Frank wants more bank pay restrictions, and no private jets

Getting help from the government? Prepare to give up your private jet.

Rep. Barney Frank, who heads the House Financial Services Committee, today listed the strings he wants to attach to the second installment of the $700-billion financial system bailout.

Here are some of the restrictions the Massachusetts Democrat would impose on banks that want to tap the next $350 billion in government funds to bolster their capital:

-- No payments or accruing of any bonus or incentive compensation to the 25 most highly compensated employees. So Frank now wants to limit pay far down banks’ chain of command. This is the same restriction imposed on the auto companies for the government help they got.

-- No compensation plans that would encourage manipulation of earnings to enhance compensation. Not sure how exactly they would even gauge this.

-- Private aircraft or leases would have to be divested. Bankers flying coach?? This rule was imposed on the auto companies as well.

-- No golden parachute payments as long as the bank has government capital. This one is a no-brainer with the public.

Frank also would authorize the Treasury to have an observer at board or board committee meetings of banks receiving government funds.

Read Frank's full proposal here.

Let’s face it: None of this is likely to enhance the appeal of being a banker in America. Everybody hates bankers these days, but do we just make the credit crunch worse the more we tie their hands?

Maybe it’s no coincidence that financial stocks are once again leading the market lower this year: Of the 10 major stock industry sectors in the Standard & Poor’s 500 index, the financial group is down 6% year to date, the biggest decline of the 10 sectors. The next worst is telecom, down 3.6%. The S&P 500 overall is off 0.5%.

-- Tom Petruno

Photo: Rep. Barney Frank. Credit: Mannie Garcia / Bloomberg News

Comments

[Ron]

Barney Frank has been taking a lot of heat, but at least he is trying to improve things. in other words, what Barney Frank is trying to do is undoing several generations of GOP led "let the corporations govern themselves". hopefully NO political party will adopt that mantra again.

[John]

The only thing he left out of the proposal was that any violaters would have their head paraded around washington on a stick if they violate this.

[Dick%20Diamond]

What Frank is doing reflects what most "Main Street" Americans want.
These guys ruined the world economy with their exotic "funny paper."
Bout time.

[CommonCents]

The more Barney Frank talks the more doomed this country becomes. Why can't we elect fiscally responsible politicians? They have no clue on what this will take to correct.

[JS]

Frank is, for the most part, guilty of working on optics instead of substance. To compel the CEO of Citibank or Wells Fargo to fly on scheduled airlines is an astronomic loss of efficiency, regardless the intent. And by the time you add the entourage, private jets would likely appear more practical than perk.

The problem with banks and most money managers (most pubco CEOs), in my view, is they are far too concerned with quarterly results. Force these guys to tie their bonus to the 10 year return on their mortgage portfoio, you get a much different animal than what we have today.

Removing bonuses and perks will either drive the practice underground, or compel the best and brightest to do something else, leaving us a critical industry staffed by second rate managers willing to work for comparative peanuts.

If all Frank does is beat up on bankers, he's accomplished nothing.

[Louie]

And I'm sure CommonCents has all of the answers to our problems.

[Tim]

Maybe they should give up their first born too! Let Frank fly coach.

[Sam]

Frank has the right idea - and his restrictions are a step in the right direction. We should be grateful an elected person is finally stepping up to fill the leadership void that got us here. The private jet thing is a little goofy, but whatever.

JS is absolutely right about the quarterly results issue. Let good bankers have million-dollar-bonuses, but only if they are GOOD bankers, and this can be measured by long-term performance. I'm shocked we even need to point this out...and now it's painfully obvious.

[trudy self]

And then all the companies that used to sell jets can ask for a bailout.

[Ann]

"Removing bonuses and perks will either drive the practice underground, or compel the best and brightest to do something else, leaving us a critical industry staffed by second rate managers willing to work for comparative peanuts.

If all Frank does is beat up on bankers, he's accomplished nothing.

Posted by: JS "

HA HAHAHAHA..... since the group under discussion are the ones who masterminded NINJA loans, option ARMs, credit cards issued by the armful, CDOs, SIVs and made the stupidest loans in 3000 years of banking, they are most certainly NOT the "best and brightest." They were greedy avaricious fools.

Wanna bet that JS didn't raise a hue and cry when the CEOs of the auto companies were told there were pay caps, bonuses were out and the corporate jets were gone?

These bankers with the TARP money FAILED

The bankers with the TARP money drove their businesses into the ground and are now sticking their hands out for taxpayer money so they can have their 'conferences' at $4000 a night resorts.

Get real. There have been over 150,000 jobs cut in financial services. Someone will take their jobs if they don't like the terms.

[thia3790]

The nature of man is to get over if he can. We have to have regulation to keep that nature under control. This will protect all of us if there are not consequences for the actions of lying and misleading people with legal words. The Fooler became the fool! They got in their own trap. Should we reward them for this behavior? Anyone that uses the government money should be on log probationary period. The common man would be put under the jail.

