Re-rigging Wall Street Against America

Yesterday, we started the day off looking at how conservative Democrats are joining with the Republicans to gut Dodd-Frank and set Wall Street free to rip off America and Americans again, Elizabeth Warren and progressive House candidates Austin Frerick (IA), Tim Canova (FL), Lillian Salerno (TX), DuWayner Gregory (NY), Ellen Lipton (MI) and Sam Jammal (CA) explained why that's a terrible idea. "Giant regional banks," wrote Canova, "are trying to mischaracterize this bill as an effort to help small banks and rural communities. In reality, this legislation would relax regulatory oversight of dozens of huge banks with more than $50 billion in assets. This may well undermine not just consumer protections, but the safety, soundness, and stability of the financial system. Instead of deregulating big banks, Congress should be creating public banking alternatives, including a national infrastructure bank, to serve the needs of our local communities." And Ellen Lipton added that "If there's any issue to take a stand on, and NOT engage in bipartisan hand-holding, it would be this one. The elimination of this regulation would allow an institution like Countrywide off the hook."

Do you ever read Wall Street on Parade. On Wednesday Pam and Russ Martens wrote that "nothing buttresses Senator Bernie Sanders’ position that fraud on Wall Street is not a bug but a feature better than the news last week that the Citigroup Board was bumping up CEO Michael Corbat’s pay by 48 percent to $23 million for 2017." I'd like to see Elizabeth Warren take on Corbat at a Senate hearing, wouldn't you?

Corbat has sat at the helm of the bank since October 2012 as the bank has paid more than $12 billion in fines and restitution for serial abuses of the public and investors, including its first criminal felony count in more than a century of existence. The felony count came on May 20, 2015 from the U.S. Department of Justice over the bank’s involvement in a bank cartel that was rigging foreign currency markets. Numerous other charges against the bank have focused on money-laundering. Citigroup’s long history of involvement in money-laundering also gives the appearance of being a feature not a bug.

Aside from the feeling that overseeing a business model of fraud on Wall Street is a road to riches for Wall Street’s mega bank CEOs, there is the disquieting question as to whether this strangely uniform obscene pay of the top dogs on Wall Street is being orchestrated by another invisible cartel.

On October 14, 2016 Bloomberg News’ reporters Greg Farrell and Keri Geiger landed the bombshell report that the top lawyers of the biggest Wall Street banks had been meeting secretly for two decades with their counterparts at international banks. At the 2016 secret meeting, held in May at a posh hotel in Versailles, the following were among the big bank lawyers: Gregory Palm, part of the Management Committee at Goldman Sachs; Stephen Cutler of JPMorgan (a former Director of Enforcement at the SEC); Gary Lynch of Bank of America (also a former Director of Enforcement at the SEC); Morgan Stanley’s Eric Grossman; Citigroup’s Rohan Weerasinghe; Markus Diethelm of UBS Group AG; Richard Walker of Deutsche Bank (again, a former Director of Enforcement at the SEC); Robert Hoyt of Barclays; Romeo Cerutti of Credit Suisse Group AG; David Fein of Standard Chartered; Stuart Levey of HSBC Holdings; and Georges Dirani of BNP Paribas SA.

Reuters reported last Friday how Corbat’s $23 million pay compared to his peers on Wall Street. It noted that Jamie Dimon, CEO of JPMorgan Chase is now making $29.5 million. (Dimon has presided over three criminal felony counts at the bank within the past four years while keeping his job and watching his pay skyrocket.) Morgan Stanley CEO James Gorman is making $27 million. Lloyd Blankfein, whose bank is tiny compared to JPMorgan Chase, is making $22 million. And Bank of America’s CEO Brian Moynihan is being paid the same as Corbat, $23 million after recently getting a 15 percent pay boost.

Every one of the top lawyers of these banks were at that secret confab in 2016.

The most recent proxy filed by JPMorgan Chase goes to inordinate lengths to justify what it is paying its CEO Jamie Dimon. It includes a graph comparing his pay to peer bank CEOs and another graph that shows what percent of profits he and the CEOs of peer banks are receiving. (How that became a relevant metric is anyone’s guess. These are not, after all, family-owned businesses but banks that are subsidized by a taxpayer backstop for their trillions in insured deposits which typically earn less than one percent interest as the banks simultaneously charge 10 to 20 percent interest on their credit cards issued to the struggling middle class of America.)

A better metric would be how much shareholders have lost from fines and settlements under the reigning CEO. In Jamie Dimon’s case, it’s north of $36 billion since the financial crisis in 2008. Additionally, there’s those three criminal felony counts, the first in the bank’s more than century-old existence. Two felony counts were leveled by the U.S. Justice Department in 2014 for the bank’s role in Bernie Madoff’s Ponzi scheme. Another felony count came the very next year for the bank’s role in the foreign exchange rigging.

The era of obscene pay on Wall Street has occurred side-by-side with the era of serial charges of crimes. There is only one way to interpret this: the Boards of Directors of these banks have lost their moral compass.

Katie Porter, a professor at UC, Irvine, has worked closely with Elizabeth Warren on bankster problems-- in fact they co-authored a book about Wall Street abuses. Today she told us, regarding the bill to gut Dodd Frank, "This is unacceptable. This bill is a disaster for consumers and shows just how much power Wall Street banks, powerful special interests, and their high priced lobbyists have in Washington. Congressional action to weaken and erode banking rules protecting consumers is what fueled our financial crisis, and, once again, we are seeing history repeat itself. I’ve spent my career fighting for middle-class families, and now I want to take that fight to Washington." Katie is running for the Orange County seat currently held by Wall Street shill Mimi Walters. Please consider helping Katie's campaign here. And... how about Bernie/Elizabeth 2020?

Auto-correct Changes "Schumer" To "Schemer"-- Remember How Schumer Saved Wall Street Executive Pay Excesses With His Say On Pay Scheme?

I had dinner with an old friend the other day, visiting from Wall Street, where he works with banksters on compliance issues-- although, more often than not, on banksters trying to make it look like they're complying with the law while running end games around those very laws and rules. At one point he started cursing out New York's Senator, Chuck Schumer, recipient, since 1990, of $20,721,989 in legalistic bribes ("campaign contributions") from the Finance Sector, more than any other Member of Congress other than 3 presidential candidates, Obama, McCain and Hillary Clinton. Schumer's take is close to McConnell's and Boehner's combined! But that wasn't why my friend was denouncing him. He was going on about Schumer's little trick in a provision of Dodd-Frank, "Say On Pay."

Remember "Say On Pay?" It gives the owners of companies (shareholders)-- rather than the management-- the right to vote on compensation for top executives, like CEOs and CFOs. Schumer's Wall Street and Big Business financiers wanted nothing to do with it-- but felt vulnerable after their greed and bumbling had just crashed the economy and wrecked the lives of millions and millions of ordinary working families. So... Chuckie Cheese to the rescue. He came up with the idea of allowing for a non-binding vote on executive compensation. It allowed fake liberals like himself to advocate for reform while protecting his corporate donors from that very reform. And that's what made it into Dodd-Frank. Which is why Wall Street gives Schumer so much more more than they give McConnell or Boehner or anyone else in Congress.

Schumer's Shareholder Bill of Rights Act of 2009 required annual votes by stockholders on executive compensation, non-binding, unenforceable, advisory votes. Even defenders of banksters were admitting that over-compensation on Wall Street was a problem, although not a big one. (Thanks to Schumer it's a much worse problem now.)

There is no question but that executive compensation has grown significantly over the last two decades. House Report 110-088, which accompanies H.R.1257, notes that in FY 2005 the median CEO among 1400 large companies “received $13.51 million in total compensation, up 16 percent over FY 2004.” The Report also notes that “in 1991, the average large-company CEO received approximately 140 times the pay of an average worker; in 2003, the ratio was about 500 to 1.”

