So, the “Pay Czar” or “Check Master” or “Master Blaster” or whatever is going to cut the pay of top managers at bailed out financial institutions (You can read about it from CNBC here).
I’m pretty ambivalent about this current piece of populist silliness. The reason? The US Government should not have bailed out these companies. Period. They should have let them fail. Then these top managers would have no pay to be cut. We have a bankruptcy system. It has worked for decades and should have been used. “Fixing” pay is addressing a symptom and not the root cause of the illness.
The root cause was lax regulation for the political cronies of both political parties and then a sop bail-out to the rich and powerful bankers. For example, why didn’t the large, federally-regulated banks receive a regulatory “stress-test” until AFTER the crisis. And former Treasury Secretary, Hank Paulson, and his Wall Street buddies pulled a fast one with the TARP so that he could bail out his buddies whom he neglected to regulate followed up with Secretary Geithner and his Goldman-Sachs cronies maintaining the scam.
In the end we will have record bonuses paid out at certain firms on Wall Street this year. Why? Because the Fed is handing out free money and these firms are loaning that money to large corporations at 3% margins through short-term credit facilities and commercial paper. The too-big-to-fail, money-center banks are making a mint from this special deal. Meanwhile, small companies are still unable to get credit and continue to just hold on — unable to hire new employees or expand.
I believe in well-regulated, competitive markets. We don’t have this today in the large financial services companies, which is why we have a “band-aid” solution of a “Pay Czar”. Let the banks fail and the pay will take care of itself.