Legislation Author: House Financial Services Committee Chairman Barney Frank

As if the last bill passed by the House wasn’t radical enough, new legislation introduced by Barney Frank would give the Treasury the power to restrict the pay of all employees at institutions that have received a capital investment from the government. The Washington Examiner describes the plan as follows:

“the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the “Pay for Performance Act of 2009,” would impose government controls on the pay of all employees — not just top executives — of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

The purpose of the legislation is to “prohibit unreasonable and excessive compensation and compensation not based on performance standards,” according to the bill’s language. That includes regular pay, bonuses — everything — paid to employees of companies in whom the government has a capital stake, including those that have received funds through the Troubled Assets Relief Program, or TARP, as well as Fannie Mae and Freddie Mac.”

Its unbelievable that such legislation has already passed a vote in the House Financial Services committee by a vote of 38-22. The bill is scheduled to be voted upon by the House later this week.

What are our elected officials doing in the House of Representatives? They are clearly out of control and need to be reigned in. Barney Frank seems to be the main offender in my opinion. Its a good thing most of the banks plan to give back the TARP funds anyway.

Let’s hope the House comes to its senses and rejects the latest measure to stick a pitchfork into Wall Street.

Full text of the Washington Examiner article can be found here.

Uncategorized banks, bonuses, wall street

As I sit here watching some very exciting NCAA tournament games, a fire still burns in my belly regarding the recent outrage over Wall St bonuses and this 90% tax introduced by the House. I think an overwhelming majority of Americans will agree that the compensation system on Wall Street needs a long overdue overhaul, and I agree with this point, but the House legislation goes too far.

On Wall St, the incentives of individual employees were not aligned with the firms they work for nor with the financial system as a whole. Traders at these firms were encouraged to “swing for the fcnces” due to lavish bonus payments and inadequate risk controls. Essentially, your employment at the firm was like an option with the maximum downside being the loss of your job and the upside being almost unlimited in terms of the amount of dollars you could be paid. Look at Brian Hunter, the Ex-Amaranth trader, who lost almost $7 billion for his firm. Do you think he loses sleep at night over the $7 billion he lost when he can sit and count his millions and drive around in his Bentley Arnage and Ferrari F430 Spider? This is exactly the type of behavior that needs to be changed. Wall St firms are already taking the steps to do so and I am hopeful that reasonable legislation and oversight will come from the government as well.

The nation’s financial system is in shambles and it will take a massive effort by the government along with the private sector to fix it and get it back on track. We can’t afford to waste energy quibbling about relatively small bonus payments when the amount of money committed by the government and the potential economic loss is in the TRILLIONS. Unfortunately, it will be hard to stabilize this nation’s financial system and revamp the compensation system on Wall St at the same time. If I could choose on issue to focus on, it would be the economy. Financial institutions cannot afford to lose its best people because the government now decides they are making too much money. The poor performance of financial shares today illustrates this point.

For President Obama, this will be a defining moment. No one is saying to not revamp the compensation system on Wall St, he needs to take this bull by the horns, reign in the anger expressed by the public and channel it in a more effective direction — fixing this nations economy. The bill passed by the house doesn’t do this.

Uncategorized bonuses, economy, obama, tax, wall street

I’m real tired of the political posturing and rhetoric we are all subjected to day after day about bonuses being paid at Wall Street firms. The recent outrage over retention bonuses at AIG was the last straw. The House just passed a bill proposed by Charles Rangel that would tax at 90% those bonuses paid by firms that received over $5bn in TARP money. The bonus tax would only apply to those who received over $250,000 in total compensation during the 2009 calendar year. All of the recent debate makes for good theater and politics but does nothing to address the core issue that we still don’t know what the banks have done with the majority of the TARP money.

Most bonuses for 2008 were paid after 12/31/08, which would make them TAXABLE AT 90% under the house plan, making it in effect a retroactive tax.

I think what just happened was completely done out of fear and anger and might be the most ridiculous thing to come out of Washington in recent memory. The people in Washington are fearing for their political lives as their offices field angry calls from constituents who view a “bonus” as something that should be paid to someone as a reward, not to someone who has run their firm into the ground. If we changed the compensation on Wall St so that people were paid significantly higher base salaries, would that make things ok?

Wall St for a very long time has not had a bonus structure that is typical by the standards held by many Americans. On Wall St, an individuals salary is only a small token of total compensation, with the majority of the reward coming in the form of a bonus.

Just think about this, lets say you were making $1 million a year in total compensation for the last 5 years, and now someone comes along and says you will only make $100,000 this year because you will not be getting a bonus. What would you do? You’d probably quit if you were financially secure. That is exactly what these senior executives will do at the exact time we need them to help to return their firms to profitability and help steer us out of this economic mess. These firms don’t run themselves and can’t afford to lose its best people.

This bill still has a long way to go, and the Senate is considering a version that would tax bonuses at 70% with half to be borne by the company and the other half by the individual. The government is trying to navigate down a very slippery slope by attempting to set compensation for private companies. I just hope Washington comes to its senses and doesn’t cause a massive Wall St “Brain Drain” that makes it impossible get ourselves out of this economic mess.

Uncategorized bonuses, tax, wall street