Why Wall Street Loves Obama
Was it just me, or did there seem to be a whole lot of applause during Obama’s Wall Street speech? Remember this was a room full of Wall Street executives. The President even started by thanking the Wall Street execs for their “warm welcome.”
While of course, there was the obligatory slap on the wrist, that “we will not go back to the days of reckless behavior and unchecked excess,” but there was no mention that the bailouts were a thing of the past. Indeed, there is nothing in Obama’s financial plan that would prevent future bailouts, which is why I believe there was such applause. The message to the Goldman’s of the world, was, you better behave, but even if you don’t, you, and your debtholders will be bailed out.
The president also repeatedly called for “clear rules” and “transparency” – but where exactly in his plan is the clear line dividing who will or will not be bailed out? That’s the part Wall Street loves the most; they can all say we’ve “learned the lesson of Lehman: Wall Street firms cannot be allowed to fail.” At least that’s the lesson that Obama, Geithner and Bernanke have taken away. The truth is we’ve been down this road before with Fannie and Freddie. Politicians always called for them to do their part, and that their misdeeds would not be tolerated. Remember all the tough talk after the 2003 and 2004 accounting scandals at Freddie and Fannie? But still they got bailed out, and what new regulations were imposed were weak and ineffective.
As if the applause wasn’t enough, as Charles Gaspario points out, financial stocks rallied after the president’s speech. Clearly the markets don’t see his plan as bad for the financial industry.
It would seem the best investment Goldman has made in recent years was in its employees deciding to become the largest single corporate contributor to the Obama Presidential campaign. That’s an investment that continues to yield massive dividends.
Federal Pay: Response to the Critics
My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:
First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).
Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.
Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.
Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.
A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).
That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.
Filed under: Government and Politics; Tax and Budget Policy
Sarbanes-Oxley under Attack… from the Supreme Court!
Today the Supreme Court agreed to review a case brought by our friends at the Competitive Enterprise Institute that challenges the constitutionality of the Public Company Accounting Oversight Board (PCAOB, pronounced “peek-a-boo”). The constitutional problem with the PCAOB — there are many policy problems — is that its officers are appointed in an unconstitutional manner.
Under the Appointments Clause of Article II, section 2, the president has the exclusive power to appoint and remove government officials. The members of the PCAOB – which enforces the massive regulatory scheme Sarbanes-Oxley imposes on public companies – are appointed by the SEC, however, which then has limited supervisory/removal power. While this structural defect may seem like a minor technicality, what it means is that the awesome power to set accounting standards — not least Sarbox section 404, which has cost the economy over a trillion dollars — impose taxes, and levy criminal and civil penalties is vested in a bunch of unaccountable bureaucrats. Entities with similar authority, even those having a modicum of political independence, such as the IRS Commissioner and Federal Reserve governors, are all vetted by the president and the Senate.
The court below (the D.C. Circuit), however, held that PCAOB members are inferior officers and, as such, Congress “may limit and restrict the power of removal as it deems best for the public interest.” But this gets the Constitution backwards; Congress isn’t allowed to insulate important decisionmakers from political accountability. As CEI’s press release says:
If the President can pick and remove the PCAOB members, as the Appointments Clause requires, he will be on the hook for their policy failures, and thus have an interest in making them develop sound policies that protect investors and don’t stifle economic growth. He won’t be able to blame the red tape on an unaccountable agency whose officials he doesn’t select or control.
The Court will hear the case, Free Enterprise Fund v. PCAOB — which I previously blogged about here – in late fall.
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