You are hereBlogs / John Martin's blog / Failed TARP Executives and Their Supporters

Failed TARP Executives and Their Supporters

By John Martin - Posted on 25 October 2009

Last week, the administration cut executive pay at the seven largest TARP companies.  You can argue that this move is just symbolic and does nothing to address the need for more regulation, but most seem to agree that this was nevertheless a good idea.

Remarkably, this hasn't stopped a few out-of-touch pundits, economists and other crony-capitalism apologists from speaking out against the plan.  Here are my two favorite arguments against the administration's plan, and in support of unlimited, taxpayer-funded, failed-executive pay.
The freedom of contract argument:
"The bottom line thus is that Obama is having his minion coerce TARP executives and employees into ripping up contracts Obama doesn't like so as to assuage the populist public. In doing so, Obama and his appropriately entitled "czar" are exhibiting a basic lack of respect for the rule of law."
The President (with the overwhelming support of the American people) might be "ripping up" contracts that pre-date TARP, but so what.  If the U.S. taxpayer hadn't been so generous in bailing out these failures in the first place, there wouldn't be any contracts today to speak of.  These failed capitalists would be earing $0 instead of the $500,000 salaries they'll now be getting.  Zero.  As far as I'm concerned, taxpayers saved some shred of what would have been left of these employment contracts.
The "these talented executives will now look for work elsewhere" argument:
"If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere.  Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut.  Chaos will be created at these firms as top people leave in droves."
I can't wait for this "chaos" to begin.  I'm not too convinced there's a huge demand right now for failed business leaders who ran their firms into the ground.  I'm less convinced that if they all leave en masse, successful companies will make room for them, their inflated salaries and their inflated egos.
If these failures are able to move on to greener pastures, hopefully those who do replace them will be a little bit smarter next time around.  I'm thinking there's a good chance of that.

It's an old Republican talking point, but worthwhile repeating in this case:

"What the government will control."

Nuff said.


Great topic. I think most sane people realize the new procedures for TARP-funded banks is a no-brainer and long overdue. Some say they will just sneak around it so that executives are paid more in stock. That tells us 2 things:

1. If they are willing to "sneak" for big bonuses/greed, they have not learned a thing

2. At least being paid in stock gives someone an incentive to help the company grow.

I'd like to see these guys try to find other jobs with such big bonuses that reward failure. The tougher issue will be the plans to revamp policies that are in place (which encourage risk and sometimes reward incompetence) at institutions that are not operating on tax payer money. Personally, if you look at the disaster which ensued in our financial market, we could blame such dumb structures of bonuses and rewarding risk. Sure, some were just plain lucky they did not crumble. I'm sure we will see push back on that end of things, but to avoid another meltdown, I hope the Obama Administration pushes those efforts.

I'd like to think that anyone with the brains and ability would have moved on to viable companies already.  Didn't these guys see the writing on the wall?  The fact that they've stuck around with their failure firms tells me that it's not the easiest thing in the world to find an equitable position elsewhere.

Follow RFO:

TwitterCafe PressFacebook




RFO Gear

Subscribe to General RFO Newsletter

General news and announcements for We will never share or sell your email address.