The bottom line is that Wall Street and the banking industry haven't responding to the current situation in a tenable way.
The United States is in a financial crisis because American financial institutions have failed and failed catastrophically. Individual leaders failed, institutions failed, and the business culture rooted in the early 80's failed. Beginning with the leveraged buyouts and takeovers of the early 1980's and continuing through the development of the derivatives market, the financial sector developed an enormous sense of entitlement, raised executive compensation to the stratosphere, and kept it there even after the companies began falling into crisis.
To recover from the crisis, the financial sector will have to replace most of its leaders, rebuild the companies, and dramatically change the business culture of financial institutions.
And the first order of change will be reigning in the pervasive sense of entitlement.
That's what Claire McCaskill was helping financial institutions with when she filed the bill to limit the executive salaries of companies receiving TARP money to $400,000. She was helping them change their business culture for the better.
Here's McCaskill talking to Huffington Post (another example of the prominence of blogs in contemporary Democratic politics).
QUESTION: Tell me how you came about introducing this bill.
MCCASKILL: I've been mad for a while, when first there was talk -- even within weeks of when we passed the initial half of the TARP money, [there were] rumors about bonuses, the fact that too many of these guys were holding unto the jobs even though they were running these companies into the ground. Reality didn't seem to be the order of the day. This culture, this idea, that these guys are entitled not just to their jobs but to excessive compensation, even when their companies were in moments of extinction because of the decisions they had made, just seemed unreal
Looking back, shouldn't legislation like this have been attached to the first installment of the Troubled Asset Relief Program?
Absolutely. Looking back, I just think none of us really comprehended that this culture was so calcified of entitled that multi-million dollar salaries are due, regardless of whether or not they perform (my emphasis). When all this started piling up - and I was having a conversation with someone this morning - and they said: 'None of them should make more than the president.' And he was right. None of them should be making more than the president. So I walked down the hallway and said draft it and we went to the floor and introduced it today.
I think this at least sends the signal that the party is drawing to a close. If you take this bill along with some of the other things my other colleagues are doing, Sheldon Whitehouse is focusing on $40 billion of deferred compensation that is still on the books for these guys and these companies. That needs to be wiped out.
McCaskill had some revealing things to say to NBC as well.
"We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer." And then the Missouri Democrat reloaded. "They don't get it . . . These people are idiots. You can't use taxpayer money to pay out $18-billion in bonuses... What planet are these people on . . . "
"Once they're off the public dole, once the taxpayers aren't footing the bill, then it's not as much our business what they get paid," she said. "But right now, they're on the hook to us. And they owe us something more than a fancy waste basket and a $15-million dollar jet. They owe us some common sense."
McCaskill added, "We must have our financial institutions survive, but not with a culture that thinks it's OK to kick the taxpayer in the shins while they drink champagne and fly in fancy jets."
Obviously, McCaskill is ticked off. Who can blame her besides a delusional like Rudy Giuliani? But the basic fact is that the private financial sector as a whole is not going to survive if the current culture of executive entitlement continues. The only way to finance the extremely high level of executive salaries, perks, and bonuses was to commit enormous financial resources to speculative bubbles like the derivatives market. If the culture of executive entitlement persists, financial companies will be going back down the road to ruin soon again . . .
And then they will have to be nationalized.
Claire McCaskill is sending the financial sector a lifeline. They should take it.