Pay-Cut Plan More Like Bunt than Home Run

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Getty Images & AP Photo By putting compensation caps on some bailed-out firms, pay czar Kenneth Feinberg sent a message, writes Nomi Prins. But he also strengthened the hands of the rest, including Goldman Sachs.

Kenneth Feinberg, the so-called pay czar who President Obama has charged with making the take-home pay among our bailed-out behemoths logical again, took a deep breath yesterday, stepped up to the plate, wound up a couple of times and… bunted. His intent was admirable, if politically timed to coincide with the renewed bonus wrath following the bank’s quarterly earnings results. But the details will ultimately exacerbate the systemic risk that propels high compensation and nearly destroyed the financial world, not to mention the rest of the general economy. In short, Feinberg made the situation worse.

Feinberg’s plan would cap compensation at the seven companies that received "exceptional assistance” (AIG, Bank of America, Citigroup, General Motors, GMAC, Chrysler, and Chrysler Financial). It would cut the total compensation of the top 25 executives at these firms by 50 percent and their annual salaries to 90 percent of 2008 levels.

Shouldn’t those 175 executives who have to now ask permission from Feinberg for perks greater than $25,000 take it upon themselves to fly coach once they hit $24,999?

To be sure, these companies owe their very existence to the federal government. Bank of America still owes the government $63.1 billion, AIG sits on top of a $181.8 billion pile of federal help, and Citigroup has a $368.7 billion public cushion, The auto industry? $89.4 billion.

The problem is, by simply tying compensation caps to the TARP program (a year late), Feinberg and the Obama administration are completely ignoring the rest of the $14.6 trillion federal bailout and subsidization of the banking industry, which has helped propel many key banks to 2007 levels of compensation, unfettered. If this is the best he can do, all the other Wall Street bankers can breathe a huge sigh of relief.

• Charlie Gasparino: Behind Ken Lewis’ PanicThere are those who think that if the government has any say in any pay, it’s only a matter of time before it will be rationing air intake. They should back off—unless they also believe that the government shouldn’t have taken such a generous approach to subsidizing the banking system, in which case they should be happy that Feinberg wants to do something to ensure our money is spent fortifying the firms we’re subsidizing (so that it’s returned) rather than on luxury items.

The bigger question for those fearing this is some outrageous government intervention: Why aren’t the firms receiving public money making these cuts themselves? Shouldn’t those 175 executives who have to now ask permission from Feinberg for perks greater than $25,000 take it upon themselves to fly coach well before they've hit $24,999?

Feinberg engineered Citgroup's sale of Phibro to Occidental Petroleum, which the firm did to get out of its $100 million bonus contract with star trader, Andrew Hall. Bank of America’s Ken Lewis’ chat with Feinberg resulted in him agreeing to take no salary or other pay for 2009—of course, he’ll survive with a nearly $50 million retirement package and the $165 million he made since 2001. Feinberg will also cut the total compensation of AIG’s top 25 executives to $200,000. No doubt, these people are already negotiating employment deals at Goldman Sachs, where $12.9 billion of AIG's public assistance went anyway. But Feinberg sent the right message there.

The Feinberg principles fall short, however, by only focusing on a subset of the subsidized industry. The same firms that turned a profit and repaid TARP (on the back of federal aid) are leading the industry in renewed trading risk, the kind that crashed the system last year—only this time, it's with our money on the table. In essence, he’s green-lighting an increase in the kind of aggressiveness that leads to higher bonuses at the other firms. And that’s downright dangerous.

View as Single Page 12 Back to Top October 22, 2009 | 12:57am Facebook | Twitter | |   | Emails | print Meltdown, Obama, Bailout, Wall Street, Bailout Pay Packages, Wall Street Compensation Cap, Wall Street Salary Cap, Compensation Cap, Pay Czar, Nomi Prins, Kenneth Feinberg, Bank Of America, Aig, Goldman Sachs  (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: Genni2002

From the senoir rep of a great state to a freshman - Get YOUR hands out of my pockets. Am sick to death of hearing about these GS execs being able to basically steal their way to wealth. It is outrageous and this is not the United States of Goldman Sachs, or is it?!

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 2:30 am, Oct 22, 2009 numonk

When corporate "personhood" was recognized, the game was lost.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 10:43 am, Oct 22, 2009 MetryJen

Exactly.

