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Kneale: Pay Czar Cuts Are Punishment as Policy

At long last the real agenda of Wall Street's harshest critics becomes clear, thanks to the arbitrary antics of a pay czar who answers to no one and a pandering Congress only too happy to jump onboard.

We were told that reducing systemic risk—not rank reprisal and recrimination—was the prime

Senator Chuck Schumer
AP
Senator Chuck Schumer

motive for cutting and capping pay at the "Tarpies," the seven ailing giants (or seven dwarfs) that haven't paid back crillions in government bailout loans.

It now is abundantly clear the demagogue mob wants to cap pay for all of us. These big-business bashers are led by the unpaid pay czar, Kenneth Feinberg, and abetted by the shameless Charles Schumer, New York's senior senator.

Feinberg proposes ridiculously steep cuts in compensation for the highest-paid performers at the seven Tarpie laggards: AIG, Citigroup , Bank of America , General Motors, Chrysler and the two automakers’ finance arms. And I gotta admit, the temptation to smack the daylights out of them is understandable, okay?

But the Fed already has propsed new restrictions on hundreds of financial firms that didn’t get Tarp. And now Sen. Schumer wants to slap similar restraints on all 5,500 publicly held U.S. companies, The Wall Street Journal reports.

This monstrosity, this unabashed violation of the rights of a company’s shareholders to set the pay of senior execs, barely got noticed at all. It was mentioned in a single paragraph buried deep in the “jump” of a Page One story this morning.

What the hell are you thinking, Sen. Schumer? What are you gonna do next, sir—cap how much profit our stock portfolios are allowed to earn, so we don’t take on too much risk?

My credo: Capitalism is optimism monetized. The lust for profits fuels our nation’s success in producing the most advanced innovation, the best technology, the most miracle drugs and the largest wealth creation the world ever has known. It’s what made America the greatest country on earth.

The Schumer sham would kill the spirit of business, hurt the investments of millions of Americans, and reduce desperately needed tax revenue from the richest payers. The top 1% of taxpayers now pay 40% of all federal income tax. Cap their pay to make them earn less, and you also reduce the government’s cut. Taxes may then have to go up on the other 99%.

Political sophisticates will say not to worry: The Schumer assault will never pass. But a guy who makes an idle threat to kill you might, at the least, punch you in the gut, which would be unpleasant enough. That the senator would even dare broach such a socialist, anti-capitalist and un-American broadside is alarming indeed.

I’m sure paymaster Kenneth Feinberg is a great guy who means well. And apparently Feinberg, an accomplished lawyer, made the most of his fundamental right to earn as much as he can: He works for the Obama Posse free of charge. Nobody capped his pay on the way up, it seems.

But Feinberg also goes way beyond his purview on pay to arbitrarily impose a plethora of corporate "reforms" that won't amount to much (splitting the chairmanship from CEO; eliminating the staggered boards that were embraced 20 years ago as, um, a corporate reform).

Feinberg works utterly alone in this anti-capitalist endeavor. Since his appointment four months ago, he has met only twice with the Treasury secretary and hasn’t consulted with the White House even once, the Journal reports.

This is a rather cowardly, Teflon attempt at sidestepping accountability. President Obama’s advisors can claim plausible deniability about the draconian proposals from the pay czar simply because: "Gee, we haven’t kept in touch with the guy."

The entire thing is a well-intended but wrongheaded nightmare. Yes, government has the right to meddle in compensation at the bailout recipients. The question is how much it should meddle?

It’s a bad idea to let federal bureaucrats act as amateur compensation consultants. Worse, it wastes a lot of time on the teensiest part of the problem. Feinberg’s slashing pay 50% for 175 people at the seven Tarpies, limiting their maximum comp to half a million dollars apiece, will

Kenneth R. Feinberg, the Treasury Department's special appointee for executive compensation.
AP
Kenneth R. Feinberg, the Treasury Department's special appointee for executive compensation.

save the U.S. $87 million a year, let’s say.

But Tarp has loaned out $300-to-$400 BILLION thus far. So Feinberg’s cuts ostensibly save us one dollar on every $4,000, roughly. Isn’t there a better use of his time?

The theory at work here is that Wall Street’s traders blithely and greedily took on wild-eyed risk to earn fatter bonuses; whack those bonuses and you whack that overabundance of risk. That looks through the wrong end of the telescope, at individual pay instead of taking in the broader picture of easy money and risk-management systems that failed.

No Wall Streeter knowingly took on risks that would cripple his company. These guys already saw their pay drop 40% last year, their options end up underwater and their stock in their companies plunge 90% or more in some cases.

Artificially capping their pay now is punishment as policy. It will only hurt all investors by impeding what all of us really want: a fully realized market comeback.

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