I have been opposed to the $700 billion Wall Street bailout for the past year. My objections to it have primarily rested on two grounds:
We gave large financial institutions the money without first securing guarantees of new regulations to protect consumers, reduce executive pay, and prevent reckless speculation in the future. Really, we should have gotten the guarantees first, and given the money second.
Fortunately, and surprisingly, new developments suggest that both of these objections can be at least partially put to rest. This is because today, the Obama administration has announced both a re-direction of bailout funds away from Wall Street, and also steep cuts in executive compensation for firms receiving bailout money.
More on these positive developments in the extended entry.
Responding to the growing furor over the paychecks of executives at companies that received billions of dollars in federal bailouts, the Obama administration will order the companies that received the most aid to deeply slash the compensation to their highest paid executives, an official involved in the decision said on Wednesday.
Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.
And for all executives the total compensation, which includes bonuses, will drop, on average, by about 50 percent.
The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.
It took 'em long enough, and seems to have required multiple executive bonus scandals to have finally pushed them over the edge, but I am glad it is finally happening.
The Obama administration on Wednesday said it will use leftover funds from the $700 billion financial bailout to help small businesses.
The new plan would use some funds from the Troubled Asset Relief Program (TARP) to increase lending at smaller and more community-based banks.
Banks would be required to submit plans on how they would lend to small businesses to secure the funds.
Senior administration officials said they could not yet provide an estimate on the size of the program, but maintained that there are sufficient funds left in TARP to finance the initiative.
A report from the TARP's official watchdog estimated that there is $317 billion left in the program, a sum that includes funds paid back to the government by some banks.
Depending on how large the program ends up being, when this program is combined with the TARP money used on auto companies ($23.4 billion) and homeowners ($75 billion), up to 60% of the bailout money will not have gone to Wall Street. It also puts the total non-Wall Street stimulus at close to the required $1.2 trillion.
If this is all comes with a strong set of new financial regulations, and an audit of the Federal Reserve (yes, I am intentionally linking to a Ron Paul website), I can live with the bailout.
On the regulatory front, Mike Elk argues that there are good reasons to be worried about the bill emerging from the House. However, I have also heard push-back against some of Elk's arguments from sources on The Hill that I trust. The truth is that it is a very murky area, and I won't pretend to be an expert. The way I figure it, if financial firms start running a major public campaign against the new regulations, that will mean the regulations are probably a good thing.
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