October 30, 2009

"The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation."

"It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg's executive compensation decisions were unconstitutional."

31 comments:

Fred4Pres said...

Why the bailout is a bad idea, it leads to stuff like this.

While shoring up the banking system was justified, often it is better to have failure than to have this.

Scott said...

It's Bush's fault.

Pogo said...

Fascism always starts out so pretty.

Pastafarian said...

The power to set compensation at businesses, held in the hands of the government, isn't just subject o abuse; it is an abuse.

And it matters not a bit that the government is now a major shareholder of these companies. First of all, they shouldn't be -- that's just fascism, straight up. Second of all, if the government wanted to change compensation, then they should have called a board of directors meeting and used whatever voting power they hold on that board to make those changes.

Do you really want to know why "lending had dried up" for small businesses? It has nothing to do with tight credit. No small businessperson in his/her right mind would want Barack Obama, Rahm Emanuel, and Kenneth Feinberg to suddenly become controlling partners in their business. Most small businesspeople would rather cut off their left nut than take out an SBA loan.

peter hoh said...

Which is why the government should not be bailing out failed businesses.

Michael Hasenstab said...

The larger question becomes: Who will challenge the constitutionality of Czars in court?

jaed said...

I seem to remember - back when TARP was being put together - people objecting to doing it by having the federal government take shares in the bailed-out businesses. The fear was that the government would somehow interfere with the operations of the business. There were soothing sounds: no, no, that won't happen, this is just bookkeeping.

And here we are a year later, and a government official is setting people's salaries, for punitive political reasons. And justifying it on the grounds that the federal government owns part of the companies. And not many people are even batting an eye.

save_the_rustbelt said...

As soon as the economy is somewhat stable AIG and Citi should be sent into Chapter 11, carved up and sold off in pieces, then the best-and-the-brightest could ask a judge for their bonuses.

They only made a $6TR disaster, why don't they deserve high pay and bonuses.

And next time, Chapter 11 immediately.

David said...

So, is this really an issue? Someone who knows the law on this, please enlighten us.

edutcher said...

About damned time somebody started applying the Constitution to Comrade Obama and his Comissars.

Cedarford said...

Pastafarian - And it matters not a bit that the government is now a major shareholder of these companies.

Sure it does. Those execs would be unemployed but for the general public bailing out this perverse nexus between greedy capitalists and the Ruling Elites of both Parties.

That gives a voice to the public, through their elected representatives, in this. No more million dollar bonuses to execs of companies on Fed dollar life support...unless they are real, real good Execs that EARN it. The billions in Bonuses Goldman Sachs got because they profited immensely from Goldman Sachs employees relocating to Gov't and wearing their "TARP" savior's hats, bailed out AIG.

As for the Sacred Parchment being tread on...Yawn..

Every new Administration since the early 20th century has has to come in, have officers of the Executive in various Depts compelled to make decisions and lead - while waiting months if not years for "Senate Hearings and a confirmation vote.

It is so bad that is what the "Recess Appointment for", and many times no one even bothers.

I know some say then the Sacred Parchment must be fixed!

But the process of fixing it by Amendment is completely broken.
The Senate, convening to hold "confirmation hearings" on hundreds, thousands of officials from Nov -Inauguration? Then sticking around after Congress should be on Spring recess? No way. The Senate agreeing to change by 60 votes what they have done 100 years so the Sacred Parchment broke in a dozen places comports with "law" on appointments??

That is laughable!

Penny said...

"Constitution"!

I don't know about the law, but I do know about observable patterns.

"Constitution"!

There! I guess you noticed too.

Maguro said...

The sacred parchment is there for a reason. If the politicians get to ignore the sacred parchment whenever they feel like it, you've got a banana republic. The writers of the sacred parchment understood this.

Penny said...

"Constitution"! Well that is an on-line pattern.

Locally, every party, Republicans AND Democrats AND Independents, is putting out their "Fiscal Conservative"! message.

That's only because we are in the throws of some critical elections here in New Jersey. So really. Try not to take this message too seriously.

Flexo said...

The Constitution? What's that?

We ain't got no Constitution. We don't need no Constitution. I don't have to show you any stinking Constitution.

Penny said...

"Constitution"!

"Fiscal Conservative!"

If I say it loud enough and often enough and in enough places that people drop into once in a blue moon, surely others will chant along with me.

"Constitution"!

"Fiscal Conservative"!

Quayle said...

So, if I am a shareholder of a troubled company, would I want to drive all the smart guys away?

Or would I want to retain the smart guys, to help salvage my investment?

Answer: I'd be aligning the key guys' futures with my need for restored value in my piece of the company.

In other words, huge stock options with huge upside potential for the key guys.

That's how you harness the greedy business horses for pull for you.

The guh-mint doesn't seem to get this important point on shareholder value and management incentives.

Go figure.

AST said...

My, what a bunch of radicals you have reading this blog!

I'm so grateful that I read "The Forgotten Man" before the inauguration. It has made the parallels between the policies that turned the last great recession into the Depression and our current situation so much easier to follow. FDR declared war on big business and brought bogus charges against some of the country's richest men for tax evasion. He also put the government into the electrical generating, transmission and distribution, breaking private industrialists who had pioneered it. Yet the economy didn't recover until he let up, because not even the federal government is as big as America's economy, not should it be. I'm afraid that the neo-progressives are not going to let that stand in their way, however.

Penny said...

Quayle, here's the rub. Those guys making gazillions for being the "best and the brightest" need to have some other place to go before their argument holds water.

I suspect that some are talking to their significant others this weekend about a move overseas that just MIGHT help them preserve the income and lifestyle to which they have become accustomed.

Perhaps we should consider any such movement as America's continued support of wealth redistribution?

Joan said...