[JS]

Ann - I have commented numerous times in this blog on the short-sightedness of all the bailouts. I was, and remain, staunchly AGAINST all TARP, auto industry handouts, AIG, Investment Bankers becoming banks to get TARP, Obamas yet-to-be-defined TRILLION dollar "stimulus", and every other billion $$ giveaway. And I am certainly not alone.

You miss my point here - by making banking a profession with below-average salaries, you simply ensure you'll have less skilled people in it.

Because someone works for less salary or is less skilled does not translate into ethical or intelligent behavior. I'm simply suggesting that a "salary cap" has never proven effective, and chasing one now to appease voter angst wins votes, but doesn't accomplish anything in resolving the problem.

TARP 1 was a "piece of crap" bit of legislation, and were it not an election eve, likely would have been written with meaningful limitations, accountability and controls. As Frank was one of the key architects, his efforts now to place more controls on TARP 2 seem disingenuous and glaring in its populist appeal.

I was at a finance conference in November 08 where Robert Reich (one of Obama's advisors and an economist) stated "Consumers have no money to spend, Lenders have no money to lend to consumers to spend, so if the economy will survive, the Government must intervene - they are the spenders of last resort", a comment heard repeatedly of late.

We are, in my view, on the cusp of astronomical government spending increases in the name of "protecting the economy". That Barney Frank leads one of the key oversight committees should scare the crap out of everyone.

[Tibor%20Kracher]

Make the bankers reapply for the jobs, if they don't like the terms and conditions there is always the unemployment queues and soup kitchens.
As for Madoff put him and his family out on the streets to serve the communities they ripped off.
The American dream..... no thank you!

[ajax]

well here's the sad truth...the 700 billion is only going to the elitist corporate pigs that run the country...THERE IS NO ONE at home in the pathetic Government
No one will watch the dollars spent.. if you don't believe it... your just another dumb american idiot..

here is a scary fact....
if the 700 billion was divided by every Head of Household in America (IRS based)
we would get 405,000 each

that would have been money well spent...

[CommonCents]

And I'm sure CommonCents has all of the answers to our problems.

Posted by: Louie | January 09, 2009 at 01:55 PM
___________________________________________________

Yes, I do.

[James Monachino]

False Profits - - Real Gains

Over the last three years (or more in some cases) most executives on Wallstreet and the Financial Community have been raking in huge bonus and salaries on profits that didn t exist.

I believe we should:

* Retro actively review compensation plan up to three years back on all the institutions applying for government funding.

* Similar to Switzerland, the top level executives from the Sr.VP level and higher should be required to repay the bonuses back into the company they took them from. In hindsight, they never really earned the bonuses because the profits never really existed.

* The middle class is getting crushed and the leadership responsible for this phantom prosperity must settle accounts. In a true capitalistic environment when you fail you experience; financial loss, pain, and bankruptcy - - next.

Finally, let stop pretending to be a free market wild west type driven economy and realize that Society has rules and regulations to provide order and lasting functionality for the benefit of all individuals.

James Monachino

[Croft]

The silly optical measures imposed through the efforts of Mr. Frank will suffer the fate and produce more negative consequential results. Why must politicians continually develop inanities instead of solutions?

[Joe Shmoe]

If the banks don't want to abide by the restrictions, they need not take the money.

It's as simple as that.

[shawn]

This is all smoke and mirrors. Regulation will not work-they will be written in a way to allow those in power to gain more control, not less. You have to let them fail. The free market will reward banks that conduct themselves with restraint. Get rid of the Federal Reserve. As long as they can print all the money they want without any collateral or backing, banks will be encouraged to make use of it. If I could get all the free money I wanted-I would as well. Unfortunately, if I do it, it's fraud, but then, they did write the rules. The banks are a service, not a wealth building industry. They are not even an essential industry. All a free trading society needs is an acceptable form of money to carry on commerce and means of protecting their savings( a safe).

[Steve M.]

When government mandates that loans shall be made to individuals based upon racial quotas, regardless of the financial status of the indivdual, the government leaves the door of responsibility wide-open upon itself.

As far as flying 1st class instead of coach, guess what: Take your TARP Money and shove it. Some of these funds were forced upon the banks, to make some more BAAAAD loans.

As someone who worked in banking, the pressure of the CRA and other mandates passed through Congress are partially responbsible for this mess. Rep. Barney Frank and Sen. Chris Dodd are the poster boys for this fiasco.

With Alan Greenspan jerking the Fed Funds Rate up at "light-speed" and his obvious lack of knowledge regarding the dynamics between ARM's, HELOC's and the Fed Funds Rate, was a thermonuclear device waiting to go off for the housing industry and homeowners. Combined with the rapid escalation of fuel and petroleum products, it became evident that the devicw went off, just after he stepped aside.

Although the CRA was supposed to be a good thing, mandating loans on the basis of race is not. Banks are in the business to be responsive to their shareholders and to lend responsibly.

