Geithner works to create a better business culture

Treasury Secretary Timothy Geithner pushed Congress this week to adopt salary caps on executives and make bonus payments dependent on long-term corporate performance. High salaries and bonuses based on business volume for the year or even for the quarter, rather than the long term, were responsible, he argues, for some of the meltdown that threw the economy into a severe recession last year.
In particular, the housing bubble was caused, in part, by commission-driven sales of houses and apartments to un-qualified buyers. The mortgages created were then packaged into financial instruments and sold — again creating huge commissions or bonuses — to all manner of purchasers. Because many of the sub-prime borrowers found themselves unable to make the payments or to sell their properties for enough to cover the loan they made, those instruments are now among the “toxic assets” which slowed the flow of capital in the economy to a trickle and have yet to be realistically valued.
While many agree with Sec. Geithner’s analysis, just as many wonder if his proposed remedy will cure the sickness. The 10 big banks being allowed to return the loans made to them by the government from the Troubled Asset Relief Program (TARP) gave the money back to get out from under federal limits on executive compensation and other special regulations.
Observers point out that paying the government back will allow the 10 to boast that they are good, strong banks while those still under TARP regulation are weaker and therefore less reliable institutions.
The news report on Geithner’s pitch to Congress included quotations from members of Congress who agreed that dividing the nation’s banks into categories would be a natural consequence of imposing compensation limits on some but not all.
Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, drew a distinction between companies that receive government funds and those that do not.
The government, he said, should not intrude in the compensation practices of companies where there is no government involvement.
“There, the board of directors has an obligation to the shareholders,” he said. “Where there is a government involvement, like TARP, that’s a different story.”
Others, however, saw a need to rein in the entire financial industry. Sen. Frank Lautenberg, D-N.J., encouraged Geithner to act. “We’ve got to change corporate culture that says the leadership at the top can often take its compensation without regard for what happens with the employees or the future investing or the well-being of the company and taxpayers,” he said.

CONGRESS SHOULD go with Sen. Lautenberg if a formula can be found to keep grasping executives from looting the corporations they control, walk off with their millions and let others bear the consequences of their actions — without damaging the businesses in the process.
But that sword has two edges. Regulation which smothers the entrepreneurial spirit will be self-defeating. Beyond setting a minimum wage, government shouldn’t be in the salary-setting business.
Government does be-long in the social values business. High on that priority list is creating and maintaining a prosperous society that creates wealth and lifts the population out of poverty. The last three years have demonstrated be-yond argument that turning business loose without any guidance or limitations encourages voracious greed and, in the end, destroys huge amounts of wealth.
As it seeks to guide the economy out of recession and rebuild some of that lost wealth, the administration is looking for a way to help American business to, in the senator’s phrase, “create a new corporate culture” that will elevate sustainability and social justice as guiding principles and denigrate the I-want-mine-first philosophy in the executive offices, in the board room and in the union hall.
Capitalism works to create wealth better than any other system yet discovered. But when it must only produce short term results, capitalism has frequent train wrecks. A new corporate culture would focus on the long term; take the grandkids, and their kids, into consideration. And all on its own limit the share of each year’s created wealth that goes to the top 1 percent to far less than is the case today.

— Emerson Lynn, jr.