In the original version of this article, I was under the impression that the Senate had passed this bill already. It hasn’t; they have only just released the details to the public. A vote will come later.
Over the weekend as I watched the Mets end a frustrating season with a disappointing final series, the details of the Senate’s bill to bail out the financial industry, and presumably the economy, were released to the public. I understand that passing a bill requires compromises to be made, but there is one interesting point that reduces the effectiveness of the bill.
Curbs would be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, companies that participate will not be able to deduct the salary they pay to executives above $500,000. They also will not be allowed to write new contracts that allow for “golden parachutes” for their top 5 executives if they are fired or the company goes belly up. But the executives’ current contracts, which may include golden parachutes, would still stand.
The executives in charge of the bailed-out companies will be replaced if they haven’t been already. Those being replaced will not have to face any penalties for driving their companies into the ground by acquiring risky debt. While fully aware of the risks involved, they did not have to bear any personal financial risk. While these executives should be commended for being able to negotiate ridiculous contracts allowing them to fail and still be paid massive bonuses, this should be eliminated for any company that requires “rescuing” with taxpayer money.
President Bush, Treasury Secretary Paulson, and the Democrats and Republicans in Congress are tied to the financial firms on Wall Street. They don’t want to make enemies now, particularly when some individuals currently in government may look for financial jobs in the private sector in the near future.
Let’s hope that the bill presented by the House of Representatives curbs bonuses for executives who mismanaged their businesses to the point that the government needed to enact the biggest market intervention in the history of market interventions.
Will financial executives refuse to allow their companies to participate in the bailout if they don’t receive their multi-million dollar “golden parachutes?” It would be a dumb, selfish move to put the health of the economy on the line until they receive their bonus for driving their companies into the gutter.
Rescue bill unveiled, Jeanne Sahadi, CNN Money, September 28, 2008
Updated February 6, 2012 and originally published September 29, 2008.