Wall Street, Prepare to Be Hammered
- 0 Comments
While the political world is obsessed with Scott Brown’s close
race against Martha Coakley in Massachusetts and Senate Majority
Leader Harry Reid’s use of the word “Negro” in referring to
President Obama, the chairman of the House Financial Services
Committee is moving forward with plans to have Washington dictate
how much money Americans employed in the financial industry can
earn. And today, President Obama announces plans to create a new
bank tax “intended to constrain risk-taking and discourage
out-sized bonuses,” as the
Washington Post put it. The drive to punish Wall
Street is on.
“The question of compensation, particularly in the financial
industry, is a legitimate cause of concern in the country as a
whole and we are going to address it,” Rep. Barney Frank,
D-Mass., said Wednesday. He set Jan. 22 as the date his committee
would hold a hearing on financial industry compensation. It is to
be a precursor to federal regulation of such compensation, Frank
made clear.
In a press conference, Frank openly mocked employee compensation
in the financial industry.
“There may be in some of these financial institutions people
capable of playing major league baseball, I’m not aware of that,”
he said in reference to arguments made by some in the financial
industry that high pay and big bonuses are necessary to attract
and keep top talent. “I don’t know where people would go for
comparable salaries,” he said.
Americans ought to find it highly disturbing that the chairman of
the House Financial Services Committee, the man in charge of
legislation that regulates the financial industry, has no idea
that entrepreneurs and executives of other types of businesses
often earn more than people on Wall Street. Of the top 25
highest-paid executives in America in 2008, only one ran a
financial services business, according to Forbes
magazine’s 2009 CEO compensation rankings. The CEO of
Capital One Financial ranked 64th, 11 places behind the CEO of
Public Storage, a California self-storage company. The
much-maligned Ken Lewis, CEO of Bank of America, ranked 104th,
behind the top executives of Sherwin-Williams, Smucker’s, and
Mattel.
Anyone with the slightest understanding of the business world
would be at least casually aware that Wall Street does indeed
compete with other types of industries for top talent. Frank
dismisses the very idea with a crack about bankers playing
professional baseball.
Frank might be interested to learn, incidentally, that
Forbes magazine reported last year that the CEOs
of the nation’s top 500 companies took an average 15 percent pay
cut in 2007 and another 11 percent reduction in 2008. No, they
aren’t suffering, but the idea that big-time corporate bosses
aren’t seeing reductions in their pay in the down economy is
untrue.
Mocking the idea that firms would move overseas if their
compensation were too heavily regulated, Frank, aware that the UK
is also moving to restrict pay, said, “By the time they’re
through, they’re going to have to go to Mars to escape the
determination to restrict.”
Does Frank really believe that some nations won’t seek these
companies out by creating a more palatable climate for them and
their officers and employees?
Probably his most disturbing comment was this: “Companies have
said that they had no option but to pay what seem to be outsize
forms of compensation, frankly, for the social value. They say
they will lose people to other companies. Well, that’s an
argument for us doing it by statute and regulation so there’s
uniformity.”
Frank believes Washington should make it illegal for financial
firms to compete for employees by offering better compensation
than their competitors. And he believes the Constitution grants
Congress the authority to do so.
If Congress were to set uniform pay rates throughout the
financial services industry, why would anyone work for a bank or
investment firm who had the option of making comparable pay
anywhere else?
While Frank is plotting to dictate how much bankers and stock
brokers can be paid, President Obama is planning to use the tax
code to reduce what bankers can be paid and to give small banks a
competitive advantage over larger ones. His new tax would apply
only to large banks.
But even that’s not enough for some Democrats in Congress. Some
want a 75 percent tax on bonuses, others a tax on all financial
transactions, the Washington Post reports.
Last year’s saber-rattling over Wall Street bonuses was only the
beginning. The Democrats in Washington are preparing to make an
example of the entire financial industry. They plan to use the
recession and public distrust of Wall Street to confiscate as
much wealth as possible from the financial industry.
And the most frightening part is that they really believe these
moves won’t have a negative effect on the broader economy. They
apparently believe Wall Street operates in a vacuum in which all
money handled by banks, brokerages, and investors is
self-contained within Wall Street and available to no one else.
If they get their way, much of it will no longer be available to
American businesses, but only to the constituencies and pressure
groups favored by the administration and the majority party in
Congress which confiscates it.