No more million dollar bonuses to execs of companies

But the bonuses are laid out in perfectly valid, legal contracts that predate the stimulus package. The Pay Czar coming in and saying "No pay for you!" is illegally negating those contracts. Every one of the execs whose pay was slashed has a case against the government.

If the Feds can come in and invalidate any contract they choose, we are a banana republic. There will be no recovery until the Administration stops screwing around with the fundamental expectations that all businesses rely on: contracts can be enforced, labor costs will be somewhat predictable, taxes likewise. With the current crew in the White House and Congress, not one of those things is true, and you'd have to be insane to start or expand a business in this climate.

Zach said...

If anybody wanted to challenge the constitutionality of the czar system, you'd have to think this would be a great case for it.

What troubles me about the czar system is that it's started to become an appointment for people who can't get confirmed (Van Jones) or to limit oversight for policies that Congress would never approve of (the pay czar).

Dust Bunny Queen said...

If anybody wanted to challenge the constitutionality of the czar system, you'd have to think this would be a great case for it.


You would think that Congress would want to do this, since the Czar system directly undermines their authority. They are all such preening prima donas that I can't imagine they will sit still for this much longer.

As to invalidating pre existing contracts and cutting the pay of the top talent in the "Investment" Banking areas of the Banks. This is a huge huge mistake. Many of these guys who have had nothing to do with the credit default swap fiasco have already left for greener pastures. They are being swooped up by foreign investment firms and international banks.

Many of the now gone talent were those who pulled your mutual funds and ETF's and other financial instruments out of the abyss or at least made some gains out of the economic disaster caused by this and the last 2 administrations.

Since many of them are now moved (and I know who they are by name because this is my industry) I am moving my clients into other investments than those now being so efficiently (snark) controlled by the US Government. (a bunch of stooges who couldn't find their ass with both hands.)

Hope you are happy by showing those rich fat wall street cats. Talk about cutting off your nose to spite your face.

Roux said...

So who will be brave enough to fight it in court? And what attorney will be brave enough to represent them?

save_the_rustbelt said...

"But the bonuses are laid out in perfectly valid, legal contracts that predate the stimulus package."

Joan, true enough, but the companies were insolvent until WE bailed them out.

If they demand the bonuses, force the company into Chapter 11 and let them beg the creditors committee.

Quayle said...

Quayle, here's the rub. Those guys making gazillions for being the "best and the brightest" need to have some other place to go before their argument holds water.

Oh, I agree. There are some snakes and some idiots.

You may need to put blinders on your prize horses, or harness them more tightly.

One of the largest failures here has been board oversight of the Banks. Corporate boards in the US have been almost totally captured by the management.

But you don't kill the horses that pull hard and put smaller horses in.

The one thing that is predictable about Wall Street types is that they are motivated by money and push hard to get it.

That energy can be harness to help us all, if we don't, as DBQ said, run them all overseas.

PatCA said...

I eagerly await the day when a sitting justice rules against the power grabs.

former law student said...

This issue came up two years ago, with the administrative law judges in the Patent Office, appointed by the Commissioner of Patents and Trademarks, who's not even a Cabinet-level official any more, but an undersecretary of commerce. The earliest predecessors of these judges were indeed approved by the Senate, in the mid-nineteenth century. It appeared that years of BAPI decisions would be undone. I don't know if this was resolved or not.

Feinberg has two outs. First, did he actually set the compensation himself, or did he merely advise his boss, the Sec'y of the Treasury? If he just gave a list of recommendations for his boss to approve, then the decision maker went through the Constitutional process and everything is copacetic.

Second, if Feinberg did set the compensation, did he do it on his own whim, or was he following a set of guidelines laid down by the Sec'y? If Feinberg lacked significant discretion to set salaries, then his duties were purely ministerial, and again, in compliance with the Constitution.

But good fearmongering though.

AC245 said...

I think it would be funny for the next Republican administration to appoint an (unelected, unconfirmed, unremovable) "pay czar" to make (arbitrary, binding, unappealable) decisions on the appropriate salary and benefits (regardless of existing contracts or legal agreements) for the following groups:

* any and all federal employees, including all senators and representatives, and

* any and all employees of state governments and agencies (applicable to states that take any federal money or grants), and

* any and all employees of public universities (applicable to schools who take any federal money or grants).

If anything like this happened we'd have a lot more people realizing just how specious the "if you accept any federal money, the federal government owns you" argument really is.

jaed said...

I'd find that even more amusing if ACORN were included. Or other private organizations that - though they may not have the history of corruption ACORN does - nevertheless depend on the federal government financially.

It's easy to see how this kind of power could be abused for political payback.

If they demand the bonuses, force the company into Chapter 11 and let them beg the creditors committee.

These payments are generally part of their contract of employment, and employee compensation is normally at the top of the list in bankruptcy proceedings, under bankruptcy law. The only way you're going to wriggle out of paying employees is by doing a faux "bankruptcy" procedure in the manner of Chrysler, with the administration rather than the law determining who gets what.

Perhaps this is what you have in mind anyway, with the reference to the government "forcing" the banks to go into Chapter 11.

former law student said...

Or other private organizations that - though they may not have the history of corruption ACORN does - nevertheless depend on the federal government financially.

The most egregious of these organizations are America's defense contractors:

Blackwater
Lockheed Martin
Boeing
Northrop Grumman
General Electric
General Dynamics
Raytheon
BAE Systems
L-3 Communications
United Technologies -- Lieberman's biggest source of campaign contributions btw
SAIC
KBR
McKesson

You can see Congressman Grayson's entire list here:

http://spreadsheets.google.com/viewform?formkey=dC1WUm40dWk4YnJNQl9sNWR6aHRybnc6MA

kentuckyliz said...

To The Gulch!