As Wall Street Bonuses Go, So Goes the Liberty of All of Us
posted by Galileo Blogs @ 10:33 PM
“There will be a time for [Wall Street executives] to make profits and there will be a time for them to get bonuses. Now is not that time.” So said President Obama on January 29 to reporters (source: “The Kudlow Report,” CNBC).
So we receive President Obama’s declaration that Wall Street bonuses must be cut. According to him, now is not the time for those bonuses, although he allows that there will be a time – determined by him – when bonuses will again become acceptable.
When Obama arrogates to himself the authority to determine whether, when, and in what amount payments shall be made by an employer to an employee, do not think that such power will only be used to lighten the wallets of Wall Street executives. Such a power demanded today becomes one that will be used in the future to cut the wage or bonus that any American is paid, if doing so should please the Presidency.
If you doubt that, consider that at several times in history the American government fixed the wages of nearly all Americans. It happened during World War II and it happened again in the early 1970s. It is neither a Democratic nor a Republican issue, with the former happening under Democratic President Roosevelt and the latter under Republican President Nixon.
It needs to be said, because Americans have become so used to having their liberties encroached: a man’s ownership of his labor is parcel of the ownership of his own life. If he cannot freely contract with an employer to offer his labor at voluntary, mutually agreed upon terms, then his life is no longer his own. Instead of being a free agent offering his services at a voluntary, mutually agreed upon rate to a willing employer, he becomes a serf, whose labor and life is controlled by his lord and master.
That is the meaning of Obama’s attack on Wall Street bonuses. Attacking the private right of employer and employee to voluntarily agree on salaries and bonuses is an attack on the freedom of both parties. In calling for Wall Street executives to be treated like serfs, President Obama is setting the precedent that will make all of us serfs in the future.
Do not be fooled by the issue of government bailouts. Government had no right to hand out that money. It does not belong to government; it belongs to each one of us. Moreover, this crisis would have ended on its own without any government “rescues.” Recessions always end through the economic adjustments of all participants in the economy. It happens on its own, without a “rescue” or despite it. The current recession is no exception and will end, despite Presidents Bush and Obama’s profligate showering of trillions of dollars of taxpayer money on the problem.
However, government committing a wrong by handing out bailout money does not give it the right to compound its wrong by using that as a justification for further violating the rights of employers and employees. Government should not be handing out bailouts, nor should it be telling employers whether they can pay bonuses.
No one, including President Obama, has the right to forcefully tear apart the private employment relationship between employer and employee. When a private individual does it, it is considered fraud or theft. When the President does it, he takes on the scary personage of a dictator.
So we receive President Obama’s declaration that Wall Street bonuses must be cut. According to him, now is not the time for those bonuses, although he allows that there will be a time – determined by him – when bonuses will again become acceptable.
When Obama arrogates to himself the authority to determine whether, when, and in what amount payments shall be made by an employer to an employee, do not think that such power will only be used to lighten the wallets of Wall Street executives. Such a power demanded today becomes one that will be used in the future to cut the wage or bonus that any American is paid, if doing so should please the Presidency.
If you doubt that, consider that at several times in history the American government fixed the wages of nearly all Americans. It happened during World War II and it happened again in the early 1970s. It is neither a Democratic nor a Republican issue, with the former happening under Democratic President Roosevelt and the latter under Republican President Nixon.
It needs to be said, because Americans have become so used to having their liberties encroached: a man’s ownership of his labor is parcel of the ownership of his own life. If he cannot freely contract with an employer to offer his labor at voluntary, mutually agreed upon terms, then his life is no longer his own. Instead of being a free agent offering his services at a voluntary, mutually agreed upon rate to a willing employer, he becomes a serf, whose labor and life is controlled by his lord and master.
That is the meaning of Obama’s attack on Wall Street bonuses. Attacking the private right of employer and employee to voluntarily agree on salaries and bonuses is an attack on the freedom of both parties. In calling for Wall Street executives to be treated like serfs, President Obama is setting the precedent that will make all of us serfs in the future.
Do not be fooled by the issue of government bailouts. Government had no right to hand out that money. It does not belong to government; it belongs to each one of us. Moreover, this crisis would have ended on its own without any government “rescues.” Recessions always end through the economic adjustments of all participants in the economy. It happens on its own, without a “rescue” or despite it. The current recession is no exception and will end, despite Presidents Bush and Obama’s profligate showering of trillions of dollars of taxpayer money on the problem.
