FINANCIAL REFORM: THEY DON’T WANT TO DO IT

. . . And They Can’t Change

The public now is stuck with immense debt from last year’s credit meltdown – not to mention a ten percent jobless rate – but the financial companies that brought it about seem to have little interest in reform – or, even, in helping along the recovery.  That shouldn’t be surprising.

Goldman Sach’s new compensation plan has gotten a lot of attention and praise in the press, but that seems to have been the point.  A close look suggests that it is more of a shell game than true reform.  As Nomi Prins writes in The Daily Beast: “Once again, Goldman is attempting to spin nothing of consequence into something of meaning.” (See, “Goldman’s Bogus Bonus Ploy.”)

The main feature of their plan is that stock in the firm will be given rather than cash.  Since the stock vests in five years, it seems to answer critics who have noted that short-term gains are being rewarded with cash bonuses before the long- term effects are seen.  Moreover, they have a “claw back” provision that allows them to reclaim some or all of the bonuses in the case of “improper risk.”

But the fine print reveals clearly that the plan is for this year only, and that much of the money they will hold back this year could be distributed a year from now when, perhaps, public outcry will have died down.  Then stock may easily end up being worth more than today’s cash.  Moreover, there is no tax to pay on stock options, a nice way of stepping around what governments in France and the U.K. have proposed in taxing bonuses.

We have some difficulty in grasping that financial firms like Goldman Sachs have no incentive to reform so long as they see the opportunity to make money.  Similarly the bank presidents that met with the President on Monday have no incentive to be more generous in extending loans to small business and individuals.  They are driven by profit, their profit – that’s our system.

What we have to take into account is that it’s not about not wanting to serve the public.  Taking risks with money is what they do.  That’s what they hire people to do.  That’s what they are designed to do.  That’s what their competitors do.  And that’s what their stakeholders expect them to do.  Without external the force of regulation or legislation, they can’t do otherwise.

No amount of public relations or spin, no wishful thinking or even good intentions, can move them off that dime.