Executive compensation on Wall Street is an issue that could make or break the Obama presidency. To many respectable figures in the media and in the administration (especially at the Treasury), executive pay is just a distraction from the real issues. Passionate anger over Wall Street compensation is seen as the hallmark of a demagogue. However, while the amount of money to be paid out in compensation to financial executives and employees (roughly $140 billion) is not all that much in the context of a $14 trillion economy, it is of great political importance.
It is imperative that Obama give struggling middle class and working class Americans the impression that those CEOs who have received government assistance are being made to share in the sacrifices of the American people. Without TARP and aid from the Federal Reserve, all of the major investment banks would have gone bankrupt last fall and then dragged the rest of financial sector down with them. Only 17% of the TARP money has been paid back, and even those banks (e.g., Goldman Sachs) that have repaid their TARP loans are still dependent on artificially cheap credit from the Federal Reserve to keep afloat. Given Wall Street’s continued dependence on government largesse and the economic difficulties most taxpayers are suffering, it would be a political disaster if the Obama administration were to give in to pressure from financial sector campaign contributors and back down on Feinberg’s proposed compensation limits.
The Republicans are largely opposed to the limits on pay for TARP recipients. They, along with the Wall Street toadies in the media (esp. the financial press), are raising spurious concerns about the inability of TARP recipients to retain talent without exorbitant pay packages. The Republicans are also opposing government limits on pay at private corporations on moral and ideological grounds.
This fight, assuming Obama doesn’t cave, is a dream come true for the democrats going into the midterms. The argument that multi-million dollar compensation is needed in order to retain "talent" at the institutions receiving TARP funds is easily rebutted by pointing out that losing billions of dollars and begging for help from Uncle Sam hardly demonstrates rare and exceptionally valuable skill. Most people, if asked "do you think you could blow $ 100 billion gambling if someone paid you $100 million to do so" would answer in the affirmative.
As for Republican ideological objections to limiting the pay of corporate executives, they are rooted in an ideology of reverence towards greed that is deeply unpopular. Few of the Republicans, aside from Ron Paul, are calling for an end to all government assistance to the banking system (including an end to loan guarantees) because they know that that would result in the Lehman-style collapse of the remaining investment banks and the fall of the whole financial system. Both parties are invested in maintaining the banking system through loan guarantees, cheap credit, and infusions of cash. So, all the Republicans are left with is stomping their feet and whining about how it makes corporatist Jesus cry whenever a rich man is stopped from getting even richer.
Republican and corporate opposition to Feinberg’s plan to limit the pay at banks receiving TARP funds is like an early Christmas gift to the Democrats heading into 2010. All they have to do is not squander it and they can tie the Republicans to the very worst excesses of Wall Street in the minds of voters. Let’s hope that not even the dream team of Obama, Emmanuel, and Geitner can find a way to fuck up this opportunity to distance themselves from Wall Street and stick it to the Republicans.