However, government committing a wrong by handing out bailout money does not give it the right to compound its wrong by using that as a justification for further violating the rights of employers and employees. Government should not be handing out bailouts, nor should it be telling employers whether they can pay bonuses.
No one, including President Obama, has the right to forcefully tear apart the private employment relationship between employer and employee. When a private individual does it, it is considered fraud or theft. When the President does it, he takes on the scary personage of a dictator.
Labels: bonuses, Obama, Wall Street
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There is an additional, more fundamental question raised by Mr. Obama's pronouncement: precisely how is the economy to recover without profits?
Comment posted by 
: 2/3/09 6:49 PM
: 2/3/09 6:49 PM
Today, the news is reporting a planned compensation cap of $500K for executives in companies that received significant Fed assistance. That is such a bad move. I plan to write to Congress and POTUS strongly objecting to this.
What about companies like Wells on whom the Fed forced payments? Are they going to be covered too? What better recipe for disaster than to cut the compensation of the best at the best?
What about companies like Wells on whom the Fed forced payments? Are they going to be covered too? What better recipe for disaster than to cut the compensation of the best at the best?
With the $500K cap, my first thought was "will this hit BB&T?" I'm guessing it will, but the thought that Allison and the other leaders of the firm being hit with this stupid and immoral cap when the government strong armed them into accepting the TARP money in the first place... well, it makes me rather angry.
Marketwatch reports: "The new rules would not apply to most banks and other financial institutions that have already received capital from a controversial $700 billion bank-bailout bill approved by Congress in October, unless they seek more funds."
Under the new rules, executives at large banks receiving so-called "exceptional assistance" and other financial institutions applying for capital are having their salaries limited to $500,000. However, one key provision would allow shareholders to vote to waive the $500,000 executive-pay limitation."
Under the new rules, executives at large banks receiving so-called "exceptional assistance" and other financial institutions applying for capital are having their salaries limited to $500,000. However, one key provision would allow shareholders to vote to waive the $500,000 executive-pay limitation."
Another report describes how Wells Fargo canceled a Vegas trip because of the TARP-related scrutiny.
Republican Rep. Capito is quoted as saying: "... These guys are going to Vegas to roll the dice on the taxpayer dime? ... It's outrageous."
Republican Rep. Capito is quoted as saying: "... These guys are going to Vegas to roll the dice on the taxpayer dime? ... It's outrageous."
thank you realist theorist! i pay taxes. i am not pleased about my money being used to finance these banks/businesses because of their BAD/RISKY/STUPID business choices. i agree with your "ideal". and i know government played its (small) part in the crisis, but we live in democracy. and as long as this plan is going forward, put into place by our elected officials, i think there should be ACCOUNTABILITY. since i have become a shareholder, so to speak, i say: don't take the money if you can't pay the price. thank you very much.
plus, the proposed law allows for differed bonuses - ONCE THE MONEY IS PAID BACK -so nothing is taken away.
step back everyone and take a big breath.
plus, the proposed law allows for differed bonuses - ONCE THE MONEY IS PAID BACK -so nothing is taken away.
step back everyone and take a big breath.
Comment posted by : 2/5/09 8:15 PM
: 2/5/09 8:15 PM
Well, anonymous, you really had no right to become a shareholder here. The country has bankruptcy laws for situations like this.
Anonymous -
A couple of thougths. I know that you must feel frustrated that your money is being used in the first place, however, I don't think that justifies the retributive stance. That is essentially a "two wrongs don't make a right" principle. If govt. is going to violate my rights, then it doesn't make it ok to then ask govt to stick it to others. I think a better approach is to say, both are wrong.
Second, the government role in the creation of this mess is substantial. The financial crisis started in the housing market, and two key structural features of the housing boom, a ready secondary market for mortgage debt, and loose financial policy from 2000-2005 are the most significant direct contributors to the crisis. Both are direct results of government intervention in the housing market (the first through Freddie and Fannie which essentially created the secondary market under government mandate, and the second through the monetary policy of the FED and Alan Greenspan). WIhtout those two key structural elements, there would be no housing crisis.
This of course makes the subsequent government blame, and bailout doubly egregious, don't you think?
A couple of thougths. I know that you must feel frustrated that your money is being used in the first place, however, I don't think that justifies the retributive stance. That is essentially a "two wrongs don't make a right" principle. If govt. is going to violate my rights, then it doesn't make it ok to then ask govt to stick it to others. I think a better approach is to say, both are wrong.
