ARRA Caps on Executive Pay?
A late ARRA provision caps top executives' pay at $500,000 for firms getting government "exceptional assistance." It also restricts bonuses and other incentive compensation (but not retroactively), including severance packages, for the five most senior officers and 20 highest-paid executives. Wiggle room divides beneficiaries into two categories — those getting "exceptional assistance" and others aided through programs like the original TARP with $350 remaining in to be dispensed.
Restrictions have been imposed before and failed as little enforcement is applied, and companies can manipulate rules to avoid them. It's likely they'll do it again, and who'll be watching to stop them.
On February 15th, Bloomberg acknowledged it in an article headlined: "Obama to Work on Executive-Pay Limits After Industry Complaints." In other words, legislate tough rules, then arrange "technical" ways around them even though presidential spokeswoman Jen Psaki said "The president shares a deep concern about excessive executive compensation."
Apparently not enough and a greater concern for Wall Street, and why not. Along with corporate lobbyists, major law firms, and the health industry, the entire FIRE sector comprised his largest campaign contributors.
Help for Beleaguered Homeowners?
On February 13th, AP reported that Obama will outline a foreclosure prevention plan in a February 18th speech. Efforts by the Bush administration failed, so critics wonder whether new efforts will fare no better than old ones. Maybe they'll be old ones repackaged.
Perhaps because they'll work about the same way with lower rates, reduced monthly payments, extended loan terms, and adding unpaid balances to principal. It's called negative amortization to restructure lower payments than the full amount due. Interest accrues and principal increases. A day of reckoning is delayed for when home prices are lower but even less affordable because mortgage balances are higher than property values. In other words, the solution is worse than the problem. Owners get deeper in debt, become levered renters, and later on end up defaulting anyway.
Further, Bank of America's mortgage group tracks most at-risk borrowers. Those most likely to default have Jumbo and Options ARMS. Jumbos are mostly debt and little equity. Options are even more aggressive as lenders distinguish between the offered and payment rates that can be substantial. They also can be interest-only arrangements causing negative amortization, and rates can be adjusted from day one. Home buyers are enticed by teaser rates as low as 1%. But payment amounts are much higher and can change at any time.
Preventing these types of risky mortgage foreclosures will take far more than the suggested $50 billion total Obama may announce, perhaps eight or ten times that amount, structured to advantage homeowners, not lenders. Even then, quick fixes won't solve today's problems — just time, patience, good policy, and government working for people, not predators, something Washington never does.
A Final Comment
Examine Obama's economic team. Poor policy produces failed results no different than under George Bush. Neither Bernanke or Greespan saw bubbles, so it's no surprise that in late 2006 Mr. B. said "US housing prices merely reflect a strong US economy." Today he risks serious inflation by flooding the market with liquidity and worrying later how he'll sop it up.
Debt defines today's crisis, yet under Bush, Geithner, as New York Fed president, helped fuel it and believes more debt, over-consumption, and unaffordable new borrowing will return the economy to sustainable growth which, of course, it can't.
Larry Summers completes the economic troika as head of the National Economic Council (NEC). As Clinton's Treasury Secretary, he engineered Gramm-Leach-Bliley in November 1999. It let commercial and investment banks and insurance companies combine and eased the way for rampant speculation, fraud, abuse, and multiple bubbles that created today's crisis.
Paul Volker plays a role as well as special Economic Recovery Advisory Board head, but look at his resume. As Fed chairman in 1979 and the early 1980s, he engineered a deep recession and set in motion a path to neoliberalism. He helped destroy family farms, crush labor, reduce wages, lower living standards, send unemployment soaring, rev up de-industrialization, and supercharge the early years of financialization and casino capitalism under Ronald Reagan.
With this kind of "dream team," Obama may match or exceed "the most incompetent eight years of government in modern times, and (be) a contender" for all time, according to money manager and market strategist Jeremy Grantham. If so, the worst of today's crisis lies ahead. Massive future plunder is coming to make working Americans no better off than millions of global wage slaves, that is if they have any decent employment at all.
Meanwhile in Rome, G7 finance ministers and central bankers promised to "stabili(ze) the global economy (and take) exceptional measures....using the full range of policy tools to support growth and employment and strengthen the financial sector." Surely as well as they've done it up to now.
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen AT sbcglobal DOT net. Visit his blog at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM - 1PM US Central time for cutting-edge discussions with distinguished guests. All programs are archived for easy listening.