As Adam notes below, President Obama appears to have moderated his bank-pay fury in a recent interview with Bloomberg/BusinessWeek. (Is it is a coincidence that regulatory reform is, as he speaks, teetering on a knife edge in the Senate?) Of the combined $26 million in stock coming to JP Morgan Chase’s Jamie Dimon and Goldman Sachs’ Lloyd Blankfein, Obama said:
I know both those guys; they are very savvy businessmen. . . . I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.
Obama also compared those pay days to “some baseball players who are making more than that and don’t get to the World Series either.” “So I’m shocked by that as well,” he added. This is a long way from the adjectives that Obama has typically used to describe such payouts, words like “obscene” and “shameful.”About a year ago, on January 29, 2009, Obama described Wall Street bonuses this way:
That is the height of irresponsibility. It is shameful. . . . And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility.
It’s pretty clear why this softening tone could cause Obama some political problems as he hammers home the Main Street vs. Wall Street theme. Simon Johnson, the former top economist at the International Monetary Fund and an established critic of the White House regulatory approach, makes the case that the softening tone is bad as substantive policy as well:
Does the president truly not understand that Dimon and Blankfein run banks that are regarded by policymakers and hence by credit markets as “too big to fail”? This is the antithesis of a free-market system. Not only were their banks saved by government action in 2008-09 but the overly generous nature of this bailout means that the playing field is now massively tilted in favor of these banks. . . . Not only that, but the incentives for the people running these megabanks is now to take on reckless amounts of risk. They get the upside (for example, in these compensation packages) and – when the downside materializes – this belongs to taxpayers and everyone who loses a job.
Johnson also posts the full text of Obama’s exchange with the Bloomberg reporters:
Q Let’s talk bonuses for a minute: Lloyd Blankfein, $9 million; Jamie Dimon, $17 million. Now, granted, those were in stock and less than what some had expected. But are those numbers okay?
THE PRESIDENT: Well, look, first of all, I know both those guys. They’re very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system. I do think that the compensation packages that we’ve seen over the last decade at least have not matched up always to performance. I think that shareholders oftentimes have not had any significant say in the pay structures for CEOs.Q Seventeen million dollars is a lot for Main Street to stomach.
THE PRESIDENT: Listen, $17 million is an extraordinary amount of money. Of course, there are some baseball players who are making more than that who don’t get to the World Series either. So I’m shocked by that as well. I guess the main principle we want to promote is a simple principle of “say on pay,” that shareholders have a chance to actually scrutinize what CEOs are getting paid. And I think that serves as a restraint and helps align performance with pay. The other thing we do think is the more that pay comes in the form of stock that requires proven performance over a certain period of time as opposed to quarterly earnings is a fairer way of measuring CEOs’ success and ultimately will make the performance of American businesses better.
