Rewarding Bank Management for Failure

Obama Caps Executive Pay Tied To Bailout Money
02/03/09 - HuffingtonPost via AP by Jim Kuhnhenn
President Obama, emphasis added:

[edited] We need a strong financial system to keep credit flowing to businesses and families. My administration will do what it takes to restore our financial system; our recovery depends on it.

We've got to restore trust. We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.

We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses.

That's the height of irresponsibility. That's shameful. And that's exactly the kind of disregard for the costs and consequences of their actions that brought about this crisis: a culture of narrow self-interest and short-term gain at the expense of everything else.

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This is America. We don't disparage wealth. We believe that success should be rewarded. But what gets people rightfully upset, are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.

As part of the reforms we are announcing today, top executives at firms receiving extraordinary help from U.S. taxpayers will have their compensation capped at $500,000 - a fraction of the salaries that have been reported recently. And if these executives receive any additional compensation, it will come in the form of stock that can't be paid up until taxpayers are paid back for their assistance.

I will restate Obama's analysis. Top executives at these companies led the companies into big trouble. They showed a disregard for the costs and consequences of their actions. They created a culture of narrow self-interest and short-term gain at the expense of everyone else. They paid themselves lavish bonuses as they drove their companies into the ground. They showed the height of shameful irresponsibility. We must act to restore trust in a strong financial system.

So, what does Obama do? He puts $300 billion into the custody of these same executives. Bush did it and Obama supported it. He wants to give them hundreds of billions more. Does this in any way restore trust? He says to these shameful and reckless executives "keep running the company, and here is more money". But, we are going to pay you less, only $500,000 per year plus stock options. (The options will only be paid after you pay the government back.)

Even this will apply only if those companies get more money, not the money given in the past, and only if they are given "extraordinary help" in the future, not just the usual bailout help.

This does not make sense to me. Why is he supporting the same managements that caused the problems?

Actually, government housing programs and policy created our problems. Bank executives joined into these programs, got burned, and burned us. But, government was the prime source of the bad policy and the temptation. (See We Guarantee It.)

If Obama believes his own words, he is irresponsible to invest public funds with these crooks. They should be thrown out along with their irresponsible subordinates, not just given a lower salary.

If Obama believes that the government is responsible, then it isn't so bad to support the managements and companies who were tempted into bad housing investments, along with government policy. Maybe the government feels guilty.