Bonus Fight Ushers In Post-Bailout Capitalism

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Capitalism: It's more than a bit scary when a powerful politician suggests that getting a bonus might get you prosecuted as a criminal. But that's where we are today. Welcome to the new world of post-bailout capitalism.

We have to admit: For an industry that posted enormous losses in 2009 and is now on the government dole, $18.4 billion in "performance" bonuses for Wall Street executives seems a tad much. President Obama called it "shameful."

"There will be time for them to make profits," he said Thursday with Treasury Secretary Tim Geithner by his side. "And there will be time for them to get bonuses. Now's not that time. And that's the message that I intend to send directly to them, I expect Secretary Geithner to send to them."

Vice President Joe Biden was even more pointed: "I'd like to throw these guys in the brig," he said.

Democratic Sen. Chris Dodd had this to say to those executives who take home big bonuses: "If you do it, I'm going to bring you before the (Senate Banking) Committee."

Perhaps the ire is deserved. It's hard to defend Wall Street executives' pay. Last year, the Dow closed off 34%, its third-biggest loss ever, as trillions in wealth evaporated. And financial companies lost nearly $50 billion for their shareholders.

Yet executives gave themselves hefty bonuses, claiming they had to do so in order to keep talented people.

Maybe so. But it's sad this should even be a part of our daily discussion, and it only shows just how twisted things have become in our once-capitalist system. In the brave new world of post-bailout economics, politicians — not the marketplace — decide what it's appropriate to pay executives.

At one time, businesses competed intensely, and success or lack of same guided what executives would earn. But no more.

Today, with hundreds of billions of dollars flowing from public coffers into the private financial sector to prop up failing companies, politicians feel quite within their rights to harangue, cajole, even threaten those who take their money.

This is one of the unforeseen consequences economists warn about. Executives who thought they'd get access to Uncle Sam's wallet without strings attached now find they're beholden to elected officials — not the market.

It would be far healthier for the economy if it was the companies themselves, operating within market-imposed discipline and under the watchful eye of shareholders, that decided how executives were compensated.

Sadly, Wall Street today seems to suffer from what economists call an "agency problem." In a healthy company, managers and execs work for the shareholders. But after a government bailout, taxpayers — that is, politicians — are boss.

And, as always, this leaves a lot of room for politicians to demagogue the issue, always on behalf of "the taxpayers."

That's what's happening now in Washington, and it isn't healthy. However outraged you might be at the executives' $18 billion in bonuses, that pales in comparison to Congress' pork-filled, 680-page, $825-billion stimulus bill.

As the bill moves toward law, polls show voters are having second thoughts about the whole thing. Mainly, they don't like the waste — or the fact that only about 10% to 15% of the spending can even remotely be called "stimulus."

Does this explain why politicians have suddenly gone into such high dudgeon over executive bonuses? After all, if you were about to misspend hundreds of billions in taxpayer money, wouldn't you want a scapegoat too?

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