In a commentary aimed at the recently announced cap on bonuses for firms receiving state bailout funds, Dennis Kneale states:
Soon this same mob could come after your pay, too, arguing you make too much money and that something must be done about it.
This makes sense. The only thing worse than state intervention in the markets in the form of propping up failed businesses is further intervention in the form of arbitrary wage and/or bonus caps. Naturally, when state intervention fails (as it always does), the answer is more state intervention, thus perpetuating the cycle. This is also a very dangerous precedent being set, and one that ultimately serves to further expand the power of the state.
However, in the same piece, Mr. Kneale goes on to suggest the following analogy:
Bonuses on Wall Street aren’t an “extra” doled out in great times, on top of full pay. They compromise the variable portion of base compensation costs… this lets a firm pay out more in flush years and cut back in lean ones.
A waiter works on tiny base pay and hopes to reap the bulk of his compensation on good tips. On Wall Street, many people work all year long on only 30 percent of salary, or 50 percent, or as little as 10 percent for the biggest stars. They collect the rest in a one-shot windfall after year-end. So now their pay is down by 40 percent or more, and their company stock is down 50 percent or more. That isn’t punishment enough?
Who is Mr. Kneale kidding? This makes no sense.
First, to compare or otherwise analogize a Wall Street employee with a waiter is beyond intellectually dishonest – it suggests ulterior motive. Second, last I heard, the term ‘wind fall’ implies that something good happened, or at least that money was made. In this case, we are talking about depository and investment banks that have lose hundreds of millions, if not billions of dollars and have had to accept massive capital inflows from Washington just to stay afloat. These companies are wards of the state.
The reality is Washington doesn’t have any money. Washington is running at a deficit. The only money they have is what they can continue to beg, borrow and steal – literally – by printing money, selling treasuries and confiscating in the form of taxation. In other words, this money is coming out of your pay check (in the form of income tax), your budget (in the form of sales tax) and out of the standard of living of future generations as we run up record deficits to prop up failed business models still hiding write-offs on assets gone bad in off balance sheet SIVs and CDO contracts yet to be unwound.
I feel very strongly about the free market. I do not care one bit what Bank of America wants to pay its executives. That’s up to management and the shareholders. But the minute they accept favors from the state – not just in the overt form of tax payer funds, but in the more subtle form of tax breaks and other corporate preferences – they become wards of the state and are properly held up to public scrutiny.
The solution, of course, is to let the banks do what they want – MINUS tax payer funds. Successful banks will attract private investment as safe havens for capital. Failed companies, on the other hand, should fail, be broken up and sold in bankruptcy court, and disappear. That would be the market at work, and executives of these failed companies would be out on their butts, not ‘salary-capped’ to continue running the companies into the ground, let alone promoting false information about their companies balance sheets to investors and tax payers alike.
We have endured the Internet bubble that burst in 2000, the housing bubble that blew up in late 2007, and the commodities bubble that popped last year. Now looming of us is a new bubble – in what one dictionary defines as feigned piety or righteousness; hypocritical devoutness or high-mindedness. The new bubble is sanctimony.
This all sounds very good, particularly when aimed at our corrupt overlords in Congress who voted for this mess. Yes, this sounds good, until one realizes this piece is written in defense of executives from bailed-out financial firms paying themselves billions of dollars that they don’t have, and wouldn’t have, unless given to them by the state. In fact, I think it’s fairly sanctimonious for Mr. Kneale, and others of his ilk, to suggest somehow that I should not only be taxed against my will to pay for bailing out these companies that are “too big to fail”, that pose “systemic risk”, but also to subsidize the million-dollar earnings of its already-millionaire executives. To then serve me up the analogy of a waiter in a restaurant sounds more “high-minded” to me, Dennis.
And nowhere does Mr. Kneale mention the millions of dollars spent (well documented on this site) on Super Bowl parties, trips to the spa, hunting, new corporate jets, vacations in Vegas, squash tournaments and associated waste.
“These people are idiots,” U.S. Sen. Claire McCaskill declared on the Senate floor on Friday. (Referring to Wall Street executives).
No, as articulated previously on this site, these people are far from idiots:
That’s billions of dollars in financial executive compensation and severance, not to mention compensation earned during the last several years of the boom and other packages paid out prior to 2007.
Incompetent? Hardly. These men are geniuses.
It’s the citizenry that are incompetent, and incapable of holding a minarchist Republic.