Congress assured us that there would be no more big paychecks for incompetent Wall Street bankers when they passed their bailout bill. They told us that the tough pay provisions would put an end to the multimillion-dollar payouts to these folks.
Last week, Treasury Secretary Henry Paulson mailed $150 billion in checks to the big banks. From that point forward, the CEOs and all the other top executives of these banks are now our dependents. They are living off the tax dollars of schoolteachers in Iowa, truck drivers in Montana and even Joe the Plumber.
It is difficult to understand why we should be taxing people who make $40,000 a year to boost the paychecks of bankers who make more than $1 million a year and in many cases more than $10 million a year. Senator McCain has called Senator Obama a socialist because Obama believes that it is O.K. to impose higher tax rates on rich people than poor people. Senator McCain considers this sort of redistribution unacceptable.
But, if redistribution from the rich to the rest of the country is socialist, what do you call the upward redistribution that Congress approved in the bailout package? It's hard to justify taxing people who make $40,000 a year to benefit bankers who make more than 100 times as much.
The Wall Street bailout was a classic, if totally foreseeable, bait and switch. The public has a real interest in ensuring the continued operation of the financial system. This was threatened by the credit crunch last month. This was the legitimate goal of the bailout.
However, if Congress only wanted to preserve the financial system and not reward the people responsible for the financial crisis, it would have been a simple matter to impose safeguards to ensure that the bank executives were forced to take large pay cuts. While many members of Congress implied that the bill would rein in executive pay, almost all the experts who have examined the provisions on executive pay have concluded that they are largely toothless.
The bailout also did not prevent the banks from paying out dividends to shareholders, as was done in the United Kingdom when they injected capital into their banks. This restriction makes sense not only as a punitive measure but also as a way to help the banks build capital. Every dollar paid out in dividends is a dollar that is not going towards building up capital. Stopping dividend payments should hasten the date at which the banks have sufficient capital without relying on help from the government.
The failure to seriously restrict executive compensation or prohibit dividend payments, coupled with the relatively generous terms given the banks on the capital obtained from the government, shows that the bailout was not just about keeping the financial system operating. It was also about giving money to the banks' executives and their shareholders.
The media seem to think this is all very funny. After having done public relations work to help get the bill through Congress, most major news outlets have not highlighted the fact that no bank executives are likely to get pay cuts as a result of the bailout. Nor have they highlighted the generous terms of the bailout compared to the UK. The public should continue to follow this issue even if the media does not. They should keep asking the members of Congress who touted the pay restrictions in the bailout bill which executives are getting their pay cut.
The public should also recognize that in the US economy, what you earn has little to do with your ability or the quality of your performance. It matters much more if you can get Congress and Henry Paulson to give you money. Just tell your kids to be sure to make good friends with powerful politicians.
Dean Baker is the co-director of the Center for Economic and Policy Research . He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (www.conservativenannystate.org). He also has a blog, "Beat the Press,"where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.
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