Toxic Timmy Geithner and his pal Ben Bernanke are men on a mission. They want to give the Fed more muscle in telling the Wall Street mavens how much money they can steal…er, earn each year.
The Fed is the outfit that regulates banks. They want the SEC, the Securities and Exchange Commission, which oversees financial markets, to also have greater power in reining in the exorbitant pay at financial institutions.
Tuesday, we saw a flurry of activity at huge financial institutions, which are for reasons hard to understand called “banks”, although they’re not the kind of thing you think of when somebody says “I gotta talk to the bank about that”. The big banks, as they’re now called, rushed around Tuesday to get permission to pay back the TARP money so they wouldn’t fall under the new rules Timmy and Ben want to advance.
By the way, for the scores of academics in our community, TARP in this sense is not “Tenure and Related Promotions”, but “Toxic Asset Relief Program”.
In other words, Tuesday quite a few of the financial institutions (“banks”) that took bailout money quickly got permission to pay back the money so they could continue to pay their captains unrealistic amounts of money every year, and continue the so-called “bonus” plans those Wall Streeters love.
Sorta like the bonus programs the UW coaches have - a lot of money that’s easy to get.
This is exactly what the new administration is trying to get rid of. President Obama’s economic team wants Wall Street to start paying people based on long-term performance, versus short-term gain.
In other words, you get bonused for helping your institution grow everybody’s money - not for thinking up some new way to make side bets on other investments. (Derivatives.)
For the big outfits that didn’t squeak in under the deadline this week, companies like CitiGroup, B of A, AIG, Chrysler, and GM, the bad news (for them) is that their execs this year will likely be limited to a bonus no greater than a third of their annual salary.
In other words, stuff like that sweet pot of 165 million bucks in bonus money paid out in March by AIG ain’t gonna happen again.
I think the execs will survive.