New Rise of Executive Pay at Banks Exposes the Folly of Bush & Obama Handling of Financial Crisis

Yesterday the New York Times ran a story reporting that executive pay at the nation’s largest banks is again approaching pre-financial crisis levels.  This is simply a signal that management teams in New York, Charlotte and elsewhere in banking headquarters are pursuing a business as usual approach to what many believe is the beginning of the end to the recession.

Krugman’s column today further adds to the case he’s been making all along during this financial crisis – Wall Street’s emperors have no clothes and taxpayers are footing the bill to rebuild their wardrobe.

So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes.

Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which he tried to defend financial innovation. His examples of “good” financial innovations were (1) credit cards — not exactly a new idea; (2) overdraft protection; and (3) subprime mortgages. (I am not making this up.) These were the things for which bankers got paid the big bucks?

Here’s what I think is most disturbing about recent financial history and the Bush and Obama Administrations’ policies:

GDP, which I believe is due for an announcement this week, has generally grown but over the last two or three decades that growth has been in areas like financial services and based upon “paper value.”  In other words, where we used to count more tangible goods as product, and those goods were made in the U.S. and that economic activity supported a middle class.  The financial services’ contribution to the overall economy has become huge, but their numbers benefit very few – the investment class.  Both the Bush and Obama Administrations have so far let financial services off Scot-free and pushed trillions of dollars that industry’s way.  On the other hand, the nation’s Big Three automakers are being treated as one would expect failing companies to be treated – with healthy skepticism.

• New – or “re” – regulation in the financial services sector needs to be undertaken now.  Treasury Secretary Timothy Geithner and others in the Obama Administration have talked the regulation game, but there’s been no action.  The argument was for a time that we need to stabilize things then move on to resetting the rules.  Apparently, Wall Streeters are shifting comfortably back into business as usual.  The TARP and PPIP have not had the effect both administrations hoped for.  All of the other legislative priorities of the Obama Administration, from health care to energy policy will be derailed by a second wave of the financial crisis.  Regulate now.
• I’m begging on this one … Not One More Bailout.  As currently configured, nearly all the risk of saving the financial system is on the taxpayer.  Future bailouts or federal actions to prop up the system should be approached like the auto industry.  No more carrots without sticks.  It’s past time for accountability from bankers and brokers.
• Finally, for today, it’s astounding to me that revelations last week by New York Attorney General Andrew Cuomo that former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke held a gun to Bank of America’s head to complete the Merrill-Lynch deal.  Furthermore, Paulson and Bernanke allegedly told BofA CEO Ken Lewis to not disclose his and management’s misgivings about the Merrill deal.  Why isn’t the media or Congress all over this?  When Wall Streeters like Geithner, Paulson and Summers are in charge only Wall Street benefits.  Were there SEC rules broken by Paulson and Summers?  Can the government intervene to stop the flow of information to corporate boards and shareholders?