Oct. 22, 2009
Obama Pay Cuts a Good Start, but More Is Needed: Congress Should Impose a Windfall Bonus and Profits Tax on Wall Street
Statement of Robert Weissman, President, Public Citizen
For the first time, the government appears to be set to take some meaningful action against business fat cats who a) run companies that exist only because of billions of dollars of taxpayer supports and b) still see fit to pay themselves obscene salaries.
The New York Times and other outlets report that Obama administration pay czar Kenneth Feinberg will require executives and top employees at the most bailed-out firms to cut back on salary by 50 percent. If these reports are true, Mr. Feinberg and the Obama administration deserve applause – with one big caveat.
Until now, there has been no systemic mechanism of accountability imposed on top-paid executives and employees at the bailed-out firms. They destroyed their own businesses, not to mention the national economy, but felt entitled nonetheless to hyper-compensation. And the government has done little to discipline them. Now, it appears Feinberg is prepared to do that – for a narrow category of bailout recipients.
Notably, Feinberg reportedly will cap salary and bonuses at AIG Financial Products, the division that brought down a giant multinational and led the government to shovel tens of billions of dollars into AIG, at $200,000. This is an extraordinarily high salary for most people in America, but by the standards of Wall Street it is modest to the point of humbling.
Feinberg has authority only to limit pay at seven bailed-out companies. However, Wall Street itself would likely be out of business but for the trillions of dollars of federal supports it has received, including an array of ongoing supports from the Federal Reserve.
Wall Street firms outside of the Feinberg Seven apparently have no compunction about returning to the outrageous pay practices that helped create the financial crisis. Wall Street is on track to pay an obscene $140 billion in bonuses and compensation, according to Wall Street Journal calculations.
Congress and the administration have demanded no reciprocity for saving the financial system from the financiers outside of the Feinberg Seven. Now is the time to start.
Congress should act immediately to impose a windfall bonus and profits tax on Wall Street. Some substantial portion of the funds that Wall Street aims to pocket as bonus payments and profit-taking should be returned to the public treasury.
Hyper-pay for executives and top traders is not just a symbolic issue. Crazy bonuses linked to this year’s performance helped incentivize dangerous, short-term betting – making it rational to bet on the housing bubble to continue to inflate, even in the face of certainty that it would eventually pop with devastating effects for financial firms (not to mention homeowners, communities and the national and global economy). Separate from addressing the scale of bonus compensation, it is imperative that Congress mandate that bonus payments be based on long-term performance over the course of a business cycle – ideally 10 years, but not less than seven.