Short leash on Wall Street moguls is long overdue

THE OLYMPIAN | • Published October 30, 2009

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Turns out there are at least some strings attached to the $700 billion financial bailout of Wall Street financial institutions and the auto industry.

But they won’t be enough to recover the bulk of taxpayer money paid into the controversial Troubled Asset Relief Program.

Treasury Department pay czar Kenneth Feinberg has ordered salary cuts starting next month of more than 90 percent and overall compensation reductions of about 50 percent for the 25 highest-paid employees of the seven companies that took $346 billion of the bailout money.

Feinberg, an attorney and mediator who gained notoriety for overseeing distribution of the 9/11 victim’s fund, said the goal in his latest assignment with the federal Treasury Department is to get taxpayer money back to the U.S. Treasury.

The Feinberg plan was released just days after a report by a Treasury Department watchdog who predicted what many outraged Americans feared: Most of the $700 billion in taxpayer money doled out through the Troubled Asset Relief Program will never be recovered by the federal government.

“I am extremely sensitive to the public outrage about this — very sensitive,” Feinberg told reporters last week.

There is another piece of the Feinberg directive that might help tame a runaway Wall Street. Going forward, top executives will see their often exorbitant cash bonuses pared back and replaced with stock options, which tie their job performance more closely to the company’s performance. To hedge against greedy risk-taking that could drive a stock price up in the short-run, the employees will be required to hold on to the stock for a few years.

True, this does represent a significant amount of meddling in the world of high finance compensation. But Wall Street high-rollers have no one to blame for this but themselves. They created financial chaos that caused unnecessary financial losses for unsuspecting homeowners, employees and average Americans.

Wall Street movers and shakers claim Feinberg’s measures go too far. On Main Street, it’s a far different reaction. There is little sympathy for millionaire bankers and traders who benefitted from bailout money as regular people lost their jobs and retirement savings.

Congress and the Obama administration owes it to the American people to not let up on finance reform. As stock prices continue to rebound and the overall health of the economy continues to improve, it would be easy to backslide and let business as usual return to Wall Street.

It must not happen. Regulatory reform of the financial system is still a critical component to economy recovery from what has become known as the Great Recession.

There was some other movement in Washington, D.C., last week to restrict excessive banker pay and better protect consumers from unscrupulous lenders. They include:

• The Federal Reserve announced a new plan to police bank pay practices, taking a closer look at 28 unidentified banking companies to ensure their compensation packages don’t encourage risk-taking. The Fed will target senior managers, traders and loan officers to make sure they aren’t rewarded for taking risks without being held accountable to incurring losses.

• The House Financial Services Committee approved a bill on a 39-29 vote that would create the Consumer Financial Protection Agency.

While finance reform must not focus simply on expanding and growing new government agencies, this one has merit. The new agency would police the financial market place for signs of abuse in the area of mortgages, credit cards and loans.

If such an agency had existed five years ago, there’s a good chance high-cost subprime mortgages, which were at the heart of the financial crisis, would never have gained traction in the marketplace.

And without the subprime mortgage mess, taxpayers wouldn’t have had to loan $700 billion to companies that have no intention of paying all the money back.