Executive Pay Rule Targets Wrong Offenders

It would be premature to comment with much authority on Treasury Secretary Timothy F. Geithner's national press conference Tuesday because it lacked too many details. Generally, it was greeted by a sour response from the banking industry and investors. The Dow Jones industrial average, the Standard & Poor's 500-stock index and the tech-heavy Nasdaq each fell more than 4 percent in late afternoon trading.


My focus was on President Obama's proposal to limit senior executives in institutions receiving new Troubled Asset Relief Funds to an annual salary cap of $500,000. Geithner said such restrictions would allow executives compensation in stock options only after the bailout money was paid back. That's a dumb rule. It's akin to firing the teacher because the student misbehaved.


It was the $18 billion in bailout funds paid to lower echelon sales brokers who manipulated the current crisis which came about through a toxic cocktail of reckless lending into a government-subsidized real-estate bubble and misjudgments about the risk of complex financial instruments.



This is not to be confused with the few executives who were in charge when their financial institutions dive bombed received millions of dollars in bonuses and shareholders continued to receive dividends.



You can hold your nose as the government in these trying times does its best to stabilize the economy. But it has no business meddling with the salary structure within these institutions. The culture of paying the income-producing agents must remain in a free market society.

We have said this in earlier postings: You cannot limit the pay of the Citigroup CEO to $500,000 and expect to turn billions of dollars in loses into black on the ledger sheets.

In his remarks, Geithner said "To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we are fundamentally reshaping the government's program to repair the financial system."

House Republican Leader John Boehner (R-OH), while criticizing the scope of the plan, praised the administration for limiting executive compensation for firms that receive assistance.

Rep. Scott Garrett (R-N.J.), a member of the House Financial Services Committee, said "With the exception of a general outline of how the Treasury Secretary would like to spend the funds, Congress has been provided with no specifics, as well as no metrics for how we can measure the level of success or failure of the program."

“Everything was scattershot, hit and miss,” said former Fed governor Frederic Mishkin. “Now the feds have to go in big time and get this mess cleaned up. I think that there's an understanding in the administration that this is what needs to be done. But, boy, the details surely matter here.”