But so what? Many occupations today carry vast rewards. Lead actors routinely earn $20 million per film. The NBA’s average salary is over $4 million per year. Top investment bankers can earn annual bonuses of $5 to $15 million. Indeed, according to an April 2007 NY Times report, “The highest paid” investment banker on Wall Street in 2006 was Lloyd Blankfein of Goldman Sachs, who “earned $54.3 million in salary, cash, restricted stock and stock options.” Yet, that sum is dwarfed by the pay of private hedge fund managers. The same Time story reports that hedge fund manager James Simons earned $1.7 billion in 2006 and that two other hedge fund managers also cracked the billion dollar level.

Accordingly, unless one’s objection to the amounts received by corporate executives is based solely on the size of those amounts, one must be able to distinguish corporate managers from these other highly paid occupations.

In their book, Pay Without Performance, upon which House Report 110-088 heavily relies, law professors Lucian Bebchuk and Jesse Fried contend that actors and sports stars bargain at arms’-length with their employers, while managers essentially set their own compensation. As a result, they claim, even though managers are under a fiduciary duty to maximize shareholder wealth, executive compensation arrangements often fail to provide executives with proper incentives to do so and may even cause executive and shareholder interests to diverge. In other words, the executive compensation scandal is not the rapid growth of management pay in recent years, but rather the failure of compensation schemes to award high pay only for top performance.

Corporate management is viewed conventionally as a classic principal-agent problem. The literature widely credits Adolf Berle and Gardiner Means with tracing the problem to the separation of ownership and control in public corporations. They observed that shareholders, who conventionally are assumed to own the firm, exercise virtually no control over either day to day operations or long-term policy. Instead, control is exercised by a cadre of professional managers. This “separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge ....”

The literature identifies three particular ways in which the interests of shareholders and managers may diverge. First, and most obviously, managers may shirk-- in the colloquial sense of the word-- by substituting leisure for effort. Second, managers who make significant non-diversifiable investments in firm specific human capital and hold undiversified investment portfolios in which equity of their employer is substantially over-represented, will seek to minimize firm-specific risks that shareholders eliminate through diversification. As a result, managers generally are more risk averse than shareholders would prefer. Third, managers’ claims on the corporation are limited to their tenure with the firm, while the shareholders’ claim have an indefinite life. As a result, managers and shareholders will value cash flows using different time horizons; in particular, managers will place a low value on cash flows likely to be received after their tenure ends.

In theory, these divergences in interest can be ameliorated by executive compensation schemes that realign the interests of corporate managers with those of the shareholders.

According to Bebchuk and Fried, however, boards of directors-- even those nominally independent of management-- have strong incentives to acquiesce in executive compensation that pays managers rents (i.e., amounts in excess of the compensation management would receive if the board had bargained with them at arms’-length). As a result, as their title implies, executives are getting high pay that is largely decoupled from performance incentives.

It is certainly true that directors all too often are chosen de facto by the CEO. Once a director is on the board, pay and other incentives give the director a strong interest in being reelected; in turn, due to the CEO’s considerable influence over selection of the board slate, this gives directors an incentive to stay on the CEO’s good side. Finally, Bebchuk and Fried argue that directors who work closely with top management develop feelings of loyalty and affection for those managers, as well as becoming inculcated with norms of collegiality and team spirit, which induce directors to “go along” with bloated pay packages.

...There is no more basic question in corporate governance than “who decides”? Is a particular decision or oversight task to be assigned to the board of directors, management, or shareholders?

Corporate law generally adopts what I have called “director primacy.” It assigns decision making to the board of directors or the managers to whom the board has properly delegated authority.

Executive compensation is no exception.

The proponents of say on pay often emphasize that HR 1257 proposes only an advisory vote. Yet, the logic of an advisory vote on pay seems to be the same as that underlying precatory shareholder proposals made pursuant to Rule 14a-8. Even though neither is binding, they are nevertheless expected to affect director decisions.

The board of directors as an institution of corporate governance, of course, does not follow inexorably from the necessity for authoritative control. After all, an individual chief executive could serve as the requisite central decision maker. Yet, corporate law vests ultimate control in a board acting collectively rather than in an individual executive. I have elsewhere suggested two reasons for doing so: (1) under certain conditions, groups make better decisions than individuals and (2) group decision making is an important constraint on agency costs. In any event, the key point is that effective corporate governance requires that decision-making authority be vested in a small, discrete central agency rather than in a large, diffuse electorate.

...Given the length and complexity of corporate disclosure documents, especially in a proxy contest where the shareholder is receiving multiple communications from the contending parties, the opportunity cost entailed in becoming informed before voting is quite high and very apparent. In addition, most shareholders’ holdings are too small to have any significant effect on the vote’s outcome. Accordingly, shareholders can be expected to assign a relatively low value to the expected benefits of careful consideration. Shareholders are thus rationally apathetic. For the average shareholder, the necessary investment of time and effort in making informed voting decisions simply is not worthwhile.

Most shareholders recognize that they are better off pursuing a policy of rational apathy rather than an activist agenda. They know that directors have better information and better incentives than do the shareholders.

Instead, activist shareholders-- the type likely to make use of the powers say on pay and its ilk would empower-- have tended to come from a distinct sub-set of institutional investors; namely, union and public employee pension funds.As I have observed elsewhere:

The interests of large and small investors often differ. As management becomes more beholden to the interests of large shareholders, it may become less concerned with the welfare of smaller investors. If the large shareholders with the most influence are unions or state pensions, however, the problem is exacerbated.

...The deficiencies of shareholders as decision makers thus compounds the inherent undesirability of reposing ultimate control of an authority-based organization in the hands of a diffuse electorate rather than a central agency.

Legislation that “fixes” a nonexistent problem by upsetting basic principles of federalism ought to be a nonstarter. Unfortunately, the executive compensation debate has become so thoroughly bollixed up with issues of class warfare and financial populism that rational arguments seem to fall on deaf ears.

Wall Street typpes and their well-paid defenders were still smarting over the passage of Barney Frank's Say on Pay Bill in the House. They claimed, falsely, of course as history has proven that "it would spur public-company CFOs and their bosses to take jobs at private equity-firms, away from the scrutiny of investors.

Frank has sided with shareholders who claim they’ve been wronged by the hefty pay packages given to outgoing executives of poorly performing companies. “Excessive executive pay has been proven to have a significant impact on company’s profits and shareholder returns,” Frank said in a statement.

But critics of Frank’s bill-- many of them Republicans-- say Congress shouldn’t get involved in this issue now because the Securities and Exchange Commission’s rules on executive-compensation disclosure are still relatively new.

Put into effect at the end of last year, the SEC’s rules require companies to provide more information about their top executives’ pay packages in their proxy statements. Not all companies have had to comply yet.

...The legislation also gives shareholders an advisory vote if a company gives a new but undisclosed “golden parachute” while negotiating to buy or sell a company. Such payouts are doled out to executives if they’re terminated following a merger or acquisition.

Then, Illinois' junior senator, Barack Obama, already interested in the presidency, and finding donors to finance his run, took up Frank's bill in the Senate, again, with the non-binding bullshit.

In a speech on Friday, Obama singled out two companies, KB Home and Countrywide Financial, as examples of those that have provided excessive compensation packages. He asked Congress to pass legislation he has sponsored that would require corporations to have a nonbinding vote on executive pay.

The legislation would not, however, permit shareholders to veto a compensation package offered to an executive and would not place limits on pay, the AP notes.

“This isn’t just about expressing outrage,” Obama reportedly said in prepared remarks. “It’s about changing a system where bad behavior is rewarded so that we can hold CEOs accountable, and make sure they’re acting in a way that’s good for their company, good for our economy, and good for America, not just good for themselves.”

