Socialism? Why Not Call A Spade A Spade?
One of the things we talked about on the podcast this week is how, in the broadest sense, socialism is a growing phenomenon in our country. As I mentioned, while government may not actually own the means of production, if its regulations are such that they dictate how a company must operate, then government exercises de facto ownership.
What is happening in the financial sector right now serves as a perfect example.
The Obama administration plans to require banks and corporations that have received two rounds of federal bailouts to submit any major executive pay changes for approval by a new federal official who will monitor pay, according to two government officials.
Others, which are being described as broad principles, would set standards that the government would like the entire financial industry to observe as they compensate their highest-paid executives, though it is not clear how regulators will enforce them.
So regulators will have the final say on compensation. That, of course, is an ownership function. The de facto owner then is who?
In a sign of how eager corporations are to escape government diktats on pay, nine of the nation’s biggest banks are likely to repay bailout money as quickly as by the end of this month. The administration is expected to grant its approval this week.
Goldman Sachs, JPMorgan Chase and a handful of others have worked to rid themselves of their ties to government in order to shed restrictions on pay that they say put them at a competitive disadvantage.
But under the administration’s new plans, even companies that repay the taxpayer money will not escape some form of oversight on their compensation structure.
The set of broad pay principles being drafted by the Treasury Department would authorize regulators to tell a bank to alter its compensation arrangements if they are found to encourage too much risk-taking. It is not clear how the government will define too much risk.
Part two – no matter whether you pay the money back in full with whatever interest is owed, the government retains the right to dictate your compensation structure based in some arbitrary metric of “too much risk”, to be determined only by them.
They will apply to a broad swath of financial companies, even the United States operations of foreign banks, as well as private companies like hedge funds and private equity firms.
“This is the government trying to tell the TARP banks not to worry, because everyone else’s compensation will be monitored too,” said Gustavo Dolfino, president of the WhiteRock Group, a financial recruiter, of the industrywide principles. “We’re in a world of TARP and non-TARP.”
Clear enough? For those that like to quibble about the meaning of socialism and parse words, I’m eager to hear your spin on this. But, in light of the plan above you’d better be damned good at deploying the rhetorical smoke and mirrors if you plan to call this anything but a manifestation of the “s” word.