Bank of America and Citigroup, two of the large Wall Street firms that received TARP money are balking at Compensation Czar Kenneth Feinberg’s policy announcement that halves the compensation packages for the top twenty-five executives in each company. AIG is another that faces the same scheme. In fact, there are seven companies that fall under the new compensation limits. These seven are protesting that they will lose their “best people” to competitors who are not held to the same new standards because the competition have either paid back the TARP money or never required any in the first place and therefore are free to pay whatever compensation they like.
This raises an important set of questions: Does the market place set compensation in any sensible way? What is meant by “best people”? Were the exorbitant pay packages that the so-called “best people” received last year justifiable even though their decisions brought the world economy to its knees? Are the present “best people” the same kind of “best people” who ruined the economy or are they a new kind of “best people”? Does the compensation structure these companies want to retain set the world economy up for another disaster?
If the average CEO makes astronomically more than the janitor who cleans his office, is that sensible or is it simply greedy? What makes that CEO that much more valuable than the janitor? If the CEO steers the corporation to greater profit and long-term stability, then perhaps his high pay package is justifiable. However, when he steers the corporation into bankruptcy and affects the economy far beyond his corporate realm, should he not receive at least a substantial pay cut until he brings the corporation back on course? I would think so.
I spent my career as an educator. Many former students of mine went on to work on Wall Street, and they did very well, but they were not the brightest students I ever taught. They were good people with strong ethics and a powerful sense of responsibility. They learned sportsmanship on the playing fields. They went to good colleges, earned B’s and C’s, played a good game of golf or tennis, and kept their integrity safe. They were not MIT whiz kids or star Harvard Business School grads: they were just “good people,” but not the kind of “good people” these TARP-takers are fearful of losing. No, those whiz kids know how to make money at any cost, faster than you can sneeze. And the amounts they are able to compile are nothing to sneeze at, in the short run.
So to answer the first and second questions, I would have to say that the market place will never set sensible compensation. The compensation on Wall Street is based on pure greed, not any rational criteria. The so-called “good people” who demand the exorbitant salaries and bonuses are completely self-serving, unlike educators and other public servants who are truly better people because they are willing to sacrifice a high salary for a greater good. Would a higher salary attract a better caliber of teacher? Maybe it would. However, I doubt offering a six-figure salary would attract the kind of caring good people who are effective, in part, because they care about their students. The same could be said of police, fire-fighters, etc. They are not attracted to the job solely because of the money. A six-figure salary the Masters of the Universe on Wall Street consider pocket change. To argue that Wall Street demands are rational or reasonable is ludicrous. It is another example that the market place is not a place where reason resides. These exorbitant salaries are completely irrational and unjustifiable in any real sense. In the realm of imagined demand in relation to a spurious notion of limited supply of so called “good people” is the realm of nonsense. Wall Street has lost its moral compass completely when it comes to defining “goodness.” If what they mean as “good” are the knuckle-heads who got us into this mess to begin with, then they need a course in basic logic and another in basic ethics. Good at making short-term money at the expense of long-term financial well-being on Main Street is not a very good “good.”
When financial institutions are interested in making money without any concern for the greater good, they do not serve the economy. They are not really investment banks except in a completely self-serving sense, and a short term self-serving sense at that. To argue that they’ll lose “good people” if their compensation is reduced suggests that regulation has a long way to go before Wall Street begins to serve Main Street, a principle which would benefit our nation as a whole. I would argue that investment that creates jobs and produces goods that can be sold abroad would be a noble goal of Wall Street. But it seems that most of the so-called “good people” on Wall Street are only interested in concocting the next scheme to dupe investors into investing in that next “too-good-to-be-true” financial smoke and mirrors product.
Basing Wall Street compensation on reduction in domestic unemployment rates would be a good trigger and incentive for Wall Street to invest in America. It just might get them to lend money again. Let’s start by setting the trigger at 6 percent. When unemployment drops to 6 percent, the Masters of the Universe get their cookies.
As David Brooks points out in one of his NYT columns, the Obama administration is creating incentives for governors to compete for federal grants by showing real reform, not just lip-service. Why not make those who created the economic disaster reform as well and be made to compete for their bonuses based on indices other than pure, short-term profit. One index would be unemployment rates which are directly tied to how well Main Street is doing. Main Street’s success is dependent on Wall Street’s investment in real productivity, not in shell games.