Say on Pay proposals have been submitted to nearly 80 companies at this year’s annual meetings, according to RiskMetrics. Such major business groups as the Business Roundtable and U.S. Chamber of Commerce oppose these kinds of measures; however, in a recent survey of technology-company CFOs conducted by BDO Seidman, 61 percent said they think shareholders should be able to vote on executive-compensation plans.

Verizon decided to adopt Say on Pay late last year, and Aflac-- the first company to adopt the policy-- agreed to move up its advisory vote on the issue to this year.

On Thursday Goldman Sachs chief executive Lloyd Blankfein made it clear he opposes the practice. Speaking at the investment bank’s annual meeting, he said shareholder votes on executive pay would constrain directors from exercising judgment and hurt the investment bank’s ability to attract the best employees, according to Reuters. He added that it would “create a feedback loop. It would create a cloud, a constraint, a limitation on decisions that have been at the heart of what a board has done.”

When it came to a floor vote, 9 predictable Blue Dogs voted with the Republicans against Barney's bill on behalf of their Wall Street benefactors. All 9 were either defeated or forced from office in the next election cycle, primarily because of poor turn-out from Democratic base voters, who just stayed home. 4 other even worse Blue Dogs voted for a motion to recommit by Wall Street whore Scott Garrett (R-NJ) which would have killed the proposal outright. With one ugly exception-- Henry Cuellar-- they were all kicked out of Congress by the voters as well. These are the Democratic Wall Street shills who went down fighting against the interests of their constituents:

• Dan Boren (Blue Dog-OK)
• Bobby Bright (Blue Dog-AL)
• Parker Griffith (Blue Dog-AL)
• Ann Kirkjpatrick (New Dem-AZ)
• Frank Kratovil (Blue Dog-MD)
• Betsy Markey (Blue Dog-CO)
• Harry Mitchell (Blue Dog-AZ)
• Glenn Nye (Blue Dog-VA)
• Harry Teague (Blue Dog-NM)
• Henry Cuellar (Blue Dog-TX)
• Walt Minnick (Blue Dog-ID)
• Mike McMahon (Blue Dog-NY), who, we might add, is the DCCC's preferred recruit for the seat he lost then, now that Michael Grimm is resigning next week.

On July 31, 2009, H.R. 3269, the "Corporate and Financial Institution Compensation Fairness Act of 2009" passed the House of Representatives. The House bill included a section that allowed for a Say on Pay for all publicly traded American companies-- and it included the shareholder vote on golden parachutes. The Senate's companion bill was Schumer's misleadingly-named Shareholder Bill of Rights. The House and Senate bills were reconciled in a final bill that was signed by President Obama on July 21, 2010 called The Dodd–Frank Wall Street Reform and Consumer Protection Act.

In 2012, only 2.6% of companies which voted on Say on Pay measures failed to pass them. But is the legislation working? Alyce Lomax made the case in April that it's mixed bag. "For years," she wrote, "CEO pay rose largely unchecked in America. Although leaders who build great companies deserve pay commensurate to their accomplishments, too many underperforming or lackluster CEOs make astronomical amounts of money at shareholders' expense. It's odd that one class of workers tends to make millions-- often without a performance review. Dodd-Frank made say-on-pay votes mandatory, giving shareholders a chance to vote "yea" or "nay" on the CEO compensation policies at the companies they own. Shareholders are increasingly not only aware of their proxy ballots, but also marking them, occasionally voting overwhelmingly against outsized pay and other corporate policies. Although these votes are always nonbinding, shareholder activism and several years of vote results may be giving boards of directors a bit of a reality check from owners of public companies. Maybe the message is starting to get through."

The Wall Street Journal recently reported data from a Hay Group survey of proxy statements filed from May 2013 through the end of January. Overall, median CEO pay increased by 4.1% in 2013. One particular point of interest, given the way CEO pay usually works, is that the increase actually paled in comparison to the median returns those companies' shareholders enjoyed-- a whopping 25% at the companies surveyed.

CEO compensation overall has increased rapidly for years, even in times when the overall economy and corporate performance faltered. CEOs enjoyed one of the first major "recoveries" in a stunted economy, even as many Americans received pink slips or filed for unemployment.

According to the AFL-CIO's annual account of CEO-to-worker pay ratios, in 2012 that ratio reached 354 to 1. In 1982, the ratio was a mere 42 to 1.

On the other hand, The Wall Street Journal also reported separately that so far this proxy season, more shareholders have been supporting pay packages. Towers Watson has performed an early survey of 170 Russell 3000 companies showing that an average of 93% support for pay policies compared to 90% last year.

Further, the Journal reported that even proxy advisory firms seem to be standing down a bit, with Institutional Shareholder Services having recommended that only 4% of companies get a thumbs-down on CEO pay, compared to 14% last year.

Perhaps several years of high-profile pressure have made some corporate boards try harder to tie compensation to performance.


Overall, CEO pay is still in the stratosphere, but the increased focus on the fairness of executive pay is a step in the right direction. Cutting CEO pay after difficult years is a sensible policy right off the bat, as is avoiding shareholder ire by rethinking pay policies.


...Investors often come down on opposite sides of this issue, which is understandable. Rewarding leaders who do great work is hardly irrational. What's irrational is the widespread failure to make sure CEOs actually earn millions upon millions of dollars. Rewarding CEOs for underachievement gives them little incentive to excel, and this backward logic has prevailed for too long... So far this year, though, there seems to be a relative shortage of drama and only a few pay decreases.

Dean Baker proposes tools for shining a light on crony corporate board directors who help inflate exec mega-salaries

"Director Watch: Putting an End to Blank Checks for CEOs"

Erskine Bowles

Martin Feldstein


"Friends don't try to save money by cutting their friends' pay. And when [corporate board] directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously."

-- Dean Baker, in "Corportate Cronyism: The Secret to Overpaid CEOs"

by Ken

In "Corportate Cronyism: The Secret to Overpaid CEOs," Dean Baker of the Center for Economic Policy Research (CEPR) tackles the subject of out-of-control executive pay, noting that "CEOs can get paychecks in the tens or hundreds of millions even when they did nothing especially notable."

They may just have been in the right place at the right time, like Lee Raymond, who "retired from Exxon-Mobil in 2005 with $321 million . . . at a time when a quadrupling of oil prices sent profits soaring." They may even have presided over their companies' tanking, like Home Depot's Bob Nardellior the financial-industry CEOs who "took their companies to the edge of bankruptcy or beyond and still walked away with hundreds of millions of dollars in their pockets."

"It's not hard," says Dean, "to write contracts that would ensure that CEO pay bears a closer relationship to the company's performance."

For example, if the value of Raymond's stock incentives at Exxon were tied to the performance of the stock of other oil companies (this can be done) then his going away package probably would not have been one-tenth as large. Also, there can be longer assessment periods so that it's not possible to get rich by bankrupting a company.

If anyone were putting a check on CEO pay, these sorts of practices would be standard, but they aren't for a simple reason. The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.

Corporate CEOs often have considerable input into who sits on their boards. (Some CEOs sit on the boards themselves.) They pick people who will be agreeable and not ask tough questions.

For example, corporate boards probably don't often ask whether they could get a comparably skilled CEO for lower pay, even though top executives of major companies in Europe, Japan, and South Korea earn around one-tenth as much as CEOs in the United States. Of course this is the directors' job. They are supposed to be trying to minimize what the company pays their top executives in the same way that companies try to cut costs by outsourcing production to Mexico, China, and elsewhere.

But friends don't try to save money by cutting their friends' pay. And when the directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously.

Instead we see accomplished people from politics, academia, and other sectors collecting their pay and looking the other way. For example, we have people like Erskine Bowles who had the distinction of sitting on the boards of both Morgan Stanley and General Motors in the years they were bailed out by the government. And we have Martin Feldstein, the country's most prominent conservative economist, who sat on the board of insurance giant AIG when it nearly tanked the world's financial system. Both Bowles and Feldstein were well-compensated for their "work."

