Look, if Republicans want to go to the mat for executives who think that they deserve multimillion-dollar payouts for running venerable, profitable companies completely into the ground -- "It's the unassailable product of the Free Market! Now how about that $700 billion in taxpayer money to buy out worthless assets? Gimme Gimme Gimme!" -- by all means let them. I know what side I want to be on politically.
In addition, conditional restrictions on executive pay aren't simply about punishing inept executives who get massive compensation based on an insulated, mutual-backscratching system largely insulated from market forces. Rather, the most important problem with a bailout -- even if there's a plan that, unlike the one Paulson wants, is defensible -- is the moral-hazard problem. Setting a precedent that, if your firm is big enough, you can expect profits to be yours but major losses to be public is obviously problematic. If executives have to worry that coming to the government Tiffany cup and ivory backscratcher in hand will cost them their golden parachutes, it provides some incentives to act more responsibly.
--Scott Lemieux