The larger question is whether or not Wall Street is capable of doing good as well as doing well. And are they capable of thinking long-term or are they merely focused on short-term profit and to hell with the long run. If the quintessence of capitalism remains that selfish and shortsighted, the whole system is in dire jeopardy. Whatever happened to the “good people” I used to teach who maintain their integrity at any cost? Were they left behind by the whiz kids, the “rabbits”? I hope Aesop is still right and that the tortoise will again cross the finish line first, and the ants will survive the winter while the grasshoppers die. In short, Wall Street has to stop thinking its only purpose is to make quick money. If we all thought that way, there would be no common good. There would be no good, period. It’s long past the time that Wall Street take on its proportional share of looking after the common good. After all, it is the purse strings of the economy and has a major responsibility to actually care about the society it exists to serve. When it started thinking that society existed to serve it, that’s when it got into trouble.
Meanwhile, will someone please explain to me the difference between these so-called “good people” on Wall Street and Ponzi schemers? We need to reincarnate William James to write a new book called The Varieties of Ponzi Experience. Or maybe we simply come up with categories like “soft Ponzi” and “hard-core Ponzi” parallel to the concepts of soft porn and hard-core porn. Or we could have Wall Street and Stonewall Street. Whatever the case, let’s replace the so-called “Good People” with the real thing.
Friday, October 23, 2009
Monday, October 5, 2009
Greed Your Creed or Good for the Hood?
The debate between the left and the right is boiling down to the usual suspects: greed versus the common good. Does a person’s right to get rich take precedence over another person’s right to survive? That’s the question about rights that all debates between liberals and conservatives ultimately boil down to. It is the maple syrup that’s left from all the sap that comes oozing from the trunks of both conservative and liberal family trees.
Folks bent on becoming rich seldom notice or care about the poor or even the middle class. They are too busy buying companies and hedging their bets to bother with society’s losers. And the losers are society’s losers, not theirs. There is no ownership among the masters of the universe concerning the unintended consequences of their wealth. Their ownership is about stuff. They are not their brother’s keeper. No time for that until perhaps they have arrived in their own mind at the point of satiety when they can then join the noblesse oblige, if they so choose.
The rationale for laissez-faire greed has always been the trickle-down theory or the bubble up one as in “a rising tide lifts all boats.” Never mind that your rowboat leaks and his yacht’s wake could swamp you any second. In theory, both trickle-down and bubble-up are logical. The trouble is they don’t take into account the reality most folks face, especially when the economy goes south but even when it is booming, according to the usual tools of measurement like GDP. Trickle- down, in particular, reminds me of rain over a high desert: most of it never hits the ground. There is plenty of rain falling, but most of it evaporates. Therefore, trickles and bubbles end up being mere blind rationales for continued greed.
The liberals, on the other hand, are all about the common good, in theory. However, there seem to be as many rich folks among the liberals as among conservatives these days. These so called “limo- liberals” talk a good game about the common good but they benefit as much from their investments in good times as do the cutthroat Wall Street conservatives. Theirs is a consumer-oriented philosophy that sees an LED TV in every living room, the updated version of “a chicken in every pot.” Their measure of economic success is the employment rate and the differential between rich and poor, not GDP. In theory they look at how the middle class and the poor are faring and judge the economy on the basis of unemployment rate, size of the middle class, and rate of improvement in standard of living for the average American. Instead of trusting trickle-down or bubble-up, liberals try to assess the actual well-being of the average person and judge the economy accordingly.
What neither liberal nor conservative seems to get about our economy is that we no longer make things in America. Our economy is based on the service industry, particularly on financial services, not manufacturing. If we are to ever restore low unemployment rates in America, we need to retool our industry and redirect our financial institutions toward investment in domestic industry. In short, we need to become a producer of goods and not merely a consumer culture. We also need to replace corporate America as we now know it with real competition among smaller scale companies that actually improve energy efficiency, foster sustainable living, and promote health and well-being.
One way to accomplish this is to tie Wall Street bonuses to the lowering of the unemployment rate. That way, investors will be encouraged to invest in companies that need a domestic labor force, that actually make things and contribute to the growth of GDP.
