In my town, we have a powerful Planning Board. If you want to put an extension on your house or add an extra bathtub in a bathroom, you have to go before them with plans, an architect, a lawyer, and lots of ass kissing. This really rubs my town of libertarian teachers, cops, and contractors the wrong way. They feel that if they want to put an extra bathtub in their bathroom, it is nobody's fucking business.
A year ago, a former mayor who sits on the Planning Board ran into some financial problems. The talk of the town was that he was forced to use the church food pantry. He decided that he would raise money, by selling his tiny backyard to a developer. The Planning Board that freaks out about two tubs in a bathroom, let the former mayor turn his property into a shanty town.
My libertarian teachers, cops, and contractors grumbled about this a lot. They called the deal, dirty. But they sucked it up. That's the way it is, they thought.
David Brooks' column generated a lot of heat in the blogosphere yesterday. People either loved it or hated it. I dunno. I thought it was kind of funny and didn't take away any ideological subtext.
Clearly, there's a backlash going on against years of double standards. It's not a partisan thing. We all know that both sides are guilty of this stuff.
People are also sick of making $40,000 a year, while others are making $4m a year. It's annoying. So, there's two long standing grievances — political double standards and rich people.
The tax problem didn't sink Daschle. It sounded as if it was a genuine mistake and a lot of people have made those types of errors. The problem was the amount of the error — $100,000. That's more than most people in the country make all year.
He made a few million working as a lobbyist, after he left government. Again, this is nothing new. Hugh Heclo and the Iron Triangle. This is what politicians do after they leave office. They advise businesses about how to get the legislation passed. They give speeches. And they make a whole lot more money than they did when they were in office. They ALL do that. Bill has made a ton of money giving speeches in Dubai.
So, I do think that Brooks was clever, but wrong yesterday. This class backlash going on right now, isn't coming from DC. It's coming from America. They are sick of double standards and their average paychecks. The DC types might be slightly irritated that their college roommates were making a fortune on Wall Street, but they aren't that upset. They know they can always cash in later. No, DC is just responding to the new message of their constituencies.
We're moving into an Era of the New Modesty. No more Viking stoves and houses in Hamptons. No more corporate jets and trust fund brats. And there's some muscle behind the New Modesty. The bail-out money is being closely watched. Senate confirmations are putting the rich on trial. And this is a good thing. The teachers and cops and contractors are having their say.
Apt. 11d 
A genuine mistake? Well, it was genuinely a mistake. But really, post-Zoe Baird, doesn’t every aspiring pol know that nannies and taxes are on the check list that will be scrutinized closely? And when you’re pulling down the kind of dough that Daschle was, can’t you hire a first-rate tax accountant who will help make sure you don’t make mistakes? I find myself in a very unforgiving mood about both of the tax “mistakes” announced yesterday. These people absolutely should have known better. I think we need much higher financial penalties for these kinds of “mistakes.”
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Though the amount of Daschle’s error was what killed him, I was more bothered by the source of the error. He’d gotten so used to a driver as a (taxpayer funded) perk that it apparently never occured to him that it was income for the non-elected. I also have little sympathy for Geithner as millions of self-employed people manage to pay their SS taxes just fine. The press reports make it sound like only people at the IMF have his issue, but it is very common to have to pay both halves of the SS tax yourself.
On the other hand, I think Nancy Killefer was an innocent victim of Daschle and Geithner (and on back to Baird and Wood). She was clearly trying to pay the tax or she wouldn’t have gotten caught, was only off by a few hundred, and actually paid the penalty for a small mistake.
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“Era of the New Modesty. No more Viking stoves and houses in Hamptons. No more corporate jets and trust fund brats…And this is a good thing.” In other words: Rich needn’t be gaudy, and The more the east coast starts to take cues from the Midwest, the better? Can’t wait.
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To be fair, the Midwest just has cheaper ways of being gaudy.
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Or “Why are those geese wearing bonnets and what are they doing on the wall?”
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I was not terribly concerned about any of these transgressions (Bill Robertson’s, on the other hand, seemed like it might be worthwhile). I also really worry that we loose good people (just like I think the Reps lost good people out their requirements of ideological compliance on things like stem cells & abortion).
