Saturday, February 7, 2009

Nah, the slippery slope exists only in the minds of paranoid Libertarians...

Here's what I wrote a few days ago about President Obama's edict that CEOs of corporations receiving Federal bail-out money will have their pay capped at $500k:

This is only intended as a first step. Because virtually every corporation receives some sort of government funding (research grants, tax breaks, etc.), pretty much just like every university does, this precedent will ultimately allow the government the power to cap the pay of anybody in the corporate world, not just those whose businesses are in trouble.

And here's the link Bowly sent me last night, from the Financial Week:

Congress will consider legislation to extend some of the curbs on executive pay that now apply only to those banks receiving federal assistance, House Financial Services Committee Chairman Barney Frank said.

“There’s deeply rooted anger on the part of the average American,” the Massachusetts Democrat said at a Washington news conference today.

He said the compensation restrictions would apply to all financial institutions and might be extended to include all U.S. companies.

Nor can our liberal and progressive friends claim that Mr Frank is out of sync with the Obama administration:

Mr. Frank seems to be in synch with the Obama administration in his plans for executive compensation.

Treasury Secretary Timothy Geithner said last month that he might try to extend to all U.S. companies a restriction that prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive.

The Troubled Assets Relief Program legislation enacted in October seeks to give companies receiving aid under the $700 billion bailout a number of incentives to curb what it calls excessive executive pay.

Mr. Geithner said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”

It's important to remember that TARP funds have already been handed out to 362 banks across the nation, which is 4.8% of all banks in the country.

In other words, one bank in twenty has already received TARP funds. Many have only received a few million dollars, and many on the list have no real negative profile even now. So why did they take the funds?

The reason is simple: once again, massive Federal intervention has distorted the market, and the acquisition of TARP funds (or, perhaps, I should say, the non-acquisition) has become a competitive issue. If the Feds are handing out free money, and--at least initially--apparently without any strings or oversight attached, then many small to medium-sized banks literally could not afford to pass it up without giving an unfair competitive advantage to other banks that did so.

They should have known better.

You take the government's money and you invite the government to help you run your corporation.

And by doing so you have then placed the businesses in your sector that did not ask for help at the danger of unprecedented government intervention in the internal affairs of private companies.

What's the next step if Frank and Geitner have their way?

Look for an immediate move to regulate the paychecks of all corporate heads in any economic sector who receive Federal funds.

Do not look for any move--yet--to restrict the earning ability of entertainers. trial lawyers, or athletes. Two of the three categories are popular with the proletariat, and the other is a huge Democratic donor....


Brian Miller said...

Oh man. If they do this, I am going to seriously consider dropping out of the mainstream economy altogether.

Why bother working 60 to 80 hour weeks when some Congressional flunkie who takes half the year off and "works" three hours a day the rest of the year can decide your pay is "excessive" even when your business doesn't take a dime in fed cash?

Hube said...

Right on, Brian.

I saw this article yesterday and was flabbergasted.

Hube said...


Eric Dondero said...

Linking to this story at Libertarian Republican blog. Good job at advancing the story to the next level.

Bowly said...

Minor correction: Dana's word was "hysterical", not "paranoid".