Fallout: The Financial Crisis

U.S. may reform financial industry pay

Jeremy Hobson May 13, 2009
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Fallout: The Financial Crisis

U.S. may reform financial industry pay

Jeremy Hobson May 13, 2009
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TEXT OF INTERVIEW

BILL RADKE: There is word this morning the Obama administration is considering sweeping changes
to the way the financial industry compensates its employees, and I do not just mean the banks that got bailout money. Marketplace’s Jeremy Hobson joins us. Jeremy, what’s the big idea?

JEREMY HOBSON: Well the idea, Bill, is that you’d have the Federal Reserve and the Securities & Exchange Commission in charge of this. And they’d be able to say, ‘Hey, financial institution, the way that you’re paying your employee is threatening the health of the entire economy so you have to stop. Just the way they can say, ‘Hey, you can’t borrow that much money to make an investment because if it goes bust, it could put us all at risk.’

RADKE: Well, but salaries might be outrageous, but they are a tiny fraction of a banks’ capital. How can they threaten the economy?

HOBSON: Well think about the way we got into this mess. We had all these mortgages, they’re packaged up and sold off as mortgage-backed securities and every time there was a short-term gain, the people who did all these deals are getting a commission. And the Obama administration has argued that that kind of a short-term incentive actually enticed people to make bad decisions that put us in the place we are now.

RADKE: So Jeremy, all of these banks trying to return the TARP money to avoid the compensation limits, they’re going to get regulated anyway?

HOBSON: Yeah, they might get regulated anyway. And not only them, but some of the guys who are not regulated right now. Hedge funds and private equity firms may be a part of this regulation package from the administration. And by the way, that has been one of the arguments all along — that that’s the place where these employees are going to go if they can’t get paid what they want to get paid at the banks. They’ll go off to hedge funds and private equity firms. Now if those are part of the regulation package, that changes the argument that Wall Street’s been making.

RADKE: Jeremy Hobson in New York. Thank you.

HOBSON: Thank you, Bill.

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