Memo to Congress: Please Stop Obsessing Over Bank Execs' Bonuses

The nine big banks that got the first slug of capital from the federal government are reassuring members of Congress (notably Henry Waxman and Charles Schumer) that, no, the money won’t fund executives’ yearend bonuses. Rather, bonuses will be paid for via “earnings and existing cash resources,” the Financial Times reports.

I don’t buy it, either. Not to blow anybody’s cover, but money is fungible. While the banks might want the pretend their new government billions will only be used for things like small-business loans and mortgages to first time-home buyers, and that the after-hours limos and dinners at Michael Jordan’s get paid for some other way, the fact is the cash all comes out of the same pot.

But that’s beside the point. The more urgent question: why is Congress getting its pants in a knot over compensation in the first place? Now that the government has taken a meaningful equity position in the country’s big banks, the last thing it should want to do is drive out their most capable, productive employees by refusing to pay them.

The purpose of the infusions, after all, is to bolster the banks’ capital, not their cash balances. But the more the government meddles in how the institutions are run, the less efficiently that new capital is apt to be deployed—which sort of defeats the purpose of the whole enterprise. (And if Congress doesn't have confidence the banks can deploy the capital effectively, why did it approve the rescue in the first place?) I know it’s a lot to ask, but if the Waxmans and Schumers of the world could refrain from political grandstanding (and good luck with that), the odds the plan will work would be a lot higher.

Comments

[Steven Hansen:]

i have a hard time digesting that the financial system needs help when it pays bonuses. either they need help, or they do not and they pay bonuses. they are getting away with murder.

2008 Nov 06 03:18 AM

[CLH:]

There is no reason for our gov. to set either maximum or mimimum salaries. The fact that this is unconstitutional doesnt seem to bother the present people running our gov. who have already started on their path to socialism.

2008 Nov 06 08:10 AM

[notsosmart:]

whos funding the coming"pardons" of my cronies list? capable employees? the ones that were involved in this mess? author either dumb or has an agenda.

2008 Nov 06 11:37 AM

[BerkeleyBob:]

Quite correct that money is fungible but if you take a government bailout or subsidy, you may expect a certain amount of "interference" from Uncle Sugar. You might not like Waxman or Frank or Dodd, but they accurately reflect taxpayer ire at over-compensation. The number and frequency of justifications for the remarkable increase in management compensation is surprising. For sure, it isn't performance based if the goal is to return value to shareholders.

2008 Nov 06 11:53 AM

[User 292869:]

I can't believe taxpayers money is going in the front door, then coming out the backdoor as bonuses.

The defence that if huge remuneration packages are not paid banks will lose high value staff is now shot. These staff are NOT high prodcutivity, they have NOT been producing shareholder value, they have been gambling with the money of others in the absence of appropriate regulatory oversight.

Their snouts should be forcibly removed from the trough NOW.

2008 Nov 06 02:04 PM

[Tom Jacobs:]

I agree with the majority of the posters - you are in left field with your losing top people due to reduced compensation argument. If things are bad enough to accept billions in taxpayer funds at well below market costs (recognize that the 5% they will pay on the preferred is well below the 10-15% effective yields their preferred issues were at prior to the announcement) NO BONUSES SHOULD BE PAID. If it were a "take the capital and retain the bonus money within the firm for more capital or be Nationalized" choice I am sure they would give up the bonuses rather quickly. However these are highly paid gamblers used to getting whatever they want. Just consider how long it took AIG to figure out that they shouldn't be taking junkets after they were bailed out for a temperature check of these individual's priorities and expectations.

2008 Nov 06 09:18 PM

[PlentyOStocks:]

You are all pretty laughable. The government forced those big banks to take the money. They did not want it. Now after forcing the money on them they want to dictate how the banks run themselves. This is beyond socialism. It is gangster tactics.

How would you like to be treated this way? Take my money or you die. Now that you have my money I own you. It is just creepy..

2008 Nov 09 02:34 AM

[perplexed:]

Why are bonuses given to execs when they have led the way to disaster? What happened to bonuses being given for a job well done?

2008 Nov 11 04:25 PM