From the Baseline Scenario
As they justify their pay packages, the bankers open up a broader relevant question: How much bonus do they deserve in this situation? After all, bonus time is when you decide who made what kind of relative contribution to your bottom line – and you are able to recognize unusually strong achievement.
- If the bonuses are not paid, people will leave our major banks. It’s unlikely that many good people will leave, but if they do move to smaller institutions that are not Too Big To Fail, that’s good for the rest of us.
- Big banks made these profits fair-and-square, so the bonuses belong to the workforce. This is wrong at two levels (a) the profits in 2009 (and 2008) were solely the result of massive government intervention, designed at saving and recapitalizing big banks, and (b) the recapitalization part of that strategy only works if the profits generated are retained – not if they are paid out.
- You cannot now tax the bonuses for 2009 without violating all the norms of reasonable taxation – i.e., that it not be retroactive, not be confiscatory, and not mess seriously with incentives. Ordinarily, these are good arguments. But today’s circumstances are so egregious that we need to take highly unusual steps. The banks and their key employees are so far from understanding what they did wrong, they don’t even have a framework within which they can understand what they need to do right going forward. This industry needs a wake-up call.
Ok. so far I follow. But, if we consider that bonus amounts should be tied to relative contribution, then all of these bankers do deserve huge bonuses. From a purely business perspective, they were able to get the government to dump money into them, keeping them afloat in a time when otherwise they likely would have failed. Their actions leading up to this should be rewarded by those companies that they kept alive.
For the government to come along after they have handed out money with no strings attached or even requirements on how to use that money seems childish and petulant. I suppose that describes our representatives in D.C. fairly well.
From comments:
Ray, what is your reasoning for allowing in these radical times a CEO to take home in 1 year more than the average employee makes during his/her working lifetime?
seriously? why not mandate complete income parity for all jobs all across the country. Wouldn’t that be more “fair”?
It just really really enrages me. I don’t understand how these bankers can be so so selfish.
That’s the way the market works. If people weren’t selfishly motivated, our race would be screwed. But we are, we each of us strive to better ourselves and gain more resources.
Why not pay their bonuses in toxic assets? It would get them off the books and give significant incentive to the banks to make them good.
While this sounds amusing, it supposes that the US Government should not only direct the pay of bonuses at private companies, but should also provide that pay.
I proposed a radical solution for the current radical situation:
Having temporarily not just a federal minimum wage, but also a federal maximum wage. All bonuses and gifts in natura are calculated to a cash equivalent.
All total income above the federal maximum wage of $ 300.000 (= 20 x minimum) is taxed at 100%.The proposal got only 1 objection (inventors of the next big thing still being allowed to make a billion; however, who ever needs a billion)
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Seriously, if this guy wouldn’t even dream of this if he ever got a job where he had the potential to make that. Plus, why would anyone put as much effort into their business if their maximum wage is capped? Once a proposal like this is adopted, the maximum wage will be subjected to constant political pressure from people earning “less than their fair share”.
And who needs a billion? might as well ask, who needs $80,000. You can raise a family and send your kids to college making less than that. Why not have 80k as the federal maximum wage. Obviously, if you want more than that, you are just being greedy.
These communists are making me ill.