Issue of the week: Targeting Wall Street’s monster paychecks

last updated 8 January 2015

Not since Franklin Roosevelt railed against the “unscrupulous money-changers” of Wall Street has a U.S. president launched such a fierce attack on the financial elite, said Ronald Orol in Marketwatch.com. After calling Wall Street bonuses “shameful” and “the height of irresponsibility,” President Obama this week announced new rules that would cap executive pay at $500,000 for any companies that, going forward, receive “exceptional” government aid. Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends. Obama’s executive order—the most aggressive bid yet to tie major strings to federal help—follows reports that Wall Street firms last year paid out more than $18 billion in bonuses. The payouts, which represent the bulk of many Wall Streeters’ take-home pay, were down 44 percent from the previous year. Still, the 2008 total was the sixth largest in history and about as much as the Street disbursed in the flush days of 2004. And last year, lest we forget, Wall Street firms lost $26 billion and had to beg Washington for a $700 billion bailout. “You’ve got a responsibility not to live high on the hog,” Obama said.

If ever there was an opportune time to take the previously unimaginable step of capping executive pay, said Robert Creamer in Huffingtonpost.com, this is it. As most Americans have come to realize, “there is no economic or social justification for the massive incomes enjoyed by the barons of Wall Street—especially when their companies continue to exist solely because of massive infusions of tax dollars.” Then there is the matter of our nation’s growing income gap, said Dan Rodricks in the Baltimore Sun. “The disparity between the wealthiest 5 percent of citizens and the poorest 5 percent has never been wider, and Americans in the middle haven’t done much better than those just below them.” While Wall Street fat cats were pocketing their holiday bonuses, “average workers across the country have seen stagnant wages and increased health-care costs, along with incessant cost-cutting and workforce reductions—most of it driven by Wall Street.”

Wall Street has always been a convenient target for the angry Left, said The Wall Street Journal in an editorial. But Obama and the Democratic Congress had better be careful. “There may be a price for letting the populist flames burn out of control during a deep recession.” The fact remains that whether on Wall Street or across the business landscape, “compensation levels are a business judgment made under the pressure of competition.” Of course, many business leaders made huge blunders. But Wall Street has a lot of “highly talented financial minds, and mobility among firms based on compensation is routine.” Setting limits on salaries and bonuses at institutions that receive federal help could drive talent to firms “without such limits, perhaps abroad.” As if our economy doesn’t have enough problems, do we really want to chase away the best and the brightest?