rssBarney Frank and the Motivations of Wall Street CEOs
Tuesday, February 17, 2009 at 3:25 pm
- 6 Comments
Related to our story yesterday about Wall Street firms acting only in the interests of shareholders, Rep. Barney Frank (D-Mass.) last week asked eight bank executives appearing before his House Financial Services Committee why corporate CEOs require enormous bonuses to do their jobs well.
If, in good times, you were told you weren’t going to get a bonus, what part of your job would you not do? I mean, if you weren’t getting a bonus, would you, like, leave early on Wednesday or would you take longer lunches? Would you bypass a certain class of investors?
While there’s a certain comic element to Frank’s questions, they’re also very serious.
The finance industry has opposed limits on bonuses and other compensation for firms receiving federal help under the Troubled Asset Relief Program, maintaining that the restrictions would encourage the most talented employees to flee to other companies. Such a “brain-drain,” the argument goes, would exacerbate the troubles of struggling firms and weaken the effects of the TARP program. (Nevermind, for a moment, that these are the same folks who’s investment strategies led to the collapse of the industry.)
Frank’s questions are timely also because there’s an emerging tension between congressional Democrats and the White House economic team over how to approach executive pay for bailed-out banks. In short, the congressional lawmakers want to place limits on executive compensation, while the Obama team opposes such caps. White House officials fear that the pay restrictions would encourage bailed-out banks to pay back their TARP funds simply for the sake of eliminating the pay restrictions — perhaps even before the firms were healthy enough to resume the levels of lending necessary to thaw the credit freeze. (That is, like the finance industry, the White House thinks the pay caps would undermine the very purpose of the TARP program.)
For his part, Frank wasn’t ready to buy that argument. “This notion that you need some special incentive to do the right thing troubles people,” he told the CEOs.
Morgan Stanley CEO John Mack was quick to challenge the idea that senior Wall Street executives are motivated by money. “At least at my level, and I think my colleagues here would say the same, we love what we do. If you gave me no bonus in the best year, I would still be here,” said Mack, who pulled in more than $40 million in company stock awards in 2007.
Still, Mack conceded that the system of Wall Street bonuses deserves some scrutiny in the wake of the finance industry’s collapse. “Without question,” he said, “given the kind of risks that we take today, the global nature of our business, and the size of our business, all that has to be looked at again.”
We’ll see if the looking evolves into anything more substantive.
6 Comments
Pingback posted February 17, 2009 @ 4:14 pm
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Comment posted February 18, 2009 @ 4:01 am
When did Barney Frank ever question Franklin Raines, Jamie Gorelick, or Jim Johnson regarding their bonuses which were increased based on fraud and deception? Instead, he defended their institutions. Barney Frank has zero credibility and is a great example of a politician beng in DC too long. You are part of the problem Frank. Its time for you to go.
Comment posted February 18, 2009 @ 10:00 am
My question is why are these people not in jail??? I work 40 hours a weeks, the government takes out 20% of my pay everyweek and have mismanaged our money. What they don't understand is that it is the american Tax Payers money they have mis handled. Barney Frank should be in jail along with a host of others. When will the American people revolt????
Pingback posted February 20, 2009 @ 3:35 pm
[...] weeks ago, during the TARP testimony on Capital Hill, Congressman Barney Frank asked the CEOs of the major banks: “If, in good times, you were told you weren’t going to get a bonus, [...]
Comment posted March 17, 2009 @ 7:39 am
Barney Frank and others use outrage in the case of AIG effectively. Outrage moves the focus onto someone else, in this case, onto AIG. Outrage toward AIG seeks to distract from the failures of Mr. Frank's committee and others in Congress who voted to bailout AIG. These people never set guidelines for the use of the people's money by AIG. They never, apparently from their comments, never even did what a mortgage company would do or a home buyer would do – to see what if any liens, liabilities, or obligations a “property,” AIG in this case, has.
Mr. Frank and others expressing outrage should not be allowed to deflect attention away from themselves. They voted for something without learning the key facts. Shame on them.
Comment posted March 17, 2009 @ 2:39 pm
Barney Frank and others use outrage in the case of AIG effectively. Outrage moves the focus onto someone else, in this case, onto AIG. Outrage toward AIG seeks to distract from the failures of Mr. Frank's committee and others in Congress who voted to bailout AIG. These people never set guidelines for the use of the people's money by AIG. They never, apparently from their comments, did what a mortgage company would do or a home buyer would do – to see what if any liens, liabilities, or obligations a “property,” AIG in this case, has.
Mr. Frank and others expressing outrage should not be allowed to deflect attention away from themselves. They voted to give billions with no strings attached to AIG without taking the time or deliberation effort to learn the key facts about AIG's obligations, outside and inside the company. They failed. They failed to inquire about the key facts. They failed to take care of the people's hard-earned tax money.
Shame on every person in the U. S. Congress who voted “yes” for the AIG bailout without doing their due diligence. They let panic and their own lack of knowledge about banking and finance keep them from watching what they were about to get the American taxpayers into. Not only taxpayers are affected by their incompetence, but also non-taxpayers that benefit from helping programs and basic services. I predict those in need will see less for their needs, as well, as the consequences of Congressional “yes” voters on AIG bailout work into American life and more burdensome taxes.
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