PSA: The SEC is currently seeking public comment on rulemaking with regards to clawback of executive compensation, including pay, bonuses, and profits from stock sales in the event of wrongdoing. Please consider filling a public comment on the matter.
Excellent! Thank you for sharing. It’s calls to action like this one that let folks know how to use the existing government apparatus to reign-in this kind of criminal greed.
This will add another regulative legislation on top of a pile of existing regulation in the banking sector — no amount of government control can prevent bank failures. Recently, there was a thread of “dystopian surveillance” of employees in the banking sector which is the natural outcome if you constantly ask the government for help.
The current problems of the banking sector are a result of the bad incentives created by monetary policies. Banks will never work perfectly well for everybody but all these financial crises during the last couple of decades root could have been avoided by less government spending (for wars) and a much tighter monetary regime.
Left-leaning people should start informing themselves about monetary theory and general economics to avoid a vicious cycle of ever more government meddling dealing with the results of previous meddling that will ultimately undermine and destroy our free society.
> no amount of government control can prevent bank failures
This is an absurd statement that makes you sound like a child. The USA went 50 years without a bank failure after Roosevelt's reforms during the Great Depression. After those reforms were loosened in the 1980's and 90's, they became routine.
Canada and Australia regulate their banks more heavily than the US. They were also the only developed countries not to have a wave of bank failures during the financial crisis of 2008. They're still free societies.
Preventing bank failures is both possible and straightforward to do. All it takes is the will and sense to stand up to the super-rich.
> After those reforms were loosened in the 1980's and 90's, they became routine.
Correlation is not causation. 1973 marks the end of Bretton-Woods i.e. abolishing the Gold standard and, hence, an unprecedented expansion of the monetary base. The 1970s are remembered for their high inflation rates similar to today. Inflation also helped the Federal Government to finance its Vietnam war. Since 9/11 the FED is printing money like crazy which helped the government to finance its wars in Afghanistan and Iraq. With the Covid crisis monetary expanded like never before. Now we have a banking crisis, high inflation rates and a looming recession. But you tell me it’s because of the bank bosses‘ boni.
That’s exactly what I meant with „go inform yourself“ — it’s not meant to sound rude but it’s about understanding what’s really going on.
It’s the warfare state needing cheap money and credit. It’s not you and me. Especially not the American worker. That’s why I was directing my comment to left-leaning citizens: Learning about monetary and general economic theory will sharpen your arguments and help you to win your fight for a more egalitarian and free American society.
May I suggest this little classic on money and banking:
It's insane how much pain Americans are willing to endure just so the Wealthy can have access to a playground and possibly an extra 0.5% of GDP go straight into their pockets.
Per https://www.fsb.org/wp-content/uploads/P211122.pdf the only Tier 4 bank is US based but _plenty_ of other banks around the world are systemically important. Is the US overly represented? Sure. But I’d also imagine they are more interconnected to the global financial system than other world wide banks
> Right now, at the behest of wall street banks, the Federal reserve is preventing narrow bank charters
The proper route for this is legislation, not rule making. Narrow banks aren't asking to just custody deposits. They're asking for a reserve account at the Fed.
(Also, Wall Street banks have nothing to do with this. The fear is deposits fleeing e.g. regional banks, not SIFIs.)
Please speak down to me about politics and education! Obviously everyone can see you've been awarded several McArthur grants and a couple of Nobel prizes.
If there is wrongdoing, I'm totally fine with a clawback. If they take government bailout, a clawback is absolutely essential.
One of the stupidest things to happen during the 2008 "crisis" was congress shoveling money at a bunch of firms "that couldn't fail", and companies immediately paying them out as "bonuses they were contractually obligated to pay".
I wish there were fines that executives were personally liable for rather than clawbacks.
Clawbacks somewhat arbitrarily limit the penalty to the amount earned in a way that doesn’t exist in other professions. They also seem to complicate the legal process of enforcement.
Perhaps he should have paid a bigger personal fine, assuming he was entirely responsible for the institution's failure as a result of misconduct or negligence.
My issue with clawbacks is that they set an upper bound of $470 million for a fine in his case, when I think the fine should be whatever it takes to deter lawbreaking.
I'm not sure what you're advocating as the alternative.
If you're saying that they shouldn't have been bailed out, then that's legit, but it was a rapidly evolving situation and it's easy to play armchair quarterback with future knowledge.
If you're saying that the funds shouldn't have been allowed to be used for executive compensation then you're just sweeping the problem under the rug. Money is fungible, so it just means different funds would have been used for those bonuses. You can easily find examples of this with PPP loans, and there are similar parallels in lottery money being used for schools (it technically is, but at the cost of other money being taken away).
If you're saying that they shouldn't have honored those contracts, then that's a pretty easy lawsuit to win and they'll have to pay out the bonus anyway, plus the additional legal fees.
