President Obama says the $18.4 billion in bonuses paid to those financial wizards who drove the economy off a cliff is "the height of irresponsibility" and "shameful." Vice President Biden fumes, "I'd like to throw these guys in the brig." I'll settle for just getting that money back before these former masters of the universe spend it on $15,000-a-week rentals in the Hamptons or new Patek Philippe watches. Compensation experts say that's impossible under current law, which means that Obama and Congress will have to change the law. They should get cracking.
The Obama rollout has been smooth so far. From signing splashy executive orders to inviting the GOP congressional leadership for drinks, he's making all the right little gestures necessary for success in Washington. The problem is that symbolism takes a president only so far, especially when his own aides admit privately that they're not sure the economic-recovery package will actually work.
Let's say that it does, and the economy stabilizes. Winning plaudits for the success of the stimulus will still prove elusive. Even a trillion-dollar shot in the arm might be hard for most people to feel in a $14 trillion economy. An extra $13 in your paycheck, or the news that your state's budget deficit is improving, or your child's teacher not having to worry quite so much about being laid off, or bridge repairs somewhere in your county—these may not penetrate.
Recall the Sherlock Holmes story where the clue is the dog that didn't bark. The depression that didn't happen (if it doesn't) will likely be pocketed more than credited. Just look at TARP. Treasury Secretary Tim Geithner testified that it helped the country "avoid a catastrophe." But everyone hates it anyway, and only partly because of the woeful lack of transparency. Obama has pledged to save or create 3 million to 4 million new jobs. But people often don't know which jobs have been saved, even if one of them is their own. "Treading water" and "muddling through" are not exactly inspiring mantras moving forward.
So sustaining public support through a long recession depends on Obama achieving other big things like health-care reform, a new energy policy and a momentous new tax policy ("We should tax pollution, not payroll" is Al Gore's classic formulation). These efforts will take time and public education. Most people don't know, for instance, that a sharp reduction in payroll taxes (with Social Security and Medicare financed by carbon taxes) would reduce the cost of labor enough to generate tens of millions of new jobs.
In the meantime, Obama will need substantive ways beyond the stimulus to show the people he is on their side. Tongue-lashing greedheads and embarrassing them into giving up their private planes will only take him so far. And regulation of derivatives, hedge funds and other financial exotica is overdue but won't be much noticed by the public. Once the honeymoon fades, pressure will mount for tangible signs of a presidential spine.
That brings us back to bonuses. Sen. Claire McCaskill, an early Obama supporter, has introduced an elegant solution: no one who works for a Wall Street firm that is receiving federal TARP money may receive total compensation exceeding $400,000, which is the salary of the president of the United States. "I'm mad," she said last week. "We have a bunch of idiots that are kicking sand in the face of the American taxpayer." The only problem with McCaskill's bill is that it lacks retroactive "clawback" provisions. Last year's poor performers get to keep their booty.
Will Obama sign on? The main opposition would likely come from Wall Street types inside the administration who apparently don't think their old buddies should be forced to dip into savings to maintain their lifestyles. Hey, gents, welcome to America.
I don't know about you, but I didn't get a bonus this year. And unlike the delusional 46 percent of Wall Street employees who said in a recent poll that they "deserved" a bigger bonus, I'm not feeling aggrieved about it. Of course, I don't work on Wall Street, so I can't possibly understand. You see, its compensation structure is based on bonuses, which make up 70, 80, 90 percent plus of what they take home. With base salaries averaging "only" in the $200,000–$300,000 range, a no-bonus year would mean taking home less than half a million bucks. Imagine that!
The biggest excuse offered for bonuses is that if executives lose them, they'll go work elsewhere. The obvious question is, where? The Street is dead. Dealmaking has come to a virtual standstill. While some might flee to boutique firms that aren't getting federal money, those firms are hardly flush these days, either. After this obvious point is made, Wall Street executives insist that, without bonuses, the big firms will lose the only employees around with the expertise to sell off all the toxic assets. They sold worthless paper once and are thus uniquely qualified to do so again. But it turns out this task will likely be undertaken by a federally run "bad bank" anyway. The final line of bonus defense, seriously presented to me last fall by an Obama adviser, is that restricting bonuses smacks of a "populism" that is unrelated to solving our severe economic problems.
Actually, $18 billion smacks of, well, $18 billion. That's almost five times as much as we spend each year trying to cure cancer, which kills 500,000 Americans annually. It's twice what's in the stimulus for building mass transit, which creates thousands of jobs and cuts our dependence on foreign oil. The simplest thing would be for the banks to just collect the money back from their six-, seven- and eight-figure-income employees and lend it out to help get the economy moving again.
In the land of trillions, $18 billion might seem like a rounding error. But let's review what happened to the average person in the last six months. First, these financial geniuses made a series of bad decisions that cost us at least 30 percent of the value of everything we own. Then we gave them $700 billion of our children's money so they could stay afloat. And now they're rewarding themselves for their incompetence with our tax dollars. This is what our casino culture has brought us, and it cannot stand.