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Keep your eye on the ball with TARP

Adam R.'s picture

Posted September 24, 2008

Today it looks like Secretary Paulson will relent.  An early report says that he is going to concede on the issue of CEO pay.  In the arrangement, financial institutions that seek the federal government to purchase their distressed assets must agree to an as yet undetermined set of restrictions on the pay of their CEO and their boards.

This follows on some general outrage about executive compensation.  One report shows that CEOs earn, on average, about 275 times what their rank and file employees make.  That's a high number, much higher than in the era of industrialized economies with their labor unions.  It is much higher than before globalization.  With NAFTA, GAAT, and the rest, certain jobs and skillsets have been able to be utilized across greater spans.

All of that is to say that there is alot of reason for people to be upset about CEO pay.  Yet it seems like its the wrong remedy for this illness.  Again, the problem is the way that these mortgages have been underwritten and subsequently sold.  The problem is subprime lending.  The problem is within securitization into things like collateralized debt obligations, i/o strips, and the like.

CEO pay is a fine thing to add to a bill that redresses those wrongs.  But we are making a big mistake if that's the thrust of the reforms that critics of TARP focus upon.