In keeping with its strict editorial policy of only letting others tell readers what "populists" think, the Post front page article on setting executive compensation at banks receiving bailout money never presented the views of an actual populist. Therefore readers got to see the comment of Robert Profusek, a lawyer at Jones Day who is identified as having advised major banks on compensation matters: "I wish I could hum the theme song for 'Mission: Impossible' because I think his job is mission impossible, .... On the one hand, there's this populist outrage that is fanned every other day by somebody in Washington. . . . But he can't just go in there with a hatchet and cut everything because the good people will leave. That's not in our best interest." Later the article quotes Linda Rappaport, head of the executive compensation practice at the firm Shearman & Sterling: "You've got to allow these companies to make the money for the shareholders ... And to make the money for the shareholders, they have to have the talent. And to have the talent, they have to be able to pay them competitively." If the Post had solicited the views of a populist, or an economist, they might have told readers that much of what the banks earn comes directly at the expense of consumers and businesses. For example, suppose that Goldman Sachs' large trading profits last quarter came in part from oil trades. This would mean that it managed to buy oil or oil derivatives on the way up, preventing oil companies from getting as much profit as they otherwise would have received. This is money that they could have used in developing new energy sources, as the oil companies so often tell us. Alternatively, if the run-up was purely speculative, Goldman's successful traders caused consumers to pay more money for gas and home heating oil than otherwise would have been the case. There would be a similar story if Goldman made its money on the way down, with the trader pulling way money that would have otherwise gone to consumers or producers. The public has no obvious interest in subsidizing traders to speculate in financial markets. If the speculators win, then the loans that Goldman and the others receive will be repaid, but this repayment will only be a portion of the higher prices paid by consumers and lower profits earned by producers as a result of Goldman's speculation. Moving beyond the world of speculation, it is not clear that the marginal contribution of the individual bank executives involved in the more mundane tasks of running a bank can run into the millions or tens of millions of dollars a year. In other words, it seems unlikely that if most of these individuals were replaced by the person next in line that the bank's profits would suffer in any big way. In this sense, these high salaries are just a drain on the bank, its shareholders, and the taxpayers. But, you won't see this argument presented in the Post.
--Dean Baker