Another is for the federal government to create incentives for industries that we actually need and to remove subsidies for those we don’t. A pure market economy is directed by appetite, not need. That kind of economy will always go to the candy or fast food drive-thru before it eats its vegetables. It is unhealthy for the country and for the individual citizen. We have heard the stories from GM about how they listened to consumers and decided to build more big pick-ups and SUVs because “that’s what the American consumer wanted.” That’s nonsense. The American consumer has little capacity for long-term thinking, as evidenced by the consumer credit debt it has amassed of late and the size of the houses it has purchased but could ill afford. The government has to set the country’s priorities the way it has done so in time of world war using the tool of incentives directed toward the common good, not common taste.
Finally, conservatives and liberals alike need to put aside their theories and measurements and face facts. Our country is going to die a slow death at best if we don’t stop bickering over philosophy and start getting very pragmatic about how to generate a renewed and vibrant economy. Going back to the same old ways will not work. Otherwise, the directed economy of China will blow past us like a NASCAR champion while we continue to lose speed around the world economic track in our gas-guzzling, cumbersome pick-up or SUV.
Folks bent on becoming rich seldom notice or care about the poor or even the middle class. They are too busy buying companies and hedging their bets to bother with society’s losers. And the losers are society’s losers, not theirs. There is no ownership among the masters of the universe concerning the unintended consequences of their wealth. Their ownership is about stuff. They are not their brother’s keeper. No time for that until perhaps they have arrived in their own mind at the point of satiety when they can then join the noblesse oblige, if they so choose.
The rationale for laissez-faire greed has always been the trickle-down theory or the bubble up one as in “a rising tide lifts all boats.” Never mind that your rowboat leaks and his yacht’s wake could swamp you any second. In theory, both trickle-down and bubble-up are logical. The trouble is they don’t take into account the reality most folks face, especially when the economy goes south but even when it is booming, according to the usual tools of measurement like GDP. Trickle- down, in particular, reminds me of rain over a high desert: most of it never hits the ground. There is plenty of rain falling, but most of it evaporates. Therefore, trickles and bubbles end up being mere blind rationales for continued greed.
The liberals, on the other hand, are all about the common good, in theory. However, there seem to be as many rich folks among the liberals as among conservatives these days. These so called “limo- liberals” talk a good game about the common good but they benefit as much from their investments in good times as do the cutthroat Wall Street conservatives. Theirs is a consumer-oriented philosophy that sees an LED TV in every living room, the updated version of “a chicken in every pot.” Their measure of economic success is the employment rate and the differential between rich and poor, not GDP. In theory they look at how the middle class and the poor are faring and judge the economy on the basis of unemployment rate, size of the middle class, and rate of improvement in standard of living for the average American. Instead of trusting trickle-down or bubble-up, liberals try to assess the actual well-being of the average person and judge the economy accordingly.
What neither liberal nor conservative seems to get about our economy is that we no longer make things in America. Our economy is based on the service industry, particularly on financial services, not manufacturing. If we are to ever restore low unemployment rates in America, we need to retool our industry and redirect our financial institutions toward investment in domestic industry. In short, we need to become a producer of goods and not merely a consumer culture. We also need to replace corporate America as we now know it with real competition among smaller scale companies that actually improve energy efficiency, foster sustainable living, and promote health and well-being.
One way to accomplish this is to tie Wall Street bonuses to the lowering of the unemployment rate. That way, investors will be encouraged to invest in companies that need a domestic labor force, that actually make things and contribute to the growth of GDP.
Another is for the federal government to create incentives for industries that we actually need and to remove subsidies for those we don’t. A pure market economy is directed by appetite, not need. That kind of economy will always go to the candy or fast food drive-thru before it eats its vegetables. It is unhealthy for the country and for the individual citizen. We have heard the stories from GM about how they listened to consumers and decided to build more big pick-ups and SUVs because “that’s what the American consumer wanted.” That’s nonsense. The American consumer has little capacity for long-term thinking, as evidenced by the consumer credit debt it has amassed of late and the size of the houses it has purchased but could ill afford. The government has to set the country’s priorities the way it has done so in time of world war using the tool of incentives directed toward the common good, not common taste.
Finally, conservatives and liberals alike need to put aside their theories and measurements and face facts. Our country is going to die a slow death at best if we don’t stop bickering over philosophy and start getting very pragmatic about how to generate a renewed and vibrant economy. Going back to the same old ways will not work. Otherwise, the directed economy of China will blow past us like a NASCAR champion while we continue to lose speed around the world economic track in our gas-guzzling, cumbersome pick-up or SUV.
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