The federal government really can't interfere with private contracts like this as long as everything was legal. That's why we couldn't do anything about the 2008 bonuses that were paid out.
Once the federal gov starts tampering with private contracts it's game over for the American economy. Maybe even America itself.
County sheriffs. Which is to say, if you enter a contract with me, breach it, and get a judgment entered against you, it will ultimately be the county sheriff who will come execute the judgment on your property, sell it at auction, and give the proceeds to me. The federal government is not likely to take a significant role except if I get the judgment from a federal court or the property is someplace very weird.
Of course laws can be applied retroactively. As a general rule, they shouldn't be, but they certainly can be and have been. "The Constitution of the United States forbids Congress and the states to pass any ex post facto law. In 1798 it was determined that this prohibition applies only to criminal laws and is not a general restriction on retroactive legislation." (Britannica.)
I can certainly understand that maybe the salaries should not be claimed back, for for sure the bonuses must be given under some condition that if the bank/company fails within X years of receiving it, the bonuses should be returned in full, otherwise there is simply no responsibility for carelessness.
The counter argument I hear for rational arguments such as yours is that if you want to hire the best CEOs you basically have to give them all the perks and none of the accountability.
It's a zero sum game where the best people go to where they will get paid out no matter what. I think this should change and I think doing it through regulation where all companies are forced to comply will remove the zero sum factor.
The evidence flying in the face of that oft-repeated "argument" is this article where executives literally drove a bank into the ground, despite numerous warnings, and made off like bandits. If you hire on "all the perks and none of the accountability" you're making a gamble on a gambler, and paying upfront like a rube.
Only, the people making C-level hiring decisions are members of an ultra-wealthy elite with C-level positions at one or several other companies, so they're not getting duped. They're on the take.
The idea that CEOs are these super talented individuals is ridiculous. People in high level jobs are often dipshits, and there are plenty of talented people who never get a chance to have a high paying position. People in power use their power to get more money for themselves and their friends; it's got nothing to do with talent or performance. These people rotate in and out of jobs with no accountability.
Well I will volunteer for the selfless job of being a well paid bank CEO.
I’m ahem smart and capable. And I will volunteer to pay back my $200M/yr bonus over the previous 3 years if my bank fails.
Honestly, I don’t think you’re right. The best people go where they have the best upside and impact. The sleaziest go where they have the least accountability. That’s true in any profession- I know plenty of SWEs and managers who build a fragile system and job hop before the maintenance starts.
So how come the companies that failed due to mismanagement also paid their CEOs so much? There does not seem to be a direct correlation between company success and C-suite rewards.
I really don't see much leadership from C-Level execs at big companies. Frankly, none of them seem to be worth the millions of dollars in compensation they demand. Frankly when you look at Meta's blunders, you can make the case most big tech companies would be better run if they were democratically led with the workers voting on which strategic initiatives to run like a coop.
> most big tech companies would be better run if they were democratically led with the workers voting on which strategic initiatives to run like a coop
Better for who? Workers? Investors? Users?
For some reason we don't see big tech coops at the size of Meta, yet nothing prevents them from existing. Any chance that it's the nature of coop itself that inhibits growth?
As an aside: I love that the "risky" behaviour here is buying long dated US Treasuries. Not complex derivatives, not market manipulation, not CDOs without decent underlying content etc. Long Dated, US, Treasuries.
It's not, like, a big secret that the principal of long dated treasuries fluctuates more when rates move.
The thing is that banks don't look at these as something with a market value. Instead it's an instrument that guarantees a certain interest payment every month, which will not change until maturation. In that sense the treasuries were extremely safe and reliable and didn't stop functioning. It's just that whole bank run thing forced a recharacterization of the assets as something that could have risk.
SVB was essentially a social-media fueled bank run, and it took out FRC as well. They were both vulnerable to a run in ways that should not be allowed, but the fact remains both would be solvent still had the rumor-mill not sunk them.
Instead of fighting for what, in terms of the lost deposits, is a drop in the bucket, how about we fight to again separate investment from commercial banking?
SVB initiated its own bank run by selling securities at a loss and announcing a capital raise.
Also they did all sorts of dumb stuff like selling their interest rate hedges in early 2022 because they were worried the hedges would impair profits if interest rates happened not to rise.
I'm not sure what you're suggesting by separating banking and investing. Banking is about taking money from a bunch of risk averse people and investing it (e.g. by making loans to small businesses) and smoke and mirrors means safe money can be used for risky ventures. It's sort of a necessary way to push society towards taking on more risk. But banks can definitely juice returns by making riskier investments, or by keeping an insufficient capital buffer. That is what happened here and where our regulatory apparatus failed.
Isn’t this basically expected? They will challenge it in court, and then they will follow whatever outcome happens there. It’s never immediately obvious whether a regulator (etc) action is technically legal in the first place, you’d sort of have to trust their lawyers I think?