Dean asks, why does it matter? And he suggests two reasons:

• "[I]t takes away money that rightfully belongs to shareholders, which include pension funds and individuals with 401(k) retirement accounts."

* "[I]t sets a pattern for pay packages throughout the economy."

When mediocre CEOs of mid-size companies can earn millions or tens of millions a year, it puts upward pressure on the pay of top executives in other sectors."

It is common for top executives of universities and private charities to earn salaries in the millions of dollars because they can point to executives of comparably sized companies who earn several times as much. Those close in line to the boss also can expect comparably bloated salaries. In other words, this is an important part of the story of inequality in the economy.

ENTER "DIRECTOR WATCH" AND "PAY PALS"

CEPR has taken two steps to shine a light on corporate-board cronyism, Dean says.

• To try to impose the checks that don't currently exist . . . CEPR has created Director Watch. This site will highlight directors like Erskine Bowles and Martin Feldstein who stuff their pockets while not performing their jobs.

• And CEPR has worked with Huffington Post "to compile a data set that lists the directors for the Fortune 100 companies, along with their compensation, the CEOs' compensation, and the companies' stock performance. This data set is now available at the Huffington Post as Pay Pals.

"Perhaps," says Dean,

a little public attention will get these directors to actually work for their hefty paychecks. The end result could be to bring a lot of paychecks for those at the top back down to earth.

#

So Jpmorganchase is paying Jamie Dimon $20M for 2013? My offer would have been minimum wage for 52 40-hour weeks

Says Cornelius Hurley, director of Boston University's Center for Finance, Law and Policy: "It doesn’t reconcile for JPMorgan to be paying out billions in fines while its C.E.O.’s compensation nearly doubled. You usually get fired for that, not rewarded."

by Ken

I suppose it's none of my beeswax that Jamie Dimon's compensation for last year was hiked to $20 million from the previous year's $11.5 million despite what the NYT calls in its headline a "rough year" for his company, Jpmorganchase ("Big Raise for JPMorgan's Dimon Despite a Rough Year"). After all, I don't have so much as a credit card with Jpmorganchase.

Oh, I used to have a couple of Chase credit cards, but they canceled the last one despite my never having had so much as a late payment, because I had a large amount of credit-card debit that I was paying off from my mother's -- and then my -- attempts to keep her going in her later years. (For the record, Chase had continued to shower me with balance-transfer offers. And not that long after my card was canceled. it too was paid off.) Oh wait, I do sort-of-have one Chase card: one that was my mother's, that we had her OK having my name added to so I could manage the account. I told them at the time that I didn't want a card, that I just wanted to get the account paid off, which I did. But they insisted on sending me a card, and they've kept sending me cards and reminders to activate them.

So I have no personal stake in the affairs of Jpmorganchase beyond a fervent hope that, say, the top 50 executives soon die such agonizing deaths as to make them wish they had never been born. And so it's probably neither here nor there that my solution to the question of compensating would be to make out time sheets for the 52 weeks of 2013 and have his compensation set at minimum wage according to whichever state his employment is chartered in -- I'm guessing NYS. (There would really be no trouble reconstructing those time sheets after the fact. I would be prepared to concede that he worked 40 hours each of those weeks, even though I'm not absolutely sure he could provide documentation, and since he's an executive he wouldn't be entitled to overtime anyway, right?)

As the NYT's Peter Eavis reports, the amount of the package approved by the company "will further inflame the debate over the accountability of senior bank executives," especially "after 12 months in which JPMorgan suffered several bruising legal setbacks, including a record $13 billion settlement with the Justice Department over soured mortgage securities."

suffered several bruising legal setbacks, including a record $13 billion settlement with the Justice Department over soured mortgage securities.

In justifying the $20 million package, which includes $18.5 million of JPMorgan stock as well as a base salary of $1.5 million, the board said that JPMorgan had advanced in many ways under Mr. Dimon. And to many on Wall Street, as well as some other long-serving chief executives, Mr. Dimon wholly deserves the raise. "I think he’s worth more than that," Warren E. Buffett, the chief executive of Berkshire Hathaway, said. "Over all, I think the shareholders of JPMorgan and the American people should be happy that Jamie Dimon has been running the bank over this period."

Other senior executives at the bank also got lush compensation packages. But it is unlikely that many JPMorgan employees will be receiving an increase anywhere near the size of Mr. Dimon’s.

When JPMorgan emerged from the financial crisis of 2008 stronger than most of its peers, Mr. Dimon was widely viewed in Washington and on Wall Street as a shrewd manager of risks. But after a large trading loss in 2012, known as the London Whale debacle, questions arose about the effectiveness of JPMorgan’s management. At the same time, Mr. Dimon’s combative manner was increasingly viewed as a liability for the bank at time when it needed to make peace with regulators.

After the trading loss, the bank’s legal problems only escalated. Along with the $13 billion settlement with the Justice Department, JPMorgan last year paid out a large sum to settle allegations that some of its traders manipulated energy prices, and, most recently, federal prosecutors investigating the Ponzi scheme of Bernard L. Madoff extracted $1.7 billion from JPMorgan for failing to alert authorities to suspicions relating to Mr. Madoff’s business.

I'm relieved to see that I'm not the only ones whose eyebrows were raised by our Jamie's compensation coup.

Given the breadth of the legal onslaught, JPMorgan’s critics contend that the board should not have increased Mr. Dimon’s pay. "If there was ever a time to take a wait-and-see attitude and pay him what they paid last year, this is it," Cornelius K. Hurley, a professor at the Boston University School of Law, said. "This is a thumb in the eye of regulators and a thumb in the eye for the public."

Indeed, Mr. Dimon’s raise was opposed by a vocal minority of JPMorgan’s board who favored keeping Mr. Dimon’s pay roughly flat with 2012. But Joseph Evangelisti, a spokesman for the bank, denied that the discussions were heated. "That’s simply not true," he said. But when asked, Mr. Evangelisti did not make a member of the board available for an interview.

But hey, if Warren Buffett says Jamie's compensation package is A-OK, who am I to say no? Or even to jump on the bandwagon of spoilsports who see this development as yet another reason why a single person shouldn't hold the positions of both CEO and board chairman. Those Danny Downers seem to think that possibly such a person holds undue sway over the board.

Some banking experts say they think that the board’s approval of Mr. Dimon’s raise shows the need to remove him from his position as chairman of the board, leaving him with just the chief executive role. The bank’s shareholders overwhelmingly voted down such a move last year. Even so, those experts contend that removing Mr. Dimon from the chairman’s seat would have made the board more independent — and less likely to have given him an $8.5 million raise. "This is why you need to split the chairman and the C.E.O. roles," Paul Miller, a bank analyst at FBR Capital Markets, said. "I don’t think anyone is worth this money."

But Mr. Buffett, a JPMorgan shareholder, said he was not convinced that the roles had to be split. It is far more important, he said, that a board pick the right person to head a company. "The determining factor of whether the board is doing its job is whether they have the right C.E.O.," he said. "That trumps everything else."

Still, it seems that within not just Jpmorganchase but within much of the banking profession our Jamie is still aces.

JPMorgan says that it has taken substantial steps to beef up its controls to prevent future lapses. Several senior executives connected to the London Whale affair have left the bank, a sign that top employees do pay for serious mistakes. And despite the large payouts to government authorities last year, JPMorgan’s underlying businesses are performing well and its shareholders are earning strong returns.

JPMorgan’s supporters also assert that its biggest fines were related to shoddy mortgage practices that did not occur under Mr. Dimon’s watch. The board noted on Friday in the filing that the practices occurred at Washington Mutual and Bear Stearns, which JPMorgan bought in the heat of the financial crisis. But a significant portion of the $13 billion settlement was related to JPMorgan’s own practices. And some banking experts still say they think Mr. Dimon bears some responsibility for the penalties stemming from Washington Mutual and Bear Stearns — because, they say, he was keen to acquire both firms, even with their potential for future mortgage losses. "They bought those firms on Jamie Dimon’s watch," Mr. Hurley said.

