That said, I think I'm bothered more about a government capping the salaries of those charged with using our money to turn things around. We need the best minds working on a solution and I can't help but feel like we're shooting ourselves in the foot when we've handed over all our money and then severely limited recruiting potential.
Who will want to step up and try to right the sinking ships for comparatively low pay when there are opportunities at companies not subject to a government imposed salary cap?
You can't hire the best candidates when you pay the least, and on top of it all can only provide a hostile environment.
Some of these company's would have been fine if they had not increased the dividend they had payed from what they where paying out 5 years ago. Every time they sent a dividend / bonus out the door they where hiding just a little more of their profit from the type of risks they where taking. So, if the company is run into the ground again the CEO will get 500k/year, but if they pay back the government their is nothing preventing that CEO from walking away with 100 million / year which seems reasonable.
By limiting CEO pay to companies that are heavily invested in by the government, you assure that some bright, competent CEO will never take over your company except for the sheer, masochistic joy of bringing a dead company back to life. Instead, you will be stuck with the incompetents who got you into the situation in the first place and are just happy to keep their jobs, multi-million/billion dollar pay cut or not.
Or clearly superior talent like John Thain, et al.
Do you seriously mean to imply that there are no individuals out there making less than 500k per annum who could not pull off a deleveraging and conservative restructuring of a business? No one?
Who are these individuals who will work for no less than several million per annum who have pulled off such miracles that no mere person earning less than half a million per year at the moment clearly outclass?
Certainly they have not been at the helm of any financial institution I am aware of. Hell, I nominate mynameishere for one of the positions, as he seems to have a clearer grasp than most of the idiots at the helm last go-round:
http://news.ycombinator.com/item?id=308425
And he probably is available for 500k/yr.
In "How to Make Wealth" pg wrote about how salesmen are an exception to compensation rules because their performance can easily be measured. The same is true for traders who do not deal in positions that must be held for a long time the way mortgage bonds are. If a trader makes $30 million in this way, he is in a position to demand, say, $5 million to $10 million or he will be happy to join a different firm that will pay him that amount. Thus, the reduction of compensation at the top levels cannot trickle down to the lower levels without destroying the firm by causing its top performers to leave.
PS: One of the secrets to creating mutual funds is to make 100 of the things with a few million on hand and take lot's of risks. Over time some will preform better, you use their past performance to gather more money and you end up with a small number that have a lot of money and have made the early movers lot's of money but have not necessarily generated a lot of profits for the late adopters. It's like a legal pyramid scheme, but when it stops working they can move you to the next fund with a great track record, and the next, ...
AFAIK, Morgan and Goldman are now commercial banks and restructured to this form to stay alive.
http://www.nytimes.com/2008/09/23/business/23wall.html
These companies are involved in many diverse business lines and, bungling in the mortgage-backed business aside, many of these businesses are hugely profitable.
Is this legal since they are now commercial banks? Do you have any citations on these hugely profitable non-core businesses? At any rate, gains from trading desks will be seriously diminished by holding/leverage requirements.
If a trader makes $30 million in this way, he is in a position to demand, say, $5 million to $10 million or he will be happy to join a different firm that will pay him that amount.
Do you have any stats on any member of the trading desks of these firms doing these types of numbers? Further, is it reasonable to assume these traders can continue to be as productive in this leveraging/financial climate? Is the current market for that talent still as strong?
Not saying he couldn't do it, but the skill sets seem orthogonal.
The crux of my argument is the refutation that you need someone of that caliber to do what appears to be pragmatic banking and risk management.
I was just using him as a case of someone who could obviously set his own salary working for a whole lot of places and decides to be compensated in other ways (stock, notably). He also went back at the brink of collapse and reanimated the company, so in that aspect it's similar.
Banks do this all the time, they call it "interest".
The government is trying to make sure that the money is used wisely, much like banks want me to spend my loan on a house rather than hookers and blow. their money, their decision what conditions to attach to best meet their goals, which may not just be financial.
"A loan is a contractual agreement. Banks attach conditions to loans all the time...and, usually, the riskier the loan the tougher the conditions. The same holds true here. If a failing corporation accepts a loan from the government, it must also accept its terms. Ms. Fiorina, don't forget capitalism can't exist without the freedom to contract...the same freedom that allows people and corporations in America to "decide what each job is worth."
Good comment!