Executive Pay and the Obscene Culture of Wall Street

By Sarah Anderson and Chuck Collins, AlterNet. Posted April 2, 2009.

Second, Congress could allow shareholders at publicly traded companies to vote on executive compensation.  While “Say on Pay” won’t solve this systemic problem, giving shareholders this authority might stop some of the most obscene pay packages.

Thirdly, Congress should pass corporate governance reforms that require democratic elections at corporations, truly independent compensation committees, and prohibitions on compensation consultants that have other business with the firm.

How can we address this problem over the long term?

Ultimately we need to radically change the culture of Wall Street and transform the economy.  Too much of the activity on Wall Street has been about speculation and gambling, not productive economic investment. With all the focus on Wall Street greed we forget a fundamental truth:  Wall Street is NOT the economy; people are the economy – local and regional businesses are the economy.

Should we be bailing out big banks like Citigroup and insurance companies like AIG?

Not the way we are.  The problem with these “too big to fail” companies is when they make money it goes to private shareholders –- but when they mess up –- we taxpayers are on the hook. Right now, the timid approach of Bush/Obama Treasury officials has given us the worst of two worlds.  Taxpayers cover all or most of the losses but have insufficient management power.  U.S. taxpayers now own 80 percent of A.I.G., yet we don’t have the power to dictate compensation?  The answer is for our government to aggressively step in as receivers and break up these companies into smaller units. Big banks should be broken up and assets allocated to regional and local banks. Or we should create quasi-public authorities to manage these entities for public purposes.

What is the alternative to Wall Street?

It is very important to make a distinction between the casino economy of Wall Street and the real economy of Main Street. The real economy includes the millions of small- and medium-sized regional businesses that produce and provide useful life-sustaining goods and services.  These businesses are rooted in communities and concerned with livelihoods.  Local banks and credit institutions -–a key part of the real economy -- are for the most part healthy because they are subject to state-level regulation and were not engaged in the Wall Street casino binge.

The casino economy has been focused on betting on the movement of money and expropriating value out of the real economy.  Wall Street has been focused on phantom wealth creation.   The Main Street real economy is about creating real wealth, livelihoods, and useful products and services.

What is the role of government in fixing the economy?

Government must create a firewall between the parasitical casino economy and the healthy real economy.  It must do this by confining such activities to regulated casinos and providing aggressive oversight to the rest of financial marketplace. Examples:

• Strict reserve requirements for all financial institutions and instruments
• A financial transaction tax on purchase and sale of financial instruments

Won’t the recession be over within a year and everything be back to normal? 

The economy has suffered a system failure and needs to be transformed into a new and hopefully sustainable economic system.  The forces of Wall Street, however, and the politicians, media and think tanks that serve them (and who got us into this mess) want to quickly bring back the old system.  They want to restore the bubble economy and start funneling wealth to the top one percent again.  They hope to goose the system with taxpayer dollars and extract more phantom wealth for themselves and a small elite.  The challenge is to make sure a replay of the events that led to the current crash never reoccur by reengineering the economy to ensure broader prosperity and ecological sustainability. 

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Sarah Anderson and Chuck Collins of the Institute for Policy Studies (IPS) are also members of the New Economy Working Group, an initiative to stimulate bold thinking about a New Economy that serves the long-term needs of all our children, families, communities, and natural systems. IPS is also helping to form Common Security Clubs to help people come together to study the changing economy and help one another take action.  For more information on actions you can take, see IPS’s web site on extreme inequality.

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