Wednesday, May 13, 2009

Wage Controls

Recently the President assured the American people that he has no interest in running private companies, that all of this massive government injection is merely to help tide things over. At the time I scoffed at the idea if protesting at being labeled a socialist while gobbling up private companies. Now we see another sign of the collapse of capitalism in the form of wage controls…

U.S. Eyes Bank Pay Overhaul

WASHINGTON -- The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.

Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.

Who better than lifelong politician and prostitute customer Barney Frank to “monitor compensation”?!

This is one of the markers. When the government controls prices and controls wages, they are able to manipulate the markets. You tell people how much they can make and you tell companies how much they can charge, and you become a collectivist state in reality if not in name. Despite the protests to the contrary, this is nothing more than seizing the means of production…

Government officials said their effort, which is just beginning, isn't aimed at setting pay or establishing detailed rules. "This is not going to be about capping compensation or micro-management," said an administration official. "It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation."

Right, because who knows better how to create value in a private sector company than “government officials”? I would rather they cap compensation, that is pretty cut and dried even if it is socialism. What they are proposing is going to add a whole new level of complexity to the hiring and compensation process because now everything is going to be heavily regulated and subject to government scrutiny and ultimately approval.

What is especially rich is that it will impact companies who didn’t take TARP money, so even if you are already healthy with your current business practices, the government feels compelled to tell you how to pay your employees. Even if they DID take TARP money, that was supposed to be a loan to get them through a rough patch. Now it has become a permanent indentured servitude that you can’t get out of or pay back. Taking TARP money, which many banks were strong armed into taking whether they wanted or needed it or not, has meant turning over more and more control of your private company into government hands. Think it is a coincidence that the “toxic assets” program is not taking off? Who wants to get Timothy Geithner in your business and eventually telling you how to run your business and how to pay your staff?

Have you ever seen a job application for a Federal job and the convoluted pay scales that they use? It is insane. So we are going to let a bunch of people, many who are lifelong bureaucrats, dictate how to have an equitable pay system in a private company? We already have that system. If you do a poor job of incentivizing growth and have out of whack pay scales, you eventually collapse and a competitor takes you business. We call that capitalism, the free market system. What the Obama administration is proposing is another step in creeping socialism. What is tragic is that so many people think they are benefiting from the government stealing from their wallet on the one hand and giving it back to them with the other.
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