Feeds: 
symbol identifies content for paid subscribers only.
Pay for Bank Bosses on the Dole: No Populist Voices at the Post
In keeping with its strict editorial policy of only letting others tell readers what "populists" think, the Post front page article on setting executive compensation at banks receiving bailout money never presented the views of an actual populist.
Therefore readers got to see the comment of Robert Profusek, a lawyer at Jones Day who is identified as having advised major banks on compensation matters: "I wish I could hum the theme song for 'Mission: Impossible' because I think his job is mission impossible, .... On the one hand, there's this populist outrage that is fanned every other day by somebody in Washington. . . . But he can't just go in there with a hatchet and cut everything because the good people will leave. That's not in our best interest."
Later the article quotes Linda Rappaport, head of the executive compensation practice at the firm Shearman & Sterling: "You've got to allow these companies to make the money for the shareholders ... And to make the money for the shareholders, they have to have the talent. And to have the talent, they have to be able to pay them competitively."
If the Post had solicited the views of a populist, or an economist, they might have told readers that much of what the banks earn comes directly at the expense of consumers and businesses. For example, suppose that Goldman Sachs' large trading profits last quarter came in part from oil trades. This would mean that it managed to buy oil or oil derivatives on the way up, preventing oil companies from getting as much profit as they otherwise would have received. This is money that they could have used in developing new energy sources, as the oil companies so often tell us. Alternatively, if the run-up was purely speculative, Goldman's successful traders caused consumers to pay more money for gas and home heating oil than otherwise would have been the case. There would be a similar story if Goldman made its money on the way down, with the trader pulling way money that would have otherwise gone to consumers or producers.
The public has no obvious interest in subsidizing traders to speculate in financial markets. If the speculators win, then the loans that Goldman and the others receive will be repaid, but this repayment will only be a portion of the higher prices paid by consumers and lower profits earned by producers as a result of Goldman's speculation.
Moving beyond the world of speculation, it is not clear that the marginal contribution of the individual bank executives involved in the more mundane tasks of running a bank can run into the millions or tens of millions of dollars a year. In other words, it seems unlikely that if most of these individuals were replaced by the person next in line that the bank's profits would suffer in any big way. In this sense, these high salaries are just a drain on the bank, its shareholders, and the taxpayers. But, you won't see this argument presented in the Post.
--Dean Baker
COMMENTS (14)
Absolutely right.
However, you suggest that trading in oil derivatives affects the price of oil. Absent trading in oil itself, taking delivery, changing production or other "real" activities, how does speculation affect anything beyond other speculators?
Posted by: fusion | August 9, 2009 10:12 AM
Of course if Wall Street executives can get multi-million dollar bonuses for gambling with other people's money, the smart people (at least the greedy ones) will want to work there. If armed robbery were legal there would probably be a lot of smart people in that field also. Presumably even the most fanatical free-marketeers recognize that there have to be some legal limits to self-interest.
Maybe the problem is that Wall Street executives are too smart - they have bamboozled the country into setting things up primarily for the benefit of Wall Street, and into making the taxpayers cover their mistakes. If the compensation on Wall Street were reduced maybe the smart people would seek employment elsewhere, for example in government or in productive industries where they could do some good to society instead of filling their own pockets. If financial industry income were reduced their influence on Congress and the media would not be as powerful.
There's no need for people to go in with hatchets to reduce compensation - probably we just need tax structure directed against speculation, as Dean and others have suggested. Apart from direct taxes on transactions, the capital gains tax laws should be reformed. 366 days is not "long term" - the premium should be on building value in enterprises over a much longer term.
Fusion asks how speculation affects things beyond other speculators. If all the gambling were confined to casinos and lotteries that would be one thing, but gambling in finance affects all economic activities, and financiers want it that way - then they can claim that the investment banks and insurance companies (which mixed up real insurance with speculation) have to be bailed out or the entire economy would collapse. New Dealers recognized that mixing up speculative finance with legitimate banking functions was a major cause of the Depression and passed laws accordingly, but these laws have largely been rescinded or circumvented.
Posted by: skeptonomist | August 9, 2009 1:42 PM
Thanks again for the comment. It's a real shame that some people, especially reporters, are willing to accept this nonsense about needing to retain good talent with such outrageous salaries and bonuses.
Posted by: Just passing by | August 9, 2009 2:15 PM
We have this:
...the comment of Robert Profusek, a lawyer ..."the good people will leave. That's not in our best interest."
and then this:
Linda Rappaport, head of executive compensation..."And to make the money for the shareholders, they have to have the talent. "
and millions of other identical quotes repeated rote and accepted at face value by our thumb-sucking, American Corporate Media.
These statements go completely unchallenged. Never is any evidence ever offered to support these assertions.
Nor could there ever be, because there simply are none.
They are myths, re-iterated ad nauseam, to re-enforce the status quo.
Excuse me Robert, pardon me Linda, but I'll (or rather, we the people) will be the judge of that!
Posted by: some guy in a cube | August 9, 2009 8:45 PM
A few years ago I found out that my college endowment fund as paying its money manager (an individual) 17 Million $ a year on the theory that that's what he could earn if he were working at a similar job on Wall Street. I said fire him and let him go to Wall Street. And I decided that my college didn't need my $100 a year as much as I did, so I stopped giving.
Now I feel the same way about the Wall Street executives whom my tax dollars are funding. If they can make that much elsewhere, fire them and let them try to find other such high paying jobs. They will leave if we don't bribe them? Good luck in the current environment, fellows.
I'm sure there are people in the level just below these executives who could step into their corner offices and loose just as much money at about a third of the salary.
Sorry about the rant, but I'm PISSED.
Posted by: Ethan | August 10, 2009 1:11 PM
I make and format a lot of my own material. For this reason, I find the Sony E-book reader to be far superior. They use the same screen and it has a longer battery life on top the extra support.
Posted by: lingerie | August 26, 2009 9:20 PM
This would mean that it managed to buy oil or oil derivatives on the way up, preventing oil companies from getting as much profit as they otherwise would have received. This is money that they could have used in developing new energy sources, as the oil companies so often tell us. Alternatively,I think I will try to recommend this post to my friends and family, cuz it’s really helpful.
Posted by: christian louboutin discount | November 7, 2009 8:34 PM
Your article is write very well, I like it very much ~
I wish you have a wonderful day!Thank you.
classic ugg boots
Posted by: ugg boots | November 18, 2009 8:11 PM
ugg boots sale-Warm ugg boots for all the family remain at the heart of our collection,find your favorite UGGs from stunning designs-ugg boots uk
Posted by: ugg boots uk | December 15, 2009 10:42 PM
Famous top quality Uggs with great discount are On Sale.
We are the best Ugg Sale online store.
Posted by: ugg boots sale | December 16, 2009 3:53 AM
We are Rolex watch experts selling only the finest, top level condition, and preowned men's and ladies' Rolex watches, used Rolex watches, unused Rolex watches and new Rolex watches on the market. Our top priority is to provide every customer with the highest quality Rolex watch at the lowest price available. Browse our wide selection of Rolexes for sale.
Posted by: replica watches | December 31, 2009 12:53 AM
Our web sells the Fake Rolex with high quality and exclusive design .
Rolex Replica Watches can be the perfect choice for you.
Posted by: Rolex watches | January 4, 2010 9:39 PM
so good~!
Posted by: Louis Vuitton bags | January 4, 2010 10:37 PM
We run a professional website, it's your best choice, We have the best UGG, most stylish package, as well as the most professional NFL. ladies UGG boots are very popular, we sell classic ugg boots to you in low price,
Posted by: paul | February 7, 2010 1:36 AM