25 October 2009

Executive pay and the Rule of Law

Marginal Revolution | Tyler Cowen | Gone, gone, gone

At BofA and AIG close to a majority of the top executives whose salaries were to be cut have already left. Nuff said.

'There's no question people have left because of uncertainty of our ability to pay,' said an executive at one of the affected firms. 'It's a highly competitive market out there.'

At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision."
I've always loved Thomas Jackson's advice: move swiftly, strike vigorously, and secure the fruits of victory.

AIG executives seem to have a different version: move swiftly, strike vigorously, and secure the fruits of defeat.


GENEROUS PAY for new Freddie Mac CFO. “The government-controlled mortgage finance company is giving CFO Ross Kari compensation worth as much as $5.5 million. That includes an almost $2 million cash signing bonus and a generous salary that could top $2.3 million.” It’s okay to pay him a lot. He works for the government.

Prof. Bainbridge has a very good analysis of this and the hostility to the Rule of Law that has flourished during the Bailout Era. He also points to this David Frum analogy:
Suppose we discovered that during the tense days of September and October 2008, executives at the big banks were ordering lavished catered dinners for themselves at their offices. WE'd all disapprove. Those executives should have been eating sandwiches at their desks! But would it be OK for the government to order the banks to refuse the invoices from the catering company?

The service was contracted by the people who had the legal authority to make the contract. THe contract must be paid, unless the company goes into bankruptcy - at which point all creditors would have to be treated equally, without the government picking and choosing its favorites to be paid first.

What's happening with these executive contracts is the equivalent of bouncing the bills from some disfavored suppliers. It's lawless and it's wrong.

In this instance, Obama is jettisoning the Rule of Law in order to abrogate lawful contracts and punish a few rich businessmen, and because a lot of leftists care for neither contracts nor businessmen, they are happy. This is similar to the way many leftists remained quiet in the wake of Kelo and other expansions of eminent domain, because they distrust the sanctity of private property. It was foolish and short-sighted then as it is now. Though contracts and property are banners most often waved by the libertarian right, they are indispensable to establishing the supremacy of law, and the Rule of Law — universal, general, impersonal, predictable law — protects the weak from the predations of the strong above all other institutions. Leftists may like the outcome this time, but the path of arbitrary governance does not end well for the disadvantaged they claim to speak for.

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