
Dodd, who raked in over $9 million in donations from the finance, insurance, and real estate sector between 2003-08 according to the Center for Responsive Politics, has never been known as a stickler in holding Wall Street accountable. He still isn’t. His current gambit is generously festooned with loopholes: one exempts executives with contracts that stipulate higher pay levels, and his language doesn’t address whether stock options are counted toward total compensation. It also frees banks from a previous TARP requirement that they raise an offsetting amount of private capital before they can repay the government and get out from under federal strictures.
Dodd’s measure, in short, is tough only by comparison to the toothless compensation rules favored by the White House. But it would have the effect of reducing some eight-figure incomes to seven, and some seven-figure incomes to six. And this is too much for Team Obama. In the words of the Journal story (which is not in the site’s free archive), “The administration is concerned the new provisions will prompt a wave of banks to return the government’s money and forgo future assistance, undermining the program’s effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider…”
So there you have it. The entire multi-trillion dollar project to save the banking system from itself at taxpayer expense could run aground because the creme de la creme of Wall Street would sooner see their enterprises stew in the juices of insolvency than countenance limits on their pay. First things first.
“Meanwhile,” WSJ goes on to note, “executive payments authorized by Merrill Lynch & Co. and its owner, Bank of America, are the subject of a new investigation from North Carolina Attorney General Roy Cooper…. New York Attorney General Andrew Cuomo, who is also investigating the matter, alleged this week that Merrill ‘secretly’ moved up the date for awarding bonuses and that the total was $3.6 billion, including $121 million for four top executives.”
The whole controversy amounts to an excellent brief on behalf of nationalizing Wall Street’s biggest banks. It becomes clearer and clearer that the central stumbling block in the way of decisive federal intervention in the banking crisis is Washington’s collective and very bipartisan commitment to avoiding nationalization at any cost. This is why the grand panjandrums of the Street can still credibly threaten the United States government over their pay, absurd as that sounds. What are they going to do, after all? Storm off en masse and go to work as convenience store night managers?
The continuing imperiousness of Wall Street suggests to many an outraged commentator that the bankers don’t get it–they’ve brought disgrace and ruin! They don’t get to call the shots anymore! But it’s the critics who don’t get it. The bankers understand that they are very much calling the shots, even as the government races to prop them up and hold their investors harmless at immense public cost. So their chutzpah may be staggering, but it’s not irrational given the political circumstances.
Even the mainstream press has begun to recognize, however obliquely, the growing consensus among experts at home and abroad that the United States will have to mount an effective nationalization of the banks at some point. In that regard, there have been a couple of interesting stories in the New York Times in recent days: Hiroko Tabuchi’s dispatch on the 1990s Japanese lesson and Steve Lohr’s piece on the insolvency of the major U.S. banks. “I think they know how big it is, but they don’t want to say how big it is. It’s so big they can’t acknowledge it,” John H. Makin, an economist at the American Enterprise Institute, told the Times. “The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks.”
The American Enterprise Institute. So much for painting nationalization as a misbegotten fever dream of the left. How much more time and money will be wasted before institutional Washington sees fit to stop treating it as the other N word?