Wednesday, February 04, 2009

Spinning Salaries

Two takes on the salaries that bank executives are getting:

The commonly reported one - banks that accepted government bail-out money are giving their executives huge bonuses giving the impression that they are using public funds to pay the bonuses. President Obama is outraged and plans to take action limiting executive pay until all of the money has been repaid.

The nuanced version - the Treasury was worried that giving TARP money to some banks and not others would identify the weak banks and cause a run on them. To prevent this, they forced healthy banks to accept TARP funds that they did not need. These healthy banks are doing what healthy businesses normally do when they are doing better than the competition, they are rewarding management.

This shows one of the big problems with government interference in private industry. We start running businesses according to moral outrage instead of sound business practices.

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