Thursday, February 26, 2009

Nationalize now

The United States should nationalize the banks receiving TARP funds now. Our goal should be to return the banks to financial health and sell them back to private owners as quickly as possible. Here is the rationale:

We already given many of them more money than they are worth; accepting anything less than complete ownership is less of a good deal than the government and its citizens could get by going straight to the stock market. That would be unacceptable to Warren Buffet, and there is no reason the taxpayers should accept it either. It’s been done before in the case of the savings & loans, and it has worked. There’s nothing “un-American” about it.

Upon nationalization, total compensation should be capped immediately for all employees at no more than $500,000 per year.

Many people (most of them bankers) argue that this would be counter-productive. “The most talented will flee. Who will be left to return the banks to health?” Or, “This is the time our economy most needs this talent,” they whine.

Well, let’s deconstruct those arguments. To where will they flee? There appears to be a limited number of jobs open in finance at the moment, but no doubt some will find alternatives, perhaps at a private bank or a partnership that has taken no government money, and at which losing financial strategies and phony profits are not rewarded.

But more importantly, why would anyone think for even one moment that the people who got us in this mess are the most likely people to get us out of it? “OK, Sabathia, you gave up 12 runs in the first inning, now by God, it’s your responsibility to go back out there and pitch a shut-out the rest of the way so we have a fighting chance to win this game!”

Others claim it’s un-American to limit what someone can earn, after all, C.C. Sabathia is making $20 million a year for throwing a baseball every few days. But that’s a bogus argument, too. The Yankees aren’t taking government funding, and the bankers can’t throw the cheese 100 mph. Athletes, actors and entrepreneurs deserve whatever they can get because they live or die by their personal performances, and they assume a massive amount of risk. When they get old, make mistakes, or just become unpopular, the millions disappear and they have to start looking for a spot on “Dancing with the Stars” – or worse, a real job.

There are also a couple of really good reasons to do this. For millions of Americans the current financial bailout looks like more of the same old business of the rich being taken care of at the expense of taxpaying, regular folk. (Perhaps because it’s true?) If we are all going to pull together to bring the country back to its former glory, everyone has to feel like they are getting a fair shake, and that no one – especially the rich and privileged – are getting a free ride.

The blame for this mess is so broad and diffused that there aren’t going to be any big trials; nobody is going to go to jail (other than the Madoff-types who are just common criminals writ large). But the country needs catharsis.

At least we can start by hacking away at the bloated, unreasonable compensation structure that has strangled accountability and meritocratic governance in American business for the past 30 years. Anyone who has ever worked in a Fortune 500 company and gotten to know a few of the actual people who cling to these positions knows these little Emperor-wannabees are mostly naked, and in some cases, eunuchs.

Seeing the management class, which has been a big winner in good times and a pretty-big winner in bad times, put on an equal footing with the working women and men of this country can only help promote the common good and democratic ideals.

Finally, the only people who really believe that there will be a shortage of talented people available to run these organizations for such chump-change are the people now making the stupid money. Less than 1% of the population earns more than $500k per year, and some of them are Chris Rock, Beyonce and Peyton Manning. There will be a deep bench to pick from and competent people will be lined up to do the hard work required.

Does anyone honestly think the new group could do a worse job than the lot in place now?


kgwhit said...

The mean salary for a man in the US in 2007 was $45,000. I am tired of hearing how much harder working the Wall Street guys are and how smart they are. We hear we can't lose the best. I doubt that most of the "best" could have pulled those folks out of the Hudson if they were driving the ferry boats across the river.
If you can't get by on a half a million a year, then you are spoiled selfish sob. The Mexican pulling the weeds in these guys summer home works harder than most of the Wall Street weasels. My retirement plans are shot to hell...screw the bastards.
I'm not bitter though.

jb said...

You REALLY want to change this country?

Read "The Fair Tax."

d'blank said...

KG - it takes a big man to keep a clear, unemotional view of things in these troubled times.

warrenout said...

I agree. It's not the optimal solution but the fairest one for tax payers. Only in America could you get a loan from a former Pizza delivery guy with no money no income no job no assests.I also agree that a salary cap while under goverment ownership will not create a brain drain. I also agree to put regulatory bodies with real teeth in place for oversight and some sort of standards for ethical behavior and move on. Somehow, I think there will be hearings and sub-committees and officials wanting show trials instead of just moving on..

Birdman said...

My understanding financial matters is almost non-existent. However, I do have a pretty good bullsh*t detector and the notion that "we'll lose our best people" sounds preposterous at best. What were these "best people" doing 2 or 3 years ago? I'm certainly willing to call their bluff.

I get the sense that these people don't have any more of a clue about this stuff than I do.

Hankster said...

Corporate culture has made getting upper level positions the priority. Once you have landed a position with benefits, you will feather your own nest with no need to perform. The top rung of the ladder of meritocracy is missing in corporations which are run top down. Without a feedback loop based on performance, the system does not work in competitive markets. Nationalization grants the opportunity to repair the system.

Gaga said...

Sorry I'v been away. Ahhhh, shot everyone,burn everything down & start again & ahhh oh death to america