So do senators get a driver? Or just some of them? It’s a pretty big perk, if the do.
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I’ve been far more disheartened by the tax cheats than the Wall Street bonuses. I spent too many hours of my maternity leave carefully documenting $3 hospital parking receipts because our medical expenses that year were so high they were partially deductible, and don’t I feel like a chump? Geithner’s especially was so egregious, yet he didn’t even have to pay late penalties.
On the comic relief side, though, it’s fun to contrast an administration that was almost full of tax cheats with Biden’s famous comment about taxes and patriotism.
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Is it? I have to say that when I think of politicians I respect, the last thing I want is them wasting their time and emotional energy driving around Washington (or wherever) in bad traffic. They should be in a comfortable car, being well driven, and thinking/preparing/talking.
That said, there are plenty of politicians I don’t respect, and think the world would be better off if they were permanently stuck in traffic.
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MH,
I think you’re right about Killefer–that one does sound like an honest mistake. On the other hand, no way, no how was Geithner’s tax thing an error.
bj,
Public servants need to be honest and detail-oriented. If the tax system is too tough for them to understand (with the help of their CPA), maybe they shouldn’t be a) writing tax law b) enforcing tax law c) raising taxes d) running up trillions of dollars of debt for other Americans to pay.
As MH mentioned earlier, self-employed people navigate these issues all the time, often without the benefit of more than a high school education. If you (as an ordinary person) screw up, your boss screws up (this seems to happen a lot, by the way), or you are dishonest on your taxes, you face thousands of dollars in penalties and the prospect of jail time. This is not a small or purely ideological issue.
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Full disclosure — I’m from Chicago. And so I have perhaps a different scale that I judge people on. If you’re not clearly bonkers and going on Letterman, and if you are extremely talented and would clearly do the job very very well, then I’m willing to overlook some things. Because let’s face it, competence has been in short supply for the past few years. And the idea of leaving health care, of all things, to the not-the-first-choice? Too scary!
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“As MH mentioned earlier, self-employed people navigate these issues all the time, often without the benefit of more than a high school education.”
yeah, but Geithner wasn’t self-employed. He was just in a weird hole where his employer didn’t deduct SS tax but he was still liable for them. The rules on this were changing quite a bit in the 80’s and 90’s as SS was being revised. For example, state government employees (including city government) and perhaps the IMF (though I don’t know about that) didn’t pay SS back then. I think they do now, but there was first, a period when they didn’t pay it, then a period where they could opt to use an alternative savings plan, then a period where they had to pay it.
And, though I think government employees need to be detail oriented for the work that they do for me (just like I think that about a doctor), I’m not terribly distressed if I hear that a doctor was sloppy on their taxes.
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It isn’t like a doctor not doing their taxes. Geithner’s work was finance. It’s like an ER doctor not wearing his seatbelt or a cardiologist selling Crisco in the office lobby. Also, in Geithner’s case, I doubt that it was a mistake. The IMF actually compensated him for having to pay the taxes he didn’t pay. Who doesn’t notice income?
I’m much more irked about the bonuses for the upper management of bailed out companies, but the guy the head of the IRS reports to should not have a history of trying to slip stuff past the IRS.
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yeah, but Geithner wasn’t self-employed. He was just in a weird hole where his employer didn’t deduct SS tax but he was still liable for them. The rules on this were changing quite a bit in the 80’s and 90’s as SS was being revised. For example, state government employees (including city government) and perhaps the IMF (though I don’t know about that) didn’t pay SS back then.
Which is why the IMF went out of their way to educate their employees about their tax burden.
Sloppy is one thing. Signing forms saying that you understand you’ve been given a big chunk of money to pay taxes and then not bothering to pay those taxes is intentional.
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We’re moving into an Era of the New Modesty. No more Viking stoves and houses in Hamptons. No more corporate jets and trust fund brats. And there’s some muscle behind the New Modesty. The bail-out money is being closely watched. Senate confirmations are putting the rich on trial. And this is a good thing.
