Pricking the Executive Compensation Bubble

Nicholas Kristof writes in the NYT:

The neo-Hoovers criticizing today’s stimulus package make perfectly valid points about this or that flaw in the stimulus package. But the alternative is perhaps three million fewer jobs and the national economy looking like a balloon losing air.

But isn't the national economy essentially a 'balloon losing air'? That's the problem--we had a housing bubble (balloon), preceded by a stock-market bubble, and each bubble (balloon) is an unnatural phenomenon that will by its nature 'lose air', like a bubble of bubble gum is inevitably going to burst in your face, covering it with sticky gum. There is no alternative, unless you blow up another bubble. But is that the solution to our problem: keep blowing up bubbles that then pop in our face?

I'm not against a well-structured stimulus plan, doing things that really need doing, but don't think it's going replace the bubble that's burst. It can't and shouldn't. This is one point that is hardly understood at all. The stimulus needs to be done, but there is no way we can go back to the kind of economy we have had.

Tom Peters, a management expert, suggests capping the pay of C.E.O.’s receiving bailouts at that of a four-star general. As for the concern that the executives would quit, who cares? Mr. Peters writes that if all the top executives of the Fortune 500 companies were exiled to Elba, “performance of their companies would not on average deteriorate.”

Here, Kristof is onto something. The compensation of top executives has itself been a growing bubble over the last few decades, growing from something like 30 to 1 to whatever it is now: 400 to 1, 1000 to 1? Whatever it is, it is obscene and basically has been done by themselves and their cronies, voting on each others pay packages.

I have an idea, let's put together an executive pay committee, make up of representatives of every group in America, including the working men and women in their companies, and let them decide what a fair and reasonable executive pay ratio is. Now that would be a 'tar and feathering' worth doing! I would love to hear the howls of pains rising up from the big mansions and country clubs around the country.

As for the nature of the bailout, President Obama pointed to Sweden’s resolution of its bank crisis as a solution. “They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again,” he told ABC News on Tuesday. “So you’d think looking at it, Sweden looks like a good model.”

Mr. Obama then suggested that it wouldn’t work in the United States, partly for cultural reasons. But a broad range of experts believe that some variation of nationalization is the only way to revive the banks quickly without squandering vast amounts of taxpayer dollars. Even the managing director of the International Monetary Fund suggested that Washington think of the Swedish model.

America’s horror of “nationalization” could be defused by handing out shares to all American households. President Bush used to talk about building an “ownership society.” Well, giving shares in big banks to all American households would be a terrific way to do that.
For many Americans, it would be the first time they directly owned stock — and, finally, something good could come from the banking Bust Bowl of 2009.

As a Swedish-American, I happen to think Sweden is a good model for our broken-down economy, so I agree wholeheartedly. Let's get something for the billions of dollars we're giving these banks/financial institutions, and then we'll have a legitimate say in what their executive makes. My church members set my salary, and I don't complain. I want a say in setting these bank executives salaries.