It would be pathetic if it weren’t so predictable. As world markets enter a period of turmoil, our elected officials in Washington, D.C., have been climbing over each other to hurl blame at “Wall Street fat cats.” What better way, of course, to distract their constituents from their own failures of governance. And these politicians know that nothing stirs people up as much as the phrase “executive compensation.”
The idea that the sums earned by CEOs have anything to do with the financial crisis is laughable. All we’ve learned in the past weeks is that most members of Congress know next to nothing about economics. (If you ever wondered what the long-term effects would be of our country’s failure to teach kids math and science, look no further than the Beltway.) If Congress did have a grasp of economics, House Republicans and Democrats would have passed the initial bailout bill. Instead, they saw an opportunity to turn Treasury Secretary Henry Paulson into a poster boy for Wall Street greed; killed the bill; and thus pushed markets into further turmoil as they themselves fought for face time on cable news, cluelessly inflating the false dichotomy between Wall Street and that absurd label, “Main Street.”
Yes, egregious pay packages do at times deserve the uproar they raise in the press and among stockholders. But there are many more cases where CEOs get fair compensation. In the years when Lehman’s stock was climbing, for example, Dick Fuld—the latest Wall Street leader to be horse-whipped on C-Span—was a bargain for his shareholders, an excellent manager with a seasoned understanding of markets.
Then there’s JPMorgan Chase’s Jamie Dimon and Bank of America’s Ken Lewis. Yes, during the period 2003 to 2007, Mr. Dimon’s take-home compensation in salary, options and bonuses was $108 million, and that of Mr. Lewis was $133 million. But one could argue—based on the fact that they both sidestepped the current madness—that they were underpaid, and that their shareholders should reward them for long-term vision and ingenuity. Those shareholders, after all, will be rewarded down the line, when some of the borderline steal acquisitions made recently by JPMorgan Chase and Bank of America are realized in a normalized market.
It’s worth noting that the CEOs of major Wall Street firms, when times were flush, could have easily left and started hedge funds, where they would have earned up to 10 times what they were previously taking home. Indeed, there’s been a talent drain on Wall Street because of the hedge fund magnet; the executives currently being pilloried by the press and Congress are, in fact, the ones who chose not to follow the biggest money.
The move by Congress to increase scrutiny of compensation will only keep good people out of the jobs that we currently most need them to be in—running the banks that make our country prosper. The money earned by executives in finance reflects the value we place on providing loans and capital and managing money held by working- and middle-class households. The need to attract and retain talent on Wall Street is, and should be, the top priority. As we are seeing on a daily basis, when there is no one lending, everyone suffers. The quickest solution to calming the markets is for our elected officials to get out of Henry Paulson’s way.