Why Does Congress Care What Wall St. CEOs Make?

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Wall St. CEOs are going to be hauled in front of Congress, as they are almost weekly, to defend their use of TARP funds. The subject of what they get paid will almost certainly come up, again.

The issue of whether government money was  loaned by the banks  to consumers and businesses has always been a tricky one. The banks claim that they need the TARP cash for their balance sheets to offset future losses. They blame the government for not changing the “mark to market” accounting rules to help banks free up capital.

The bickering always ends at the same place. TARP money was used to fund hundreds of millions of dollars of bonuses for Wall St. CEOs, bankers and traders.. That’s money that Congress and the public believe these people do not deserve because it is compensation for a period when they wrecked the entire US banking and credit system.

Financial firm CEOs fire back that some of their key people made the banks lots of money. Those successes were simply buried by the results of toxic asset write-offs.

The solution is relative simple and gets around the objections of both sides. Capping pay may makes Congress feel better. TARP money hardly gets spent on compensation at all. But, the Treasury could easily set up a system to measure which bankers make their firms money and make certain they are paid accordingly. The Treasury proposes to check complex ratios at a number of financial firms to determine how much money they need from the TARP funds. Setting pay rules requires much more modest measurement skills.

Some TARP money should probably go to banker pay, if the bankers make enough to help pay the TARP funds back very quickly which saves the Treasury money. The taxpayer gets to watch people make tens of millions of dollars to keep tax rates down.

Douglas A. McIntyr