I hope you’re right, because I agree that it is a good thing, just like it’s a good thing for Obama to put some genuinely strict and enforceable salary curbs on executive pay for firms that receive federal bailout money. It’s not about saving money, ultimately; there are no doubt all sorts of ways in whcih accountants could show that requiring senators to drive themselves, or taking away competitive bonuses from chief executives, is inefficient and unproductive. Rather, it’s about empowerment and equalization, even if that equalization is superficial. The principle of the civic equality–yes, sure, you make more money than me, you work harder than me, you’re luckier than me, you’re worth more than me, but dammit, you still don’t get to jump to the front of the line!–still holds.
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” it’s a good thing for Obama to put some genuinely strict and enforceable salary curbs on executive pay for firms that receive federal bailout money”
OK, so I’m the only one who saw the 500K limit as being unreasonably low? I do, you know. I think limits on executive pay are good, to keep these guys from taking home 23M like they did in the past. But, I think 500K does mean that anyone with other choices (i.e. “consulting” for people who want a government bailout, rather than taking it) will opt out. I think the limit should have been set at 1M + the options that only get paid after the taxpayers get paid.
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Everybody posting their disbelief in Geithner’s excuse is in or has lived in Pittsburgh. Coincidence?
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“I think the limit should have been set at 1M + the options that only get paid after the taxpayers get paid.”
And they have to put a wooden geese with bonnets on the wall of their kitchen, right next to the Viking range.
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bj, I also had those thoughts about the $500K. Honestly, this is where these companies start feeling nationalized, regardless of official structure.
Cynic that I am, I have great faith that these executives’ accountants are feverishly working to figure out how to maintain their income despite such rules. And I’m sure they’ll figure something else out. But it’s going to drive lots of people away from these companies. Upon reflection maybe that’s the point? If you were only there for the cash, they don’t want you?
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The point is the bailout has to suck enough that:
1. Only companies that really need it will take the bailout.
2. Those paying for the bailout don’t go looking for their pitchfork.
3. In the future, banks, etc. will be more risk adverse because they know that any bailout will suck.
Point #1 seems to be met. I’m most worried about point #2, but that may be projection on my part.
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“Upon reflection maybe that’s the point? If you were only there for the cash, they don’t want you?”
Yeah, right, because we’ll get the best (or good) person to run BofA if we pick people who want to do it out of the goodness of their heart. Maybe I’m a cynic, but I suspect that not many bankers are like Jimmy Stewart’s character, and that if they were our banks might actually fair worse.
Lots of slippery slopes out there. I was asking someone this morning that if they’re going to cap executive pay for BofA at 500K, then how about executives at Unis? Can we cap the president’s pay? And, how about the football coaches? (And, though I think we can counter-argue whether the money is a “bailout”, Unis are definitely going to get government funds)
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Presumably, you would structure contracts so that the compensation would be at $500k during the bailout period, but that after the company left probation, the guys would get a pile to make up for the $500k a year era. I don’t really see how there’s any way to stop that. That’s why there’s almost no point in trying.
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“3. In the future, banks, etc. will be more risk adverse because they know that any bailout will suck.”
See, I don’t think they will be, ’cause I think part of what got us into this mess is that these guys gambled big time with the people’s money, foolishly, without an understanding of risk. The lack of a bailout might induce them not to the next time around, but only if they’re going to stick around long enough to need it. All the guys running these banks came out just fine.
And, I think that bankers are a bit like toddlers and dogs. If the delay between the action and the punishment is longer than about a second, they don’t make the connection and modify their behavior.
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BJ,
There are a whole bunch of younger bankers and related workers just starting out. That’s what #3 was about.
As for who runs B of A, I just want somebody different. If shareholders are taking huge losses and management is getting large bonuses, how long do you think it takes small investors to learn the obvious lesson (i.e. don’t invest in the stock market because it is rigged against you)? And how do you expect the economy will look if everybody starts putting their money under the mattress because they don’t trust banks or the market?
Full disclosure: I own a small number of BofA shares that are now worth so little I’d gladly see them go to zero just to hit the big fish.
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“There are a whole bunch of younger bankers and related workers just starting out. That’s what #3 was about.”