Second, the government role in the creation of this mess is substantial. The financial crisis started in the housing market, and two key structural features of the housing boom, a ready secondary market for mortgage debt, and loose financial policy from 2000-2005 are the most significant direct contributors to the crisis. Both are direct results of government intervention in the housing market (the first through Freddie and Fannie which essentially created the secondary market under government mandate, and the second through the monetary policy of the FED and Alan Greenspan). WIhtout those two key structural elements, there would be no housing crisis.
This of course makes the subsequent government blame, and bailout doubly egregious, don't you think?
A oil executive gets a 200 million dollar payout. As with these golden parachutes, this is not the "intersection of supply and demand". Rather this is legal robbery, this is the reemergence of the thieving rich. Move over thieving poor. According to news reports, board of directors give themselves obscene pay increases with literally no checks and balances. This is not market forces. Its the rest of the country, the consumers who ultimately pay for these payouts that are the real "serfs". Claiming victim hood, cloaking yourself in objectivistic language while rejecting its principles and robbing blind the country. Rand would rove over in her grave if she new what these "objectivists" are doing. Wolves in sheeps clothing, thats what these people are.
Comment posted by : 2/6/09 12:19 PM
: 2/6/09 12:19 PM
Anonymous, I think you implicitly raise two questions:
First question: are (some/many) executives over-paid?
Second question: if they are, then who should rectify it? Government or someone else?
To tackle the first question, you call their pay obscene, but you offer no further explanation. How does one arrive at a fair salary for an employee of a company? and, Who should determine whether the salary is right?
What about top sportsmen, do you think the government should decide what they are worth, and limit their pay? What about star performers, like Madonna? Does the same apply?
I'd like to understand the reasoning behind the judgment that oil-executives are paid "too much" by their shareholders.
First question: are (some/many) executives over-paid?
Second question: if they are, then who should rectify it? Government or someone else?
To tackle the first question, you call their pay obscene, but you offer no further explanation. How does one arrive at a fair salary for an employee of a company? and, Who should determine whether the salary is right?
What about top sportsmen, do you think the government should decide what they are worth, and limit their pay? What about star performers, like Madonna? Does the same apply?
I'd like to understand the reasoning behind the judgment that oil-executives are paid "too much" by their shareholders.
Its me again. A persons worth should be determined by the intersection of supply and demand, as I pointed out and you completely ignored. This is what determines the pay of sportsmen and Madonna - the collective judgment of millions of people. Management have by contrast, exploited the way companies are set up to bypass supply and demand. They pay themselves at board meetings an amount that the open market would not bear. Do you honestly believe that some one else could not a have done a similar job to the executive who got $200 million dollars for a fraction of that price. Its the corresponding public outcry that has enabled Obama to set pay limits that you complain about. The "solution" to the problem is for management to be honest and genuinely allow market forces to dictate wages instead of rigging the rules/exploiting company rules. Government intervention, if attempted should be directed to ensue thats it's market forces and not rule rigging that determines a persons pay.
Comment posted by : 2/6/09 5:40 PM
: 2/6/09 5:40 PM
Anon, you keep referring to "market forces" being allowed to dictate wages, without stating how those forces are actually to be brought to bear, and without showing how they are not brought to bear today. You also simply assert that $200 million is a sum that must indicate overpayment without providing any argument other than "do you honestly believe."
Are you suggesting that government imposed salary caps are proper government intervention?
Management do not vote themselves pay packages. In most companies those are specifically voted upon by the shareholders. Non-management board members are generally not paid large sums. You as a taxpayer are not a "shareholder" in these companies, you are a debt holder. Debt holders do not have a voice in company management except via terms that are in the debt covenants. For government to specifically violate those particular provisions is circumvention of contract.
Do I think the market for financial firm executive pay has been run up? Yes, I do; as a result for instance of market distortions that were originally caused by government intervention as I explained earlier.
Are you suggesting that government imposed salary caps are proper government intervention?
Management do not vote themselves pay packages. In most companies those are specifically voted upon by the shareholders. Non-management board members are generally not paid large sums. You as a taxpayer are not a "shareholder" in these companies, you are a debt holder. Debt holders do not have a voice in company management except via terms that are in the debt covenants. For government to specifically violate those particular provisions is circumvention of contract.
Do I think the market for financial firm executive pay has been run up? Yes, I do; as a result for instance of market distortions that were originally caused by government intervention as I explained earlier.
Here is Ayn Rand Institute Director Yaron Brook on the same topic, and with the same viewpoint.
http://www.businessweek.com/debateroom/archives/2009/02/let_ceos_make_d.html
http://www.businessweek.com/debateroom/archives/2009/02/let_ceos_make_d.html
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