Flag It | Permalink 12:38 pm, Oct 22, 2009 neroves1

"It is our interest and our task to make the revolution permanent until all the more or less propertied classes have been driven from their ruling positions, until the proletariat has conquered state power and until the association of the proletarians has progressed sufficiently far - not only in one country but in all the leading countries of the world - that competition between the proletarians of these countries ceases and at least the decisive forces of production are concentrated in the hands of the workers. ... Their battle-cry must be: "The Permanent Revolution". -Trot.- Where are the people??

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 3:24 am, Oct 22, 2009 hockeydog

The problem is with the terminology. "proletarian" just doesn't cut it, it belongs to a different time. Same with terms like "socialism", "communism", and other outdated descriptives. Perhaps the eventual solution to our ongoing problem with the investment banksters is to coin some new terms that better reflect the reality of today's America, and by extension World. I will bet the Beastly bloggers would be a fecund source for this new terminology.

Flag It | Permalink | Reply 8:47 am, Oct 22, 2009 numonk

At home watching Fox and eating McDonalds in a Snuggie

Flag It | Permalink | Reply 10:43 am, Oct 22, 2009 neverlate

So pumping a king's ransom into a bunch of losers and then making it impossible for them to compete for top talent is smart government? No wonder I wish health care reform would just die. The only answer here is to break them up and deal with the toxic assets that are still on the books.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 4:57 am, Oct 22, 2009 numonk

...heh, compete for top talent. That's good, like American companies have actually created jobs or produced ANYTHING in the national interest of the USA and the UK in over two decades. You don't need top talent, that's why all of the jobs below these guys are designed to be interchangeable. When someone starts asking for more, you can them.

Flag It | Permalink | Reply 10:45 am, Oct 22, 2009 Ozone69

Democratic Governor of corrupt NJ running for re-election, Jon Corzine was an executive a Goldman not too long ago. He left with a golden parachute worth more millions than you and I will ever see or fathom. President Obama will stump for him today and Bill Clinton already did as well as VP Joe Biden. Hmphhhhh???????????? Godman=Corrupt Governor=Democrat Party=President Obama's endorsement=Bailout $$$$$$ I wonder why a governorship is so important to the WH. It's not like the gov can vote for healthcare. Oh, the bailout of Goldman. Got it now,

Flag It | Permalink | Reply 6:42 am, Oct 22, 2009 DakLak

Goldman is the U.S. government's puppet master. All the good Obama has done is now reduced to setting the timer for the next collapse.

Flag It | Permalink | Reply 6:52 am, Oct 22, 2009 periscope

I don't care what GS pay themselves. What I care about and what every American and other investors should care about is the soundness and the integrity of the products they create and sell. Without strict regulation of derivatives (amazingly, there still is none), our economy is sacrificed on the altar of greed to those at GS and other companies on Wall St. that only care about short term profits and immediate bonus gratification. There should be NO INVESTMENTS - NONE - that are not completely transparent and completely government regulated. Until or unless that happens, we will have other trillion dollar busts that will take down our economy time and time again. This isn't rocket science. This is arithmetic 101.

Flag It | Permalink | Reply 9:34 am, Oct 22, 2009 flyoverland

Our country's brightest and best no longer strive to "make things" they strive to shuffle paper for fortunes in a year it would take a lifetime to accumulate otherwise. A country that has driven its manufacturing base to the third world will soon find that paper shufflers historically have not ruled the world.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 10:54 am, Oct 22, 2009 whipmawhopma

flyoverland - Well said.

Flag It | Permalink | Reply 2:01 pm, Oct 22, 2009 devilsadvocate

Goldman always seems to win. I understand there's outrage about pay and bonuses at banks, yet people still continue to do business with banks that treat them like crap. There are banks out there that have good customer service, don't cheat account holders with ridiculous fees, and pay their management more reasonably. True, they're a handful in comparison witht the majors, but they're still there. If you're outraged, drop your BofA, or your super-regional bank account and transfer it to one that has better service and treats its customers like human beings. Or if you're complacent or just don't care, keep your bank account at one of these major banks and keep getting screwed out of fee money and be kept on hold for hours while trying to talk with customer service, but don't pretend to be outraged. If the outrage really is there, these larger banks would drop so fast bc so many people moved their accounts to better banks.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 10:55 am, Oct 22, 2009 Read Full Article »