JPMorgan still faces several government investigations, including one into whether the bank’s hiring practices in China were a form of bribery. These investigations could make life difficult for the bank and Mr. Dimon in the coming months.

Still, right now, it is hard to see what will weaken Mr. Dimon’s standing. As long as the bank’s profits continue to roll in and its share price stays elevated, he is likely to have the strong support of shareholders. "If you manage a business that size, you can do a lot of things that are very helpful to the economy, but you cannot do everything perfectly," Mr. Buffett said.

"But outside of Wall Street," reporter Eavis notes, "the pay package may be viewed differently." He concludes with another quote from Boston University School of Law's Cornelius Hurley, professor of the practice of banking law:

It doesn’t reconcile for JPMorgan to be paying out billions in fines while its C.E.O.’s compensation nearly doubled. You usually get fired for that, not rewarded.

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Yes, we ought to be able to work with GOOD CEOs -- if we could just find some

by Ken

There aren't many writers about whom I would say this, but from Washington Post E. J. Dionne Jr. there isn't any argument I wouldn't be prepared at least to entertain. Unlike most of the thumb-sucking class, he's used his long years of opinionizing to establish a track record for credibility and seriousness. Certainly there aren't many columnists who could serve up a column called "Even progressives need CEOs," as E.J. did yesterday, and arouse my curiosity rather than relexive apprehension. I mean, can you imagine such a thing from, say, "Chucky the Chiller" Krauthammer?

And I wasn't surprised to find that E.J. made a pretty good case for his point, though his point seems to me more limited than the title would suggest.

This, I would argue, is vintage E.J.:

Because the president has spoken occasionally about the irresponsibility of Wall Street and the very wealthy, these poor suffering multimillionaires and billionaires have hurt feelings. Obama is being told he needs to feel their pain, to show he truly understands why they are so aggrieved.

Progressives bristle at this, and why not? Many among the best-off - particularly on Wall Street - were grossly irresponsible stewards of the power surrendered to them through deregulation. They wrecked the economy, Obama bailed them out, and most are now richer than ever. Yet they have the arrogance to complain about the president pointing to their misdeeds. Many liberals want Obama to tell the wealthy where they can go.

If this were only about gut reactions, you could count me as a fan of the latter approach. And more should be done to investigate and publicize the transgressions and dumb decisions that helped crater our financial system.

But, E.J. points out, in our market economy,

Businesses create jobs, and a healthy business climate is one key to a healthy society. It's a conclusion that progressives sometimes reach grudgingly. Former New York governor Mario Cuomo ably captured this feeling in 1977 during his unsuccessful run for mayor of New York City. "You must be good to business," he declared, "even if you hate rich people, even if you don't like pinkie rings, even if you can't stand Scarsdale and Rolls-Royces."

Here's where the column seems to me to go into realms that are true -- I wouldn't expect anything less from E. J. Dionne Jr. -- but not necessarily descriptive of our present reality. it's important to recognize, he says, " that there is no single business class or corporate model." True enough. And then:

Obama doesn't need to coddle CEOs so they will say warm things about him at parties in the Hamptons. He should figure out which parts of the private sector share an interest in reducing the dreadful inequalities that have metastasized over nearly four decades and in creating an economy that produces well-paying jobs.

Indeed he should! And perhaps that's just what he was doing when he made his secret deal with Big Pharma guaranteeing that no effort would, could, be made to rein in the skyrocketing cost of prescriptions drugs. Or when he sold out the public health insurance option to protect the interests of the insurance industry. Or when stacked his "deficit reduction" commission with people committed to the agenda of the megacorporate interests whose long-term goal is to destroy whatever remains of the American social safety net. Or when he put together an "energy plan" that did little or nothing to get our energy needs under control and nothing meaningful for the environment; mostly, as far as I can tell, it would have provided some jolly windfall paydays for pollluters. Or . . .

The point is that the president has shown roughly zero interest in identifying "which parts of the private sector share an interest in reducing the dreadful inequalities that have metastasized over nearly four decades and in creating an economy that produces well-paying jobs." His attention seems confined to the parts of the private sector that are getting ever more filthily rich precisely by promoting and exploiting those "dreadful inequalities."

Next E.J. takes an interesting stroll down Memory Lane which once again doesn't have anything I can see to do with present-day reality. "There have been moments in our history," he writes, ?\"when important elements of business were 'progressive' in the sense of recognizing that social reform was in capitalism's long-term interest." Once again, absolutely true. But once again, this isn't one of those times. Again, there is certainly truth to E.J.'s quote from John Judis, the during the Progressive Era ""business leaders and organizations played an indispensable role in developing and promoting the social legislation that first blunted the sharp edges of laissez-faire capitalism." it's kind of misleading in suggesting that those business leaders and organizations suddenly rose up in support of the progressive agenda out of their inborn commitment to economic justice.

Also, the Progressive Era ended some 85 years ago, to make way for the Roaring Twenties that laid the groundwork for the Great Depression. And so Judis's case the "without a business community moderately supportive of social reform, little is possible in the present era" has a nice ring to it, but not much hint of how we might transform the business community we've got into that kind of business community. Because remember, the standard argument of CEOs of publicly held corporations is that they are legally bound to put profits ahead of all other considerations, or they're betraying their fiduciary responsibilities to their shareholders.

Once again, I couldn't agree more when E.J. quotes former Intel CEO Andy Grove as asking "exactly the right question": ""What kind of a society are we going to have if it consists of highly paid people doing high-value-added work - and masses of unemployed?" What kind indeed? If the point is that we have to find some way of changing the American way of doing business, I don't think there are many progressives who would disagree.

Government policies, no matter how often we use the words "free enterprise," through design or inadvertence, inevitably affect the private economy. Why not choose policies that specifically encourage sectors that create good jobs for Americans? Why not ally with companies and CEOs whose interests lie in doing just that? I, for one, would not begrudge them their pinkie rings or their Rolls-Royces - though I'd hope they would consider a luxury car made in the U.S.A.

Wow! Absolutely! But as far as I can tell, there isn't any significant part of the American corporate or political establishment that would support this proposition in substantive terms, and there are large segments of our corporate and political establishments that spend significant money and efforts to making sure it never happens.

So yes, I would be happy to support good CEOs. I would even be understanding of a free-ish pass for CEOs whose price for not standing in the way of "policies that specifically encourage sectors that create good jobs for Americans" is pinkie rings and Rolls-Royces. But the reality is that our megacorporate culture seems pretty powerfully invested in making sure that this doesn't happen.

I hate to keep coming back to the example of the first Henry Ford, who was a horrible man in many ways but who has a corporate chief grasped the basic principles that his workers were also customers. Our current generation of CEOs is so greedy that it sneers at this common-sense lesson: that they can't sell stuff if their potential customers can't afford to buy stuff. Maybe the problem is that their business is no longer making stuff to sell. What they make is deals, and the only people they can make them with is each other. Which means that they just can't afford to let more than a bare minimum of dollars slip out of the control of their elite circle -- the circle that controls the money that controls our political system.

Which, according to the Roberts Court, is just exactly what the Constitution has in mind for us.

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Amazement Tonight: When was the last time you were invited to participate in the legislative process?

by Ken

By now you're probably thinking that Florida Rep. Alan Grayson is a co-blogger here at DWT. What can we say? The congressman went to Washington vowing to be the kind of congressman he said he would be in the election campaign, and he's more than made good on the promise.

And now he's asking for our help! Matt Stoller in the congressman's office explains that they've hit a snag in defining a plan to make corporate executives accountable to shareholders on the matter of pay:

Next week, the Financial Services Committee is going to be marking up a bill on executive compensation, the so-called ‘Say on Pay’ bill. Among other things, this bill mandates a nonbinding shareholder vote on executive compensation. Now, the vote is nonbinding, so the board could theoretically just ignore a shareholder ‘no’ vote.