I understand that you weren’t about punishing the guys who actually did the bad stuff, but discouraging others from following in their footsteps. What I’m arguing is that without oversight, the same paths will be followed again, even if BofA shares go to zero. We could oust the president of Citigroup, like BofA ousted Thain, but I don’t think that teachers the young banker dude not to follow in Thain’s footsteps, because, hey, Thain did pretty well. And, I think that people’s memories are really really short.
I’m really not being facetious here, I just think that if we’re going to go after people, that we should know why we’re doing it. Pure revenge (making MH happy) is a fine motive (I have no desire to protect the chairman of BofA unless it’s going to hurt me). But, if we’re arguing for deterrence effects we need to come up with better deterrence. I want deterrence, not punishment of people who happened to be holding the grenade they’d all been tossing around when it went off.
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I feel that 500,000 only looks small in comparison to the recent state of Wall Street compensation.
I have a very sour laugh for all the Wall Streeters who have been indignantly declaring sentiments to the effect of, “no one will work as hard as we do for less than princely sums.” In the real world, many people work harder than Wall Street types, for much less money.
I’ll be interested to see if the limits catch on. If you’re a shareholder, where’s the advantage to overly lavish executive pay? As far as I can see, these guys paid each other handsomely, while the ship was sinking around them. They’ve shown no restraint, and have earned the public’s disdain.
The people who will really be hit by this will be those who have catered to Wall Street employees, the purveyors of luxury goods and personal services. Also, it’ll be another body blow to New York, I’d think.
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First, Thain was head of Merrill Lynch, which got bought/taken over by B of A. Lewis was and is still the head of B of A. Whatever else he did, Lewis failed to stop Thain from looting on the way out.
Second, I’m all for punishing the guys who made the mistakes. It’s just that being stupid/exuberant isn’t, in and of itself, a crime (luckily). Here’s hoping they get anybody who went beyond stupid.
Third, anybody at a bailed-out company who feels that working for $500k is punishment was almost certainly part of the problem since big risks are how you got the big bonuses.
Lastly, what’s been happening now (using tax dollars to pay bonuses for people who patently failed share holders) is far closer to punishing whoever happens to be holding the grenade than capping compensation for people running the company.
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“That is pretty draconian, $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”
Cry me a fucking river Mr Reda. Five hundred thousand a year is a whole lot of money out here in the real world. Compensation consulting firms should go the way of boo.com.
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I imagine it’s also a severe challenge to “compensation consulting firms,” eh?
Overnight, it came to me that this is brilliant at heading a lot of hedgies and VC guys off at the pass. I think some were buying small banks, in order to get in line for “free money.” This will cut off that interest, instantly, as hedge fund leaders are not noted for, er, reasonable ideas of what their compensation should be. To them, $500,000 is “draconian.”
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Well, whether you feel badly for people or not, one thing is clear: anyone who got into finance for the money is now leaving as fast as they can. I keep wondering, where will they go? I know the customer support function at my office (when it was still hiring last fall) got a bunch of resumes from low-level finance people, or recent finance grads, which were summarily ignored. I also know that when the Chicago Board of Trade (or was it the Merc?) laid off a bunch of traders, I think due to going electronic, those traders moved on to decidedly non-illustrious careers. Like selling cars, like running restaurants. They were absorbed back into the regular economy as guys who were only notable for their wild stories and their ability to swear profusely.
I know that merc traders are not directly analgous to the Wall Street types we’re discussing here. But still I wonder — could something like that happen on a national scale, where they just accept their new level of income and disperse? I personally would love that, especially if it means that more math geeks end up in technology, or in health care. We need them.
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That’s an interesting point. They could still make money by becoming entrepreneurs instead of, to quote the lawyer in Bartleby, doing “a snug business among rich men’s bonds, and mortgages, and title-deeds.”
Entrepreneurship would force them to create a product or service, to innovate, instead of just making fake money by trading fake money.
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“…instead of just making fake money by trading fake money.”
See, I wouldn’t go that far. Providing liquidity, managing capital, and whatnot are an actual services that can be very beneficial. I just don’t want someone rewarded hugely when the fail at it so badly that they need tax dollars to stay solvent.
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