Ian Welsh has already posted about some of the serious problems with TARP (Troubled Asset Relief Program), "Goldman Sachs gets $9.8 Billion Bailout: Pays $11 Billion in Bonuses." My hope is that this high level diary piggybacks on Ian’s invaluable work and that it is a springboard to liberal/progressive discussions about solutions.
One of my chief concerns has been that Sec. Paulson’s plan failed to address the interests of corporate shareholders versus the interests of highly compensated corporate executives. I am proposing as an ice-breaker to further FDL discussion, an amendment to TARP. This amendment would require all corporations who borrow from TARP or the Federal Reserve to cut some percentage of gross salaries above $100,000. For the sake of discussion, I would suggest starting at a 75% cut of all salaries above $5,000,000. Progressively smaller percentage cuts, say 50%, 40%, 30%, 20% and 10%, until reaching the floor of $100,000, seems a fair approximation of the intent of this brainstorming. I am not in any way wedded to the cut percentages or the floor and ceiling I have suggested. I saw these numbers merely as concrete examples to facilitate discussion. I would also suggest that no performance bonuses or raises be paid until the taxpayers have received back the principal plus interest. This provides strong institutional incentive for corporate executives to repay the debt they owe the taxpayers.
If executives at J.P. Morgan Chase, Bank of America, and other TARP and Federal Reserve borrowers do not want to cut their salaries, that’s not a problem. They can simply return the funds. Sec. Paulson told Congress and the American people that this was a crisis. In a crisis, businesses are supposed to cut fixed costs, such as salaries and bonuses. Revenues minus costs equal profits. As Ian has pointed out, the top earners in corporate America do not yet consider this a crisis. Apparently they want corporate welfare so they can SAVE THEIR COUNTRY CLUBS.
If some iteration of this idea passed as an amendment, it would more effectively pit the interests of shareholders against the interests of their highest paid employees. That’s the way it is supposed to work. The shareholders at J.P. Morgan Chase understand that TARP was very positive for the value of their shares. Stock Price Information Will J.P. Morgan Chase shareholders want to sacrifice TARP’s investment so Jamie Dimon (Chairman of the Board, President and CEO) can keep 100% of his $15.5 million dollar salary? Business Week I think not.
In terms of determining the feasibility of this amendment, it would appear that the IRS would have the necessary historical data, via W-2’s, to handle the percentage cuts. As long as the names of the corporations borrowing from TARP and the Federal Reserve are promptly placed in the public record, it seems that IRS should be "good-to-go." This also works, because the IRS funds the Treasury Department. How exactly this incoming cash would support the balance sheets of the Treasury Department and the Federal Reserve needs to be worked out.
In an election day news dump, Sec. Paulson already confirmed that he wants to extend TARP benefits to other corporations. Car-Financing Arms May Get Piece of TARP, White House Says
The White House said Monday that it has been in contact with U.S. auto makers and that the companies might be able to participate in the government’s Troubled Asset Relief Program, known as TARP.“It’s possible that some of those financing arms could be a part of the rescue package, the TARP,” said White House spokeswoman Dana Perino. “That’s one of the reasons Treasury has been in contact with them.”Perino, briefing reporters, said the Bush administration is working “as quickly as we possibly can” to release $25 billion in recently approved loans to the auto makers. But she declined to elaborate on other specifics steps that could be taken to help the ailing companies. “It’s clear that the auto makers are dealing with a very serious situation. They have been for some time,” Perino said. “There’s nothing I can tell you that would be specific as to what we would provide.”Talks between General Motors and longtime rival Chrysler continued over the weekend as a harsh reality has emerged: Without a merger and possibly an assist from the federal government, two of Detroit’s Big Three auto makers could run out of cash within a year.U.S. car and truck sales are down 13% through September this year. GM sales have fallen about 18%, while Chrysler’s are down 25%. Ford’s sales are down 17% so far this year. Ford’s condition is not considered as grave as that of GM and Chrysler because it has more cash on hand. – Henry J. Pulizzi, Jeffrey McCracken and John D. Stoll
I see no reason why some form of these salary cuts would not work equally well with these corporations.
Many state governments face very serious deficits due to declining revenues. Why does TARP subsidize highly paid corporate executives when our state governments are going broke?
Any and all comments and corrections are welcome.
OT, yesterday I published a diary by mistake that was deeply flawed. I requested that it be deleted and it was. Thanks very much to the mod who deleted it.