Friday, September 18, 2009

Obama Opposes Wall Street Wage Constraints

            In case you’ve been living under a rock for the past year, there’s been a financial crisis! The crisis has become the talk of the nation, and now that Obama’s put his plans to fix it in motion, it’s a more popular topic than ever.

            Recently, he’s announced that there will be no second stimulus package. Good news, since we can’t afford it. Also, many economists think the first stimulus package may have come too late to fix the major economic downturn, so a later stimulus package would have the same effect as throwing billions of dollars in the garbage. It’s scary to think that the U.S. may just have to wait this out, but it’s a definite possibility.

            Also, as reported by Bloomberg, he is opposed to policies that would constrain the salaries of financial industry executives, “even in the face of public outrage over some of the multimillion-dollar bonuses and salaries Wall Street companies are still handing out.” As Obama puts it, “Why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or NFL football players?” Of course, there are more important principles behind it, but he’s got a good point.

            Wages really aren’t the problem. Paying financial executives less may make Americans feel better, but it wouldn’t positively affect their behavior. In fact, constraining wages could make financial executives engage in more dangerous, secretive behavior. It’s simple economics. Creating a wage ceiling creates a shortage of labor in the financial industry, which leads to a black market for financial services. A “black market” in the financial sector would probably appear as low reported profits to the government and behind-the-scenes, unregulated behavior.

            Obama has said that he would prefer creating a major regulatory agency to examine the behavior of financial firms more closely. This clearly benefits the U.S. consumer far more than wage regulation. It’s easy for the average American to get pissed off about the financial industry’s outrageous actions and compensation. After all that’s happened, firms really should show some restraint with their salaries and bonuses. But really, it’s America. It’s all about profit, and that’s not necessarily a bad thing.

1 comment:

  1. I believe compensation and wages increase the total students interested in investment banking careers, which might provide benefits for everyday citizens in the long run. Because most investment corporations provide employee compensations and high wages, the finance student gains additional incentives for pursuing a career on Wall Street. With a large pool of applicants, financial corporations can select the most talented employees who earn their company’s the highest possible profits in any given market cycle. Keeping the financial institutions profitable might help kick-start lending. The more equity financial corporation’s acquire, the more investments they can make in the loan sector. Banks and corporations have cut leverage by ½, a decision making investments small than before the recession. More investments in this area might produce lower interest rates for everyday citizens in the future.

    ~Nice Post; Michael deGroot; Right Fringe