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Are We Bailing Out the Wrong Banks?
Earlier today, The Wall Street Journal reported that the Obama administration is considering putting pay restrictions on banks that get big bailout bucks. Top execs of the companies wouldn’t be able to get severance and would have their bonus pools cut 40 percent. (It’s not clear which companies this would be.)
Of course, not everyone likes this plan:
If the government imposes caps or other limits on compensation, some bankers worry that the most talented people will flee to firms that are less regulated.
It’s not a new argument. But according to this logic, capping pay would make smart people go to banks that didn’t need “exceptional aid” to stay alive—presumably, the stronger, smarter banks. (Hey, I’m just following Darwinian/free market reasoning here…) But if they’re so smart, why are they staying at the crappy banks in the first place? Shouldn’t they already be jumping to open positions at the stronger companies? Possible answers include 1) they’re not actually that talented, and 2) there aren’t any jobs at the stronger banks. In either case, the whole argument is moot.
But it also raises a second question. Why continue funding the sinking ships at all? At the very least put the billions towards bolstering banks that were better at managing risk and might create—or at least keep—some jobs. (The whole Lehman situation notwithstanding.)
Want to know who’s been getting massive payouts? The New York Times has a great interactive tracker.
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