The Greed Rolls On
One of the sticking points in the uberbailout negotiations is whether there will be “limits on executive compensation at firms taking advantage of” the government’s largesse. Treasury Secretary Hank Paulson is apparently battling against such intrusive government intervention. I wonder why? Maybe his personal fortune of $500 million is having some influence. I mean, isn’t that the purpose of the financial system: to create centimillionaires?
Some allege that Paulson didn’t deign to worry about subprime until his pals started hurting. He’s apparently now on the frontlines battling for their right to keep amassing vast fortunes. Luigi Zingales calls out the audacity here:
The Paulson RTC will buy toxic assets at inflated prices, thereby creating a charitable institution that provides welfare to the rich—at the taxpayers’ expense. If this subsidy is large enough, it will succeed in stopping the crisis. But, again, at what price? The answer: Billions of dollars in taxpayer money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses.
Compare Paulson’s overweening solicitude for the fortunes of the wealthiest with this proposal from Chuck Collins of The Nation:
The corporations that rigged the casino economy and the wealthy CEOs and investors that profited at everyone else’s expense should bear the recovery costs, not our kids and grandchildren. . . . Lehman CEO Richard Fuld is sitting pretty, with his $354 million compensation from the last five years and a mega-mansion in Greenwich, Connecticut. . . .
When a CEO or employee improperly takes money from a company and is forced to pay it back, it is colorfully referred to as “disgorgement.” In 1999, managers of Compaq Computer cooked the books and gorged on bonuses based on misrepresented profits. The government forced them to pay it back.
Collins proposes “six actions that will fairly generate over $400 billion a year to pay for a broad-based economic recovery and reduce the extreme inequalities that fueled speculation at the outset.”
Collins links to reports from the Institute for Policy Studies and United for a Fair Economy on ways of raising the revenue necessary for getting us out of the mess we’re in now. Eisenhower-style 91% marginal rates are looking mighty appropriate now for all those “financial innovators” who pioneer “investment strategies” (i.e., frauds) too complex for regulators to understand.
UPDATE: Here’s Bill Kristol:
[I]s the administration’s proposal the right way to do this? It would enable the Treasury, without Congressionally approved guidelines as to pricing or procedure, to purchase hundreds of billions of dollars of financial assets, and hire private firms to manage and sell them, presumably at their discretion There are no provisions for — or even promises of — disclosure, accountability or transparency. Surely Congress can at least ask some hard questions about such an open-ended commitment.
Only a fantastically bad plan could unite Kristol, Paul, Krugman, and The Nation on a given day.