Let’s say that the legislation were changed so that the shareholder vote were binding. What would happen if shareholders vote ‘no’? Would the executives then be paid nothing? That seems unreasonable and unworkable. How could this be structured so that the shareholder vote is binding, but there’s some process to determine executive pay if management is voted down?

Please put you and your readers’ best ideas out there and I’ll be combing the internets.

If you want something to link to, Steve Clemons has posted this here: http://www.thewashingtonnote.com/archives/2009/07/what_are_your_t/

And Democratic populist financial backer and economic thinker Leo Hindery also responded: http://www.thewashingtonnote.com/archives/2009/07/leo_hindery_res/

Feel free to add your thoughts in the comments section.

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If Obama Wants To Get Serious About Rescuing The Country Nationalizing Failed Banks Looks Like The ONLY Option

A huge error that must be corrected, quickly

Last week we wrote quite a bit about Alan Grayson's Pay for Performance Act of 2009, a law that means to end the Republican "no strings attached" bailouts of big corporations. Under Grayson's bill, the Treasure Department has oversight of compensation for companies taking taxpayer money so that there will be no more instance like $3.5 billion (of $10 billion in bailout money) going directly into the pockets of the banksters (in the form of unjustifiable "bonuses"), as happened under Bush's bailout "plan." Grayson's bill was supported by every single Democrat, including the Blue Dogs, in the House Financial Services Committee-- and two Republicans broke with the obstructionists and voted for it as well.

With Republicans screaming bloody murder-- and calling for their smelling salts-- Grayson reminded the American people that "This bill will show which Republicans are so much on the take from the financial services industry that they're willing to actually bless compensation that has no bearing on performance and is excessive and unreasonable. We'll find out who are the people who understand that the public's money needs to be protected, and who are the people who simply want to suck up to their patrons on Wall Street."

Grayson's bill passed by a wide margin, 247-171, 10 Republicans abandoning their party's corporate maters to vote "yes" and, shamefully, 8 Democrats voting with the GOP, mostly reactionaries who habitually vote with Republicans on core issues-- the Walt Minnicks (Blue Dog-ID) and Harry Mitchells (Blue Dog-AZ).

But before Grayson's vote came to the floor on April 1, another Blue Dog corporate whore, Melissa Bean (IL), offered an amendment meant to water down the bill for her Big Business campaign contributors. Her amendment, which was opposed by most Grayson and by the vast majority of Democrats (190)-- but, naturally enough, embraced by Republicans-- is meant "to allow institutions that enter into a payment schedule with Treasury on terms set by Treasury to no longer be subject to the bonus and compensation restrictions created by the Act." It passed 228-198.

Even with the public so angry about the banksters blatantly ripping off the public and holding the economy for ransom until their self-entitled greed is sated, virtually all Republicans plus reactionary Democrats like Bean and her ilk, are still counting on everyone forgetting or just getting over it by the 2010 midterms. Bean doesn't represent, in the true sense of the word, the working families of Lake and McHenry counties. She represents the special interests who have lavished immense sums of money on her. The sector which would be most salubriously effected by her sneaky amendment-- finance/insurance.real estate-- has funneled $1,725,806 into her political career, far more that the average House member. And they know they can always count on her to sell out her constituents and lead like-minded Democrats across the aisle to vote with Republican shills serving the same corporate masters.

Yesterday at Salon Glenn Greenwald pointed out why we can't even turn to the executive branch for relief from Wall Street and their minions in Congress. Obama's two top economic advisors, Tim Geithner and Larry Summers are as in the pockets of Wall Street as you;d expect any Republican bucket of slime to be.

Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations....

Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form.

Glenn accuses Summers of taking "advance bribes" from Goldman Sachs and Merrill Lynch and it would be impossible for anyone to look at the evidence and interpret it any other way. "And," Glenn reminds us, "it's paying off in spades."

People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting.  When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal.  Then, when out of government, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented when in government.  Then, when their party returns to power, they return back to government, where they continue to use their influence to ensure that the oligarchical circle that rewards them so massively is protected and advanced.  This corruption is so tawdry and transparent-- and it has fueled and continues to fuel a fraud so enormous and destructive as to be unprecedented in both size and audacity-- that it is mystifying that it is not provoking more mass public rage.

And it wasn't just Glenn writing about this yesterday. The Washington Post didn't miss very clear signals from the Obama Administration that they plan to protect the banksters-- not just from angry mobs with pitchforks, but from any attempt by Congress to recoup the stolen money. They're giving in to demands from the banksters that they won't cooperate with Obama's rescue package, not even if it plunges the country into a decade of Depression, unless they get all the money they decide they are entitled to. And Openwheel in Michigan makes the point that the auto industry bondholders and investors won't budge an inch until they get theirs-- regardless of the fact that the government already funneled billions of taxpayer dollars their way-- the no strings attached kind. Apparently they believe that money is their due and not something meant to help rescue the nation.

Nationalization should have been the answer months ago. It will save us a lot of money and misery if Obama makes the move tomorrow morning. The Sunday Guardian has some shocking news-- and it makes more sense than most of what we've been hearing from Obama's economic team. Elizabeth Warren works for Congress, not for the Obama banksters, and as the TARP watchdog she's about to demand the removal of the nation's top failed banksters!

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

Corporate America And The Politicians They Own Get Ready For The Battle Over Regulations

I was up-and-at-'em by 5:30 today. Before going for a swim I turned to the NY Times and to Frank Rich's column. It made me want to go back upstairs, get under the blankets and curl up in a ball and go back to sleep. Could populism really wreck Obama's reform agenda? Angry voters will replace Democrats with... what? Corporatist Republicans whose ideology and avarice-- inasmuch as their ideology and avarice aren't identical-- caused the whole mess in the first place? I moved on to Stephen Labaton's somehow more comforting news story, Adminstration Seeks Increase In Oversight Of Executive Pay.

Aside from compensation oversight, the proposal mandates that "many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules." OK, that part the public will easily get behind, I'm sure. Where the banksters and their bought-and-paid-for political handmaidens-- the entire GOP and the Blue Dogs in the House and the anti-Obama Bayh Bloc in the Senate-- will howl most loudly, and effectively, is the part about compensation. When progressives tried regulating it in the past, corporate America wheeled out it's biggest carrots and sticks to shoot it down. Last month Democrats in the House tried eliminating all future golden parachutes for TARP senior executives, stopping incentives for top executives to take unnecessary risks, and cracking down on future bonuses, retention awards, and incentive compensation for all TARP executives. 246 Democrats voted for the reform while every single Republican voted "no"-- and for the special interests of their corporate paymasters. They were joined by 6 reactionary Blue Dogs who habitually vote with the Republicans against working families: Bobby Bright (AL), Parker Griffith (AL), Walt Minnick (ID), Collin Peterson (MN), Heath Shuler (NC) and Gene Taylor (MS) plus one progressive who didn't think the bill went far enough, Pete DeFazio (D-OR). Reactionary Tennessee shill Lipinski, Jr (IL) hid under his desk during the vote and squeaked "present" when someone kicked him in the nuts.

Earlier-- in 2007-- the House tackled how executive comp-ensation should be set. Democrats were insistent that the owners of public companies (the shareholders) have a say in the pay packages for management. Management, of course, insisted that only they-- through their docile and self-serving Boards of Directors-- would determine their own salaries. Of course, most Republicans went along with management... as always. First, 6 of the House's most shameless Big Business shills-- Tom Price (R-GA), Adam Putnam (R-FL), Patty McHenry (R-NC), John Campbell (R-CA), Scott Garrett (R-NJ) and Pete Sessions (R-TX)-- tried, unsuccessfully to neuter the legislation with 7 corporately-written amendments, all of which were voted down. The final bill passed 269-134, with 55 Republicans abandoning their reactionary, corrupt leaders to vote with the Democrats. Five Democratic corporate hacks crossed the aisle in the other direction and voted with the Republicans and management: Allen Boyd (Blue Dog-FL), Nancy Boyda (KS- subsequently defeated), Dennis Cardoza (Blue Dog-CA), Henry Cuellar (TX), and John Tanner (Blue Dog-TN). And that brings us to what the Obama Administration is proposing in this area.

