A-train railing against free-market realities. Okay, so it’s not truly a free market, but there are limits to what banks receiving funds under TARP can do; limits designed to protect the American taxpayer as a senior investor (the investments are in preferred securities after all), whilst not placing excessive limits on free-market flexibility for the banks to make money.
Making direct investments by buying preferred securities which must pay an annual 5% dividend for the first 3 years, and then an annual 9% dividend thereafter, and effectively leaving the rest of the program to the free-market is a bad thing? Preventing golden parachutes for the top-5 executives is a bad thing? Paying performance-based bonuses to the bankers that actually bring business IN to the firm, generating revenue and profit to enable the firm to continue is a bad thing?
Would people prefer that the bankers leave and start hedge-funds instead, thus ensuring that TARP fails and the American taxpayer does not get paid back?
I love how the important paragraphs in the story that retreat from the headline and indicate that things aren’t quite as extreme the headline makes them sound are buried deep within the story, which most people won’t read from start to finish.
The rescue legislation included some limits on executive compensation. And it does not allow institutions receiving the money to increase dividends. Lazear said that Treasury officials will make sure those requirements are met.
But he also suggested that the government would go no further in placing conditions on banks in the program. Lazear said that to do so may hamper their voluntary participation, and may also dampen the kind of free-market flexibility the administration believes will work best to get credit moving again. The first checks moved out to big banks this week.
Instead, he said that incentives in the program as well as free-market realities will result in the program’s success. For instance, the law requires that banks pay “quite significant dividends” to the government, meaning they have every reason to start lending again to make the kind of money necessary to both make a profit and to pay back Washington. The law requires a quarterly 5 percent dividend to the government that increases to 9 percent after three years.
On executive pay, she said that participating banks are complying with the law’s requirements. Under the law, an executive who receives a bonus based on false financial statements must repay it. The law also says that “golden parachutes” are not available for the top five executives of a company.
At least the Wall Street Journal puts the important information front and center:
Wall Street is waking up to the political tempest over billions of dollars in year-end bonuses likely to be paid out at securities firms lining up for government infusions, top executives are in discussions to possibly cap their own compensation, according to people familiar with the situation.
While the discussions remain fluid and many details still must be agreed to, the talks underscore an emerging consensus among some of the securities industry’s most powerful executives that the escalating pay controversy is creating yet another public-relations mess for Wall Street.
“There are going to be some people in the financial-services industry who will show real leadership here and recognize the reality of the situation,” one senior Wall Street official said.
And as Wall Street firms examine their pay and bonuses, distinctions are being made between the highest-ranking executives and lower-level traders and investment bankers who aren’t widely known beyond Wall Street but could get plucked away by rival firms if compensation practices are significantly altered.
As a result, the most likely scenario in the firm-by-firm discussions is a sharp decline in compensation for chief executive officers, but fewer changes in how bonuses are paid to most employees, according to a person familiar with the matter.