David Brooks of the NYTimes has said the notion of Financial Oligarchs is nonsense; rather the financial upheaval of the past two years and its consequent debilitating recession can be attributed to …. “stupidity”.
I would like to quote some dissenting opinions. First, from the Atlantic there is :
“The crash has laid bare many unpleasant truths about the United States. One of the most alarming is that the finance industry has effectively captured our government”, says Simon Johnson, a chief economist with the International Monetary Fund in 2007 and 2008. In an article entitled “The Quiet Coup” in the May, 2009 issue of the Atlantic magazine he (with James Kwak) goes on to say that “if the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform and if we are to prevent a true depression, we’re running out of time”.
Next is the description of Impressionable Elites in Mark Penn’s MicroTrends:
“In “Microtrends: The Small Forces Behind Tomorrow’s Big Changes,” I take the view that rational, informed behavior is spreading through the better-educated lower and middle classes — those who went to college, have information-economy jobs, and use the Internet. But at the same time, the elites have become more impressionable — more removed from everyday problems, more trusting of what they hear, and more likely to adopt unthinking viewpoints based on brand or emotion.” The problem is that such elites are gaining on two fronts according to Mr Penn – 1)there average salary has increased by 14% for the past 3 years while those earning less than $300,000 have seen their salaries decline and 2)yet the number of elites continues to rise (as of 2007).
Now why is this of import – because Treasury Secretary Tim Geithner is about to rule on Financial Compensation and the limitations on them (set for mid-June announcement). As Mark Penn makes clear in his book, the strength of the elites is their extravagant compensation and their disconnect from the rest of the population. So the initial direction on curtailing runaway financial compensation in financial institutions which cannot be allowed to fail has been set by President Obama in February of this year as outlined in the NYTimes:”In announcing executive pay limits on Wednesday, President Obama is trying to hold the financial industry accountable to taxpayers while aiming to change an entrenched corporate culture that endorses outsize bonuses and perks that often bear little relationship to corporate performance”
However, more recently Tim Geithner has modifed and watered the postion moving away from salary caps to preventable measuresas seen here in USAToday:’Treasury Secretary Tim Geithner said Monday the government shouldn’t rein in executive pay but should change corporate incentives so officials aren’t rewarded for taking the kinds of risks that helped sink the economy. “I don’t think our government should set caps on compensation,” Geithner said at a luncheon sponsored by Newsweek. “You had a crisis magnified by the fact that people were paid to take a huge amount of short-term risk. And that’s something that’s preventable.”‘
Now I am reminded of two things – when Geithner was appointed the Stock Market turned up by a whopping 300 points that day and current financial compensation for top CEOs is in the tens of millions of dollars, which is 1000-5000 times the average pay in the US. And at this payrate standard deviation theory would imply these executives should only be making 1 mistake in 100,000,000 million decisions. There is a lot of cognitive dissonance here Mr Geithner and Mr Obama if you don’t apply salary caps. If you thought AIG compensation was a raging storm – just leave the financial oligarchs with minimal limitations on compensation.