The administration has been considering increased oversight of executive pay for some time, but the issue was heightened in recent days as public fury over bonuses spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could go beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other steps to ensure that compensation was aligned with the financial interest of the company.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.

During the presidential campaign, Mr. Obama repeatedly urged regulators to adopt new rules to give shareholders a greater voice in setting executive pay for all public companies. And last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses that exceeded one-third of their annual pay.

...An important part of the plan still under debate is how to regulate the shadow banking system that Wall Street firms use to package and trade mortgage-backed securities, the so-called toxic assets held by many banks and blamed for the credit crisis.

...A broad consensus has emerged among regulators and administration officials that hedge funds must be registered and more closely monitored, probably by the Securities and Exchange Commission. But officials have not decided how much the funds will have to disclose about their investments and trading practices... A central aspect of the plan, which has already been announced by the administration, would give the government greater authority to take over and resolve problems at large troubled companies not now regulated by Washington, like insurance companies and hedge funds.

That proposal would, for instance, make it easier for the government to cancel bonus contracts like those given to executives at the American International Group, which have stoked a political furor. Under the proposal, the Treasury secretary would have the authority to seize and wind down a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board.

The corporate pushback, voiced by shameless shills and hacks like disgraced New Hampshire Senator Judd Gregg, recently exposed inserted earmarks in a project that directly benefited a firm owned by himself and his brother, is that Obama's plan-- not their misgovernance and not their unfettered greed of the past decade, will bankrupt the country.

21st-Century Banking, III: All we need is can-do-type execs interested in doing a seriousjob for a serious paycheck -- yup, that's all!

Jack Donaghy (Alec Baldwin) in church? Jack commemorates the Martyrdom of St. Valentine with the lovely Elisa (Salma Hayek) -- before she insists he take confession.

JACK DONAGHY [in the confessional booth, to the young PRIEST]: I have faith, in things I can see, and buy, and deregulate. Capitalism is my religion. Now you want to have an intellectual argument? Okay, but I should warn you, I went to Princeton.

PRIEST: I went to Harvard Divinity School.

JACK [chuckling]: You Crimson guys never miss a chance, do you? You want a confession? Let's get this done, so I can go eat. [PRIEST looks on in bewilderment bordering on panic.] I am divorced. I take the Lord's name in vain often, and with great relish. I hit my mother with a car -- possibly by accident.
[Time gap.]
JACK: I almost let him choke to death right there on the football field. [PRIEST is shocked.] I looked the other way when my wig-based parent company turned a bunch of children orange. I once claimed "I am God" -- during a deposition.
[Time gap.]
JACK: And I may have sodomized our former vice president while under the influence of some weapons-grade narcotics. Ahhh! It feels good to say that out loud. Actually, that one was weighing on me.

PRIEST: Wow! I, uh . . . I don't know what to say.

JACK: I don't want you to say anything. I already made that clear.

PRIEST: Then what brought you here tonight?

JACK: What brought me here? What brings anyone anywhere? Why do men build bridges? Why are there jets? I was trying to have sex tonight. Have you ever made love to a woman, father?

PRIEST [desperate]: Come on, man!

JACK: Imagine cradling your face into the curve of a velvety-soft neck, your hands cupping the warm heft of the greatest pair of --

PRIEST [bolting from the confessional]: I need backup! Harvard did not prepare me for this!

-- from Thursday's episode of 30 Rock

"Hope for the best! Expect the worst!
The rich are blessed. The poor are cursed."

-- from Mel Brooks's The Twelve Chairs

by Ken

We come finally, in our little series on Modern Banking, to the issue of executive compensation, which obviously applies to the whole economy and not just the banking segment.

Yesterday, in addition to seeing (in the "Power of Populism" segment from Rachel Maddow's Wednesday show) fake contrition exuded by the eight megabank CEOs hauled before the House Financial Services Committee on Wednesday, we were introduced (courtesy of Washington Post business columnist Steven Pearlstein's Wednesday column) to a local North Carolina bank CEO, Kim Price of Citizens South, who was smart enough to keep his institution mostly out of the subprime-mortgage craziness, and devised a plan for using federal bailout money to actually promote lending -- all of this for a pay package, all told, under a half-mil.

We noted the inclusion in the conference version of the economic stimulus package passed by both houses of Congress of Sen. Chris Dodd's amendment seeking to impose some enforceable limits on the payment of bonuses to top-ranking execs of banks accepting federal bailout money.
Naturally, today most of the discussion focuses not on whether this is a good idea, or really doable, but how those execs will get around it. (Deck on the story in today's Washington Post: "More Rigorous Limits Trigger Concerns Over What Banks Might Do To Be Free of Them.")

And if you didn't watch the Maddow show clip, I encourage you to do so now. I just looked at again, the whole thing, and was not only caught up in Rachel's sharp and impassioned commentary on the upswell of populist sentiment around the country ("little people" all over are tired of being shafted while fat cats line their silk pockets), but impressed once again by the degree of nuance she's able to introduce to the discussion, including wondering whether the course we're on is going to get us toward the goal. (Answer: She doesn't know.)

Of course the argument from the business community regarding executive compensation is that they have to offer these preposterous compensation packages to secure the services of the best executive talent, and then to hold onto their prize catches. (And of course, when the geniuses are finally sent packing, they're sent wafting gently to earth in the comfort of the golden parachutes the companies were forced to give them.)

As should be clear by now, this is bullshit. Those people weren't creating anything, least of all wealth; all they made was deals, scams, cons. They aren't "executive talent"; they're a breed of parasitic, egomaniacal, sociopathic thieves. As many commentators, we have been inflicted, over the last couple of decades, with the Cult of the CEO, these make-believe geniuses who have gotten away with something more or less equivalent to murder over that time. Of course CEOs who serve their companies well should be well compensated, but these levels of compensation are orders of magnitude in excess of reasonable compensation, even for good performance, which, incredibly, was increasingly not demanded or apparently even expected of them. We all know the horror stories.

And the price for the aggrandizement of these diseased egos has been systematic exploitation of and outright theft from the working stiffs who made those companies function. At a tenth what these leeches are being paid, they would be grotesquely overcompensated, at the expense of both their workers and the economy. Henry Ford may have been a bigot and a son of a bitch, but he understood that his workers were also his customers, and that giving them their fair share of his profits not only increased those profits but primed the economy. These parasites, who seem unable to see anything beyond their insane greed, don't understand that by bleeding every dollar they can out of the economy, they have gradually left themselves no one to do business with.

That is, if they had any business to do.

Even dull-witted prosecutors should be able to find enough criminal activity to secure these goons several lifetimes' worth of incarceration. Their companies should be scouring their contracts to prove malfeasance sufficient to justify the return of every dollar they extorted, with contributions from the people inside the companies who abetted the fleecing.

Or, perhaps more subtly and more appropriately, their compensation might be recalculated to minimum wage for a 35-hour work week for the term of their employment. And yes, I mean a strictly limited 35 hours, notwithstanding that these people were so dedicated that they worked, oh, 500-hour weeks.

Unfortunately, I have to make do without a quote I would have like to introduce from a New Yorker "Notes and Comment" piece by E. B. White, I guess from the early '50s. Somehow my cheesy old Perennial paperback edition of The Second Tree From the Corner (and also One Man's Meat) has mysteriously gone AWOL. I'm not pointing any fingers, just suggesting that anyone who knows anything about the vanished paperbacks would do well to spill his/her guts now rather than later. (Okay, so I've been watching too much Law and Order.)

