No One Wants To Do It

“Wake up, gentlemen,” Paul Volcker is reported to have said to bankers in London a month ago. “Your response is inadequate.”

It is easy to understand that the banking industry doesn’t want more oversight.  Who does?  But are they really convinced it’s not necessary?  Can they think the near disaster of last year’s credit crisis and the long lingering aftermath of unemployment and economic stagnation are acceptable prices for unregulated markets?  Perhaps they are fatalists who think the system can’t be improved without being destroyed?

Or could they be thinking only about themselves?  After all, the ones who are attending conferences and listening to speeches now are among the survivors of the last debacle.  Like professional gamblers, they know the risks of losing big, but they seem raring to go again.  That’s what they do.  That’s who they are.  That how life goes in our casino economy.

An article in this Sunday’s New York Times Magazine sheds light on how bankers are thinking.  Describing Kenneth Feinberg’s effort to rein in corporate salaries, the “pay czar” for the seven companies who took in TARP funds, the article makes clear that no one seems to believe he or she deserves a paycut.  (See, “What’s a Bailed-Out Banker Really Worth?”)

For one thing the culture of excessive pay is so firmly entrenched that it has now come to be expected that top executives will receive compensation undreamed of 20 years ago.  The article notes: “Over the last 50 years, the ratio of top pay to average pay at public companies has multiplied roughly 11 times (24:1 to 275:1). That’s more pay in one workday for the chief executive than his average employee makes in a year.”

For another, the blunders and mistakes were always made by somebody else.  Virtually all the executives were rated by their companies in the top 25% of performers.  Many now are enraged to think that they will be punished for sins they did not commit.

The conclusions are dispiriting:  “the clearest lesson that has emerged so far from [Feinberg’s] nine months of tortured choreography is that if it’s this hard to inject even a limited measure of common sense into the way executives are paid at companies that taxpayers partly own and control, broader change requires a boardroom upheaval.

And “upheaval” here may be the operative work, as boards don’t want to do it either. Prof. Jonathan Macey of Yale Law School notes: “It’s not that people in charge don’t know how; it’s that they don’t want to.”