While the political world is obsessed with Scott Brown’s close race against Martha Coakley in Massachusetts and Senate Majority Leader Harry Reid’s use of the word “Negro” in referring to President Obama, the chairman of the House Financial Services Committee is moving forward with plans to have Washington dictate how much money Americans employed in the financial industry can earn. And today, President Obama announces plans to create a new bank tax “intended to constrain risk-taking and discourage out-sized bonuses,” as the Washington Post put it. The drive to punish Wall Street is on.
“The question of compensation, particularly in the financial industry, is a legitimate cause of concern in the country as a whole and we are going to address it,” Rep. Barney Frank, D-Mass., said Wednesday. He set Jan. 22 as the date his committee would hold a hearing on financial industry compensation. It is to be a precursor to federal regulation of such compensation, Frank made clear.
In a press conference, Frank openly mocked employee compensation in the financial industry.
“There may be in some of these financial institutions people capable of playing major league baseball, I’m not aware of that,” he said in reference to arguments made by some in the financial industry that high pay and big bonuses are necessary to attract and keep top talent. “I don’t know where people would go for comparable salaries,” he said.
Americans ought to find it highly disturbing that the chairman of the House Financial Services Committee, the man in charge of legislation that regulates the financial industry, has no idea that entrepreneurs and executives of other types of businesses often earn more than people on Wall Street. Of the top 25 highest-paid executives in America in 2008, only one ran a financial services business, according to Forbes magazine’s 2009 CEO compensation rankings. The CEO of Capital One Financial ranked 64th, 11 places behind the CEO of Public Storage, a California self-storage company. The much-maligned Ken Lewis, CEO of Bank of America, ranked 104th, behind the top executives of Sherwin-Williams, Smucker’s, and Mattel.
Anyone with the slightest understanding of the business world would be at least casually aware that Wall Street does indeed compete with other types of industries for top talent. Frank dismisses the very idea with a crack about bankers playing professional baseball.
Frank might be interested to learn, incidentally, that Forbes magazine reported last year that the CEOs of the nation’s top 500 companies took an average 15 percent pay cut in 2007 and another 11 percent reduction in 2008. No, they aren’t suffering, but the idea that big-time corporate bosses aren’t seeing reductions in their pay in the down economy is untrue.
Mocking the idea that firms would move overseas if their compensation were too heavily regulated, Frank, aware that the UK is also moving to restrict pay, said, “By the time they’re through, they’re going to have to go to Mars to escape the determination to restrict.”
Does Frank really believe that some nations won’t seek these companies out by creating a more palatable climate for them and their officers and employees?
Probably his most disturbing comment was this: “Companies have said that they had no option but to pay what seem to be outsize forms of compensation, frankly, for the social value. They say they will lose people to other companies. Well, that’s an argument for us doing it by statute and regulation so there’s uniformity.”
Frank believes Washington should make it illegal for financial firms to compete for employees by offering better compensation than their competitors. And he believes the Constitution grants Congress the authority to do so.
If Congress were to set uniform pay rates throughout the financial services industry, why would anyone work for a bank or investment firm who had the option of making comparable pay anywhere else?
While Frank is plotting to dictate how much bankers and stock brokers can be paid, President Obama is planning to use the tax code to reduce what bankers can be paid and to give small banks a competitive advantage over larger ones. His new tax would apply only to large banks.
But even that’s not enough for some Democrats in Congress. Some want a 75 percent tax on bonuses, others a tax on all financial transactions, the Washington Post reports.
Last year’s saber-rattling over Wall Street bonuses was only the beginning. The Democrats in Washington are preparing to make an example of the entire financial industry. They plan to use the recession and public distrust of Wall Street to confiscate as much wealth as possible from the financial industry.
And the most frightening part is that they really believe these moves won’t have a negative effect on the broader economy. They apparently believe Wall Street operates in a vacuum in which all money handled by banks, brokerages, and investors is self-contained within Wall Street and available to no one else. If they get their way, much of it will no longer be available to American businesses, but only to the constituencies and pressure groups favored by the administration and the majority party in Congress which confiscates it.