Senator Claire McCaskill famously used the word "idiots" to describe the Wall Street wizards, those former Masters of the Universe, whose wizardry very nearly destroyed capitalism as we know it.
When she said it, a great cheer went up from many corners. McCaskill was giving voice on the floor of the United States Senate to the frustration that tens of millions of Americans feel about the hubris of the finance industry titans who enriched themselves while driving the economy into a trench.
But it turns out that McCaskill's exclamation was no mere insult. It was, we see now, a literal description of people who, as she put it, "just don't get it."
McCaskill, you will remember, called Wall Street out as she proposed capping the pay of executives at firms who take government bailout funds at $400 thousand a year.
Following her lead, the Obama administration is implementing just such a cap. Banks that accept bailout funds will have to accept a cap on executive pay of $500 thousand a year, with no bonuses.
You would think that the administration had just demanded that the CEOs of these companies agree to work for subway tokens.
That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”In what universe is a $500 thousand dollar annual salary "not a lot of money?"
Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.
“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”
Why, in the same universe in which executives feel entitled to multi-million dollar bonuses as a reward for running their companies into the ground.
Remember, these CEOs are coming hat in hand to the American taxpayer after having led their companies to the brink of destruction. They are begging the government to bail them out of their failure. But accepting limits on executive compensation is a non-starter. That just won't work.
And beyond the plain unworkability of the salary cap, these titans want to remind you that putting limits on executive pay violates another sacrosanct principle of American business: the supremacy of the free market.
Efforts to curb executive pay may backfire, said Scott Minerd, chief executive officer and chief investment officer of Guggenheim Partners Asset Management, who helps oversee more than $30 billion in stocks and bonds.You have to wonder if these people even stop to think about what they're saying.
The Obama measure is “too draconian and too arbitrary, and doesn’t take into account free-market forces,” said Minerd. “Companies that need the most talented people to fix their problems won’t be able to pay them
Under a free market, these companies would be allowed to go out of business. They would cease to exist. Their CEOs, and everbody else who works there, would be out of a job.
The bailout is protecting these companies, and the idiots who run them, from the judgment of the market.
These executives should be dancing in the streets over the chance to continue raking in a half-million dollars a year while their companies subsist on the public dole.