The only thing that Frank and Dodd have not done is stand-up and say, "I made a mistake." I have no tolerance for people who have hubris the size of Mt. Whitney. It sort of reminds me of Gov. Huey Long, when he said at his impeachment trial and told the public, "Yeah, I stole, but I stole for you."

For two years, Democrats have had control of Congress and they will have mid-terms coming-up in two years and if they don't clean-up their act, the Electorate will.

Maybe we need Bob Dornan voted back into Congress to shake things up a bit? Lord knows, he's more exciting than Al "Landslide" Franken.

[Jack Christensen]

The bankers should be sent to prison not board rooms. These damn croks have created the mess.

If these bankers think they can get jobs somewhere else go for it. Maybe they can work for Satyam

[Michael Snyder]

I really don't care about any person's "proclivities"; but anyone indiscreet enough to pay for the services of a brothel with their VISA card lacks the common sense necessary to run the finances of the United states. Hence, my objection to hearing the word "economy" dribble down the chin of Barney Frank. To hear him speak of "fundamentals" is laughable.

Sadly none of the lawyers running our country into the ground has ever picked up a basic pamphlet on physics and read it. I know this because evidence of knowledge of the laws of "conservation of mass/energy" are lacking in their conversations. Evidence of these laws in action are best observed in either the international currency or drug markets because both are unaffected by government induced pressures over time. (harsh but true)

The Government's policy of taxing investments into the stock market and its' spin off derivatives lies at not only the root of this depression, but the core of America's loss of preeminence in the financial world. Every corporation traded in any stock exchange started in somebody's garage, basement or kitchen table. When Ronald Regan "simplified our taxes" he started America down the path to where we are today. Investment in Small Business became a tax liability while people were taxed into funding multi million bonuses for the very people who will force them to work through their retirement years or starve.

Barney Frank's "plan" is just another batch of business as usual for the Democratic Party. (No, I am not a Republican!) :-) Hitting on populist triggers like corporate jets and attempts to micro- manage a small number of manager's compensation simply opens up back doors for the same shenanigans to continue under a different title. If Mr. Frank either was serious about "regulating" the excesses of Wall St. Management, or had a clue he'd have purposed a salary cap for top management based on a multiplier of the lowest paid employee's compensation and forced them to share a health plan. While he's at it, he can show his "Solidarity" with the surviving American Entrepreneurs by sharing our "health plan" as well.

What we are facing is a crisis of confidence fostered by a culture of greed. As long as everybody was making tons of money "blowing smoke" at "each other" everybody was enjoying the "view". Now that view is nothing but "butt ugly" and things are a little "quiet" at the Nineteenth Hole down at Boca Dunes.

So; once a trust is destroyed, how do you regain it? Somehow I know this one's gonna take a little more than throwing money.

[PNW Trojan]

NOW, Frank gets 'religion?' I don't think so... he KNOWS, he's been as GUILTY as any wall streeter, and even Madogg... Frank's scared that ALL that MONEY HE HUCKSTERED FROM WALL STREET will come back to bite his fat, saggy butt in the coming elections. Given this is the LA Times, we need to bite some other saggy butts in the next two elections....give you a hint; pelosi, feinstein, boxer...and a number of Repub thieves.

[Richard]

JS you are a bootlicker!
Hang the bankers and make you pull the rope.
All you scummy greed heads need to get in line and quit lying and stealing your way to million of dollars.
Hang em high!
The French revolution was taken by the US.
Time to remember who we are as Americans by bringing out the
Tar and Feathers again.
Hang em High!

[Joel]

Y'know I find it interesting to read all the accusations about this-one-did this and that-one is guilty-of that. If you want to see who is responsible for the perils our country faces today, you need to look in the mirror first. We need to ALL collectively accept that we have ALL played a part in what has become a truly daunting economic problem. It doesn't mean that there aren't people who have done truly despicable things, and should be tried and punished if found guilty, because there are. But if you are living beyond your means, and everyone of us knows exactly what that is, then you are contributing to the problem. If you're carrying a credit card balance, then you are contributing to the problem. If you buy a car you truly can't afford, you're contributing to the problem. If you purchase a home that is absolutely more than you can pay for, you're contributing to the problem. If you're not saving for retirement or for emergencies, you're contributing to the problem. We, as a country, have been living far beyond our means for decades. And, as in musical chairs, the music has stopped and we are desperately searching for a seat. We can try and foist all the blame onto the big bad bankers, the big bad industrialists and the big bad "other people", and absolutely some of those scum do deserve to be held accountable, but the bottom line is one needs to have a clean financial slate, a financial plan and (most importantly) the willingness to become involved in making this country a better place to live and work. It's very easy to sit behind a computer screen and pontificate. It's another thing entirely to become involved and try to make a difference. I come from a rural poor, bordering on dirt-poor, background and know I will make it through these hard times quite well. I will survive and try to prosper as best I can. Being poor teaches hard lessons you never forget. If we each clean our financial houses, the changes to our country could be enormous. It could be one of the few times that change for the good could bubble all the way to the top. Peace