The piece was an account of what I recall was a New York City-wide bomb-alert drill, in which, eerily, the entire city came to a standstill. I recall the report of a visitor unaware of the proceedings happening onto a no-longer-bustling city street and commenting, "What's this, something new?" And I remember in particular White's report of calculations of economic loss from that "lost" hour.

In The New Yorker's own offices, the business people were lamenting that by bad luck they had the company's lawyers present (and presumably billing). And they had a dollar figure to put on that loss.

But that calculation of loss, White suggested, depended on the quality of the advice the lawyers were giving. If by chance it was poor advice, he pointed out, then missing out on an hour's worth of it actually put the magazine ahead.

What ever happened to American ingenuity and the real American spirit of "can do"? Have the ambition, will, and knowhow to build companies that contribute real value to their customers, their workers, and the country as a whole been bred out of us?

I don't think so. I think we've just succumbed to misguided business goals, bad values, and really atrocious leadership models. I don't know how we turn that around, but I do know that there's a difference between the way Kim Price conceives of his job as a bank CEO and the way the megabank CEOs seem to. We need to learn how to value the one and kick the others' sorry asses out the door.

And somehow we need to figure out how to do the same thing with companies that become proverbially "too big to fail." I know this is appallingly naive of me, but it has to be possible. Let American ingenuity plug the gap with companies that actually do the job that the behemoths have failed at.

I mentioned yesterday the great innovation my friend Terry encountered at her bank, J. P. Morgan Chase, where customers are apparently now officially called guests. Guests. I would love to know how much the person who came up with that genius idea is paid.

I don't know what it's like in your town, but here in New York City, over the last decade or two the number of storefront banks has exploded. For a time there it seemed as if every property that became available was being swooped up by one of those banks.

It mystified a lot of us, who remembered the immediately preceding fetish among the banking elite, which was to segregate customers (not yet guests, of course) by economic status, the way casino operators pamper their high rollers, which in the extreme included trying to deny insufficiently important customrs access to tellers. Now, apparently, those banks couldn't open new locations fast enough.

But was there really any business justification for any of this? No bank offered to show me their books, but I had to figure their overhead was soaring. True, at the same time, the people inside all those banks were devising ever more ingenious ways to provide fewer services and to charge fees for what services remained. Was that really good business? For some of us there's some small ironic pleasure in the banks' discoveries that a lot of their high rollers were either dupes or crooks.

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Of course the government could limit executive compensation, says Dean Baker -- if the government actually wanted to

Economist Dean Baker is on the warpath.

by Ken

I recognized that it was frightfully naive of me, but back in the days when we thought, or at least hoped, that the 110th Congress, with its new Democratic majorities (however slight in the Senate), would actually do something about issues that had been left to fester under the all-Republican federal government, it just didn't occur to me there was one pretty good reason why nothing was being done -- for example, in the matter of extracting the U.S. from Iraq.

No, I don't mean the fashionable official reasons:

* There's nothing Congress can do. (Oh, like hell! Congress can vote to cut off the damned money! Yes, the Bush regime would have finagled and cooked the books and just plain stolen to find the money it needed -- well, let them!)

* We just don't have the votes. Maybe in the next Congress? (Oh, phooey! Why do you people have the word "leader" in your titles if you can't for once show some leadership? Knock some heads in your caucus, and if in the end you can't bring enough people around, make sure the ones you can't get to vote with you know that their votes will be hung around their necks for all to see.)

I'm embarrassed to say that it was a moment like the sudden clearing of a solidly overcast sky when David Sirota wrote a column suggesting that the reason the Democratic leadership in Congress couldn't do anything to end the Iraq adventure was that there were segments of the leadership that didn't want to.

Oh.

I would feel more embarrassed if there were any indication that I was one of the sleepy few who didn't get it. The indications, however, are the opposite: that a lot of Americans, even fairly well-informed ones, not only didn't get it then but still don't get it.

I still think it fairly likely that House Speaker Nancy Pelosi would have liked to do something about ending the Iraq occupation, though note already that "would have liked to do something" isn't the same thing as "was determined to try to do something." I think now, though, that one reason she never had the votes -- for this or anything else at all controversial -- was that people she would have depended on to count and commandeer Democratic votes, Beltway insiders like House Majority Leader Steny Hoyer (the majority leader she hadn't wanted, remember) and House Master of the Dark Arts Rahm Emanuel, didn't want anything done.

Once you see the principle at work . . .

This is a long way around to where I wanted to get, which is another application of the same principle: the seeming inability of the federal government to do anything to rein in executive compensation as part of the bailout package. I did try to suggest the other day that perhaps it wasn't a coincidence that even the toothless provisions that had been written into the bailout legislation suddenly turned out to be in fact meaningless, because of the way the Bushbailers had insisted on writing the bill.

Today Dean Baker, co-director of the Center for Economic and Policy Research, about the highest-ranking progressive economist you'll find stalking the corridors of D.C., takes withering note of a "lengthy business section article in the Washington Post" which "noted the failure of past efforts to restrict executive compensation" and "then implied that it is inherently impossible to effectively restrict executive compensation."

Dean points out, first, that this inherent impossibility would have to be something uniquely American, because the problem just doesn't seem to come up elsewhere. ("Companies outside of the United States seem to have no difficulty attracting highly qualified executives even though their pay is generally an order of magnitude lower than in the United States.")

Then he moves in for the kill:

While it is possible that efforts to limit executive compensation failed because it is intrinsically difficult to limit executive compensation, it is also possible that these efforts failed because the politicians who designed them did not really want to crack down on executive compensation. While high CEO pay packages are very unpopular politically, top executives are important sources of campaign contributions and political support for politicians.

Therefore, it would be very reasonable for politicians to design measures that have no actual impact on executive compensation, even though this is their stated purpose. This strategy is especially attractive if the media don't point out that the measures will be ineffective, so that the public is unaware of the charade.

"This is exactly what happened with the restrictions on executive compensation that were put into the recent bank bailout bill," Dean points out, noting that some economists had in fact argued while the bill was being debated that the proposed compensation restrictions would "likely have no impact whatsoever," but that "this fact received almost no attention in the media."

And now --

If Congress actually wanted to limit executive pay, there are some simple methods to do it. For example, it could require that the pay packages for the five highest paid executives be subject to a binding vote by shareholders at regular intervals, in an election where ballots that are not returned are not counted. By changing the rules of corporate governance in a way that gives more power to shareholders, Congress can make it far more difficult for top executives to pillage the companies they work for.

In the context of the current bailouts, Congress could make demands that executives have pay parity with their foreign competitors, just as President Bush just demanded of the auto workers.

It is actually very easy to find effective ways to limit executive compensation. The problem is simply one of political will. The Post is badly misleading its readers with this article that implies otherwise.

AND SPEAKING OF THE WASHINGTON POST'S AGENDA --

Dean is also pretty hot today about an unsigned front-page piece (purporting to survey the economics of the bailout effort), which contains "the strong assertion":

"The boldness of the economic rescue is already straining the government's finances."

The only explanation he can think of is the title of his post: "Washington Post Does Full Merger of News and Editorial Section."

The piece never presents any evidence for the claim that the government's finances are being strained. Economists would usually look for high interest rates on government bonds as evidence for such strain, the argument being that excessive borrowing is causing lenders to view the U.S. government as a questionable credit risk.

In fact, the evidence here suggests the opposite. The short-term rates on Treasury debt are near zero. The 10-year Treasury rate is just over 2.0 percent, the lowest in more than fifty years. So, there is no obvious real world support for the Post's claim.

Of course the Post has editorialized against deficits for decades and its ed board has been on a near religious crusade to cut Social Security, so it would not be surprising to see them oppose a large stimulus package no matter how urgent the economic need. It is however somewhat surprising to see them editorializing on the front page in this way.

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