Good evening. The economy continues to flounder along. The initial new claims number came out today from the Labor Department and it was higher than expected. It actually increased. I didn't hear much from the spin doctors but apparently Wall Street shrugged it off as the market rose due to some positive earnings news. But I didn't want to discuss this as I have in previous posts. The big news was two announcements, one from the pay czar and one from the Fed Chairman about executive compensation.
While I am an adovacate of capitalism and the free market, it is hard to argue that compensation shouldn't be limited by the government for firms that take taxpayer money to bail them out. I just can't win that argument. I am concerned though about the pay limitations that the Fed wants to put on the nation's banks. Bonuses would be subject to the government's discretion. Compensation has been a seeping wound for many many years. The compensation of the higher echelon of executives have been outstripping the common worker exponentially over the last several decades. There are many arguments pro and con about how much somebody, particularly a CEO, is paid. I think policymakers are trying to take advantage of the current crisis by hamstringing the banks from paying high performers that create the wealth and strong stock prices that benefit many people. As a former commercial banker, bonuses for management were driven by company performance and personal performance. The overriding kicker was credit quality, or in other words if you took too many risks and had questionable loans, your bonus would be adjusted. While it seemed arbitrary at the time, the system worked. The current crisis started with the real estate market and some pretty bad actors. All of the United States's banks, probably about 8,000 of them were not all bad bankers. Of the ones that were, they either were shut down, acquired or will be. We need to take a breath before we overregulate our banks. Let's keep our eye on the problems of easy credit and lack of enforcement.
