What do you think of the Treasury and Federal Reserve actions to limit compensation for executives at large financial companies? The Treasury action would reduce compensation by 90 percent for the highest-paid 25 executives at each of the seven companies that received federal bailout aid, and soon extend this to the top 100 executives. The Fed plans to review compensation as part of its supervision of large banks (a duty it would lose according to Senate reform proposals.) Among other questions, the securities industry is wondering whether the new Fed rules would cover executives for bank-owned subsidiaries.
Is the Treasury plan mostly politics? A powerful incentive to pay back TARP funds and avoid the risk of future bailouts? Will it be possible to attract competent management at those companies? Can the Fed be trusted to curb compensation when it never recognized that as a problem before?
-- John Maggs, NationalJournal.com
4 responses: Grover Norquist, Charles Calomiris, Douglas Elliott, John Maggs
Debate is heating up over whether the Obama plan for financial regulation goes far enough to curb institutions that become "too big to fail." Simon Johnson and Charles Calomiris discussed the issue here on NPR, and more attention came after Alan Greenspan made a strong statement on behalf of doing more to limit the size of financial institutions. What should be done through regulation, and is any regulation of "systemic risk" inevitably going to designate some banks as TBTF?
-- John Maggs, NationalJournal.com
4 responses: Martin Baily, Charles Calomiris, Robert Litan, Alan Meltzer
The New York Times has sparked interest in the idea of a tax credit for job creation, an idea in recent Democratic presidential campaigns (John Kerry and Barack Obama both proposed it) and one that apparently now has some Republican support. According to one version, it might work as a refundable tax credit, with subsidies to money-losing firms or nonprofits. Greg Mankiw summarizes the problem of winnowing out jobs that would have been created anyway. Can this be done efficiently, and should it be done now (or six to eight months from now, the minimum for when it might be enacted)? Are there better tax incentives to spur hiring?
-- John Maggs, NationalJournal.com
There has been widespread speculation that the credit crisis and the recession would lead to a long-term shift in household saving. And saving did rise from the very low levels before 2008 and increased more or less steadily through this spring. But as the "green shoots" improvement in the economy took hold, saving has been dropping, and fell to 3 percent in August. Will this continue, and is it an unequivocal good thing? Low saving was alternately credited during the boom and blamed during the bubble. Will saving need to rise to very high levels, as many economists have argued, to erase deficits, and what are the implications for growth if it does (or interest rates, if it doesn't)?
-- John Maggs, NationalJournal.com
