William A. Jacobson
Legal Insurrection
October 24, 2009
The pre-weekend information dump included an announcement by the Federal Reserve and Treasury Department that the federal government proposes to extend its control over pay packages beyond financial institutions which received bailout funds.
According to the press release, the government proposes to monitor and, if need be, veto pay packages at any banking institution subject to federal regulation:
Flaws in incentive compensation practices were one of many factors contributing to the financial crisis. Inappropriate bonus or other compensation practices can incent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm. With that in mind, the Federal Reserve’s guidance and supervisory reviews cover all employees who have the ability to materially affect the risk profile of an organization, either individually, or as part of a group.
This is an earth-shattering development in the annals of government control, yet because the information was released on a Friday, it has received little press attention relative to its importance….
…Creeping federal regulation of every aspect of the economy now is being used as a justification for federal regulation of every aspect of our lives. And the example of regulation of banking salaries sets a precedent for regulation of our personal behaviors once Obamacare passes.
This is a monumental power grab and more.
The actions of the federal government with regard to non-bailed out banks undermine a fundamental feature of our capitalist system: Individuals get to structure their own financial lives, and shareholders and boards of directors get to structure corporate financial lives.
This is using a crisis to grab power unrelated to the crisis. Don’t say you haven’t been warned.
Professor Jacobson’s entire article is here.
