A Chance to Change Wall Street

If anything, the meltdown on Wall Street has shown that executive compensation and performance are hardly related. After spending the past year further running their firm into the ground and onto the auction block, Merrill Lynch CEO John Thain and two of its executives could walk away with almost $200 million in compensation as they exit the building. Thain's predecessor, Stan O'Neal who started Merrill Lynch on the road to serfdom took his personal belongings from his office and $160 million when left the firm. Richard Fuld, who steered Lehman Brothers into bankruptcy this week will see a $22 million retirement package. Defenders of obscene executive pay have told us time and time again that that all that money is necessary attract the top talent necessary to run these massive corporations. But never mind all that, the Free MarketTM crusaders of the Bush White House have come out of the pro-regulation, big-government closet with a plan to rescue Wall Street from itself. And with the bailout, economist Dean Baker sees an opportunity. While we don't want a chain reaction of banking collapses on Wall Street, the public should get something in exchange for Bernanke's generosity. Specifically, he can demand a cap on executive compensation (all compensation) of $2 million a year, in exchange for getting bailed out. For any bank that is not on board, Bernanke could make an explicit promise to their creditors — if the bank goes under, you will get zero from the Fed. [...] The explosion of the financial sector over the last three decades has led to a proliferation of complex financial instruments, many of which are not even understood by the companies who sell them, as we have painfully discovered. The best way to bring the sector into line is with a modest financial transactions tax. Such taxes have long existed in other countries. For example, the United Kingdom charges a tax of 0.25 percent on the purchase or sale of share of stock. This is not a big deal to someone who holds their shares for ten years, but it could be a considerable cost for the folks who buy stocks in the morning that they sell in the afternoon. These are certainly interesting ideas that could prove useful in putting Wall Street to work for Main Street instead of enriching just the investor class. While these specific ideas may have their own problems, Baker is making a very important point: we should use this opportunity to bring Wall Street back into the social contract of economic and social institutions working hand-in-hand. Image by Flickr user Bobcatnorth used under a Creative Commons license
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