Banking on our uncertainty

In an story that caught about a ten second blurb this week on Friday morning, the Federal Reserve is working on a plan to not only monitor pay compensation but also one that will allow the Fed to adjust or change the pay practices at Wall Street financial firms. Not just firms that accepted bailout funds, but any financial firm that the Fed deems necessary based upon the firm's excessive risk-taking practices. Also note that the language does not simply limit the pay for executives at the firm. It has the right to limit the pay to anyone that works at the firm according to a Wall Street Journal report.

Excuse me, comrade?

Where does one begin in an attempt to shoot holes in this idea?

Perhaps the easiest target is the Federal Reserve itself. You know the group, right? The same group that sets interest rates in order to manipulate the economy, avoiding recessions, inflation, speculative practices, steering the U.S. to continued economic prosperity and ensure that banks continue to lend to businesses and indivuals that deserve a loan. How's that working so far, Mr. Bernake?

Maybe it's better to look at the Fed based upon the past. The same history that gave former Treasury Secretary Hank Paulson a blank check to bailout Wall Street firms (of which I was critical, I might add.) The same history that kept interest rates artificially low for too long in order to allow the gluttonous behavior to continue. The same history that took budget surpluses at the end of the 1990's to a whopping $11 trillion debt. Again I ask, how's that working?

Consider the impact of keeping overnight rates at 0% (not a typo) since December of last year and no sign that they are going up anytime soon, and then asking a banker to not take some risk with 'free' money. Oh yeah, while you're at, throw in the fact that the Fed is asking banks to make loans to get the economy rolling.

Oh, maybe I'm being too harsh.

Surely there's some good, right?

Ah yes, the same Federal Reserve that has partnered with ACORN since 1977 to enforce bank compliance with the Community Reinvestment Act. In mortgage land, CRA loans (as they are called) are also known as 'subprime' mortgage loans to folks that generally would not qualify for a home based upon credit or ability to repay. How's that working?

To be fair, I hate the banks. Ask any of my students, and they will tell you the adjectives I use to describe most bankers are "lazy, fat and boring. And lazy. Did I mention lazy?"

But to be true to my roots, I also believe in capitalism, entrepreneurial spirit and the corporate structure. If a publicly traded bank like, oh I dunno, Bank of America, wants to make loans it thinks will perform and reward shareholders, shouldn't they be allowed to do that? After all, it's their job to maximize shareholder wealth - not anyone else's wealth. SHAREHOLDER wealth. If the shareholders think the CEO and board are doing a lousy job by taking too much risk with too little potential return, they can (and often will) fire the CEO and replace the board.

Similarly, if the U.S. government wants to get into the banking business, they have two ready-made platforms to execute that plan while remaining outside the circle of overseeing pay for private firms. Maybe the names Fannie Mae and Freddie Mac ring a bell in your head. If the Fed wants to be in banking, turn Fannie and her brother Freddie into large national banks that are required to adhere to strict compensation, risk and corporate management guidelines. Make them play by the same liquidity rules as the other banks and let all of the banks duke it out. Guess who will win, comrades? Yep. You, me and cousin Vinny due to increased competition and a level playing field.

What's next? Will the Fed determine it's their job to monitor and adjust the pay for professional athletes? Does Big Ben really deserve $110 million to throw a football? After all, he's taking a LOT of risk going out there against 330 pound men eager to rip him to shreds. Maybe they will think that doctors should only earn "X" per year regardless of their specialty, or that accountants cannot earn more than "Y." The system is already in place around the country in the form of government pay scales and in many instances labor-contracts, which primarily exist between governments and their employees, the exceptions being large unions like the auto-workers, mine workers, steel workers, etc.

Farfetched? We already have a minimum wage. Doesn't it stand to reason there could be a maximum wage? And while we are accustom to having a minimum wage to assist those with few valuable skills and protect workers from abuse, how does it feel knowing the shoe could be on the other foot, limiting your skills and placing a maximum value on what you have to offer? It's not as crazy as it sounds, folks. And it's happening and a rapid pace.

I'm not in the predicting business, but here's one for ya.

There are going to be three very large national banks in the next three to five years that are entirely government run. Their names are Bank of American, Chase and Citigroup. They will be merged and monitored by Fannie Mae and Freddie Mac, who will report directly to the Federal Reserve Board. The Federal Reserve Board is going to become a fourth branch of government.

Hold onto your wallet and get out your voter card to make sure it's still either Republican, Democrat, Independent and not Socialist or Communist.