Simon Johnson: Obama Confused on CEO Compensation

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13bankers_12-03-09_72ppi3.jpgThis is a guest note by Simon Johnson, former chief economist of the International Monetary Fund and co-founder of The Baseline Scenario. Johnson is also a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers. With James Kwak, Simon Johnson is co-author of the forthcoming 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.
This post has previously appeared at Huffington Post and at The Baseline Scenario.
President Obama Confused on CEO Compensation
Bloomberg today reports President Obama as commenting on the $17 million bonus for Jamie Dimon of JP Morgan Chase and the $9 million bonus for Lloyd Blankfein of Goldman Sachs,

I know both those guys; they are very savvy businessmen,

and

I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.

Taken separately, these statements are undeniably true. But put them together in the context of the Bloomberg story – we have to wait until Friday for the full text of the interview – and the White House has a major public relations disaster on its hands. [UPDATE: See the complete exchange below.]
Does the president truly not understand that Dimon and Blankfein run banks that are regarded by policymakers and hence by credit markets as “too big to fail”?
This is the antithesis of a free-market system. Not only were their banks saved by government action in 2008-09 but the overly generous nature of this bailout (details here) means that the playing field is now massively tilted in favor of these banks. (I put this to Gerry Corrigan of Goldman and Barry Zubrow of JP Morgan when we appeared before the Senate Banking Committee last week; there was no effective rejoinder.)
Not only that, but the incentives for the people running these megabanks is now to take on reckless amounts of risk. They get the upside (for example, in these compensation packages) and – when the downside materializes – this belongs to taxpayers and everyone who loses a job. (See my testimony to the Senate Budget Committee recently; there was no disagreement among the witnesses or even across the aisle between Senators on this point.)
Being nice to the biggest banks will not save the midterm elections for the Democrats. The banks’ campaign contributions will flow increasingly to the Republicans and against any Democrats (and there are precious few) who have fought for real reform.
The president’s only political chance is to take on the too big to fail banks directly and clearly. He needs to explain where they came from (answer: the Reagan Revolution, gone wrong), how the problem became much worse during the last administration, and how – in credible detail – he will end their reign.
What we have now is not a free market. It is rather one of the most complete (and awful) instances ever of savvy businessmen capturing a state and the minds of the people who run it.
Is this really what the president seeks to endorse?
— Simon Johnson
Update:

The transcript of Obama’s exchange on bonuses
Q Let’s talk bonuses for a minute: Lloyd Blankfein, $9 million; Jamie Dimon, $17 million. Now, granted, those were in stock and less than what some had expected. But are those numbers okay?
THE PRESIDENT: Well, look, first of all, I know both those guys. They’re very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system. I do think that the compensation packages that we’ve seen over the last decade at least have not matched up always to performance. I think that shareholders oftentimes have not had any significant say in the pay structures for CEOs.
Q Seventeen million dollars is a lot for Main Street to stomach.
THE PRESIDENT: Listen, $17 million is an extraordinary amount of money. Of course, there are some baseball players who are making more than that who don’t get to the World Series either. So I’m shocked by that as well. I guess the main principle we want to promote is a simple principle of “say on pay,” that shareholders have a chance to actually scrutinize what CEOs are getting paid. And I think that serves as a restraint and helps align performance with pay. The other thing we do think is the more that pay comes in the form of stock that requires proven performance over a certain period of time as opposed to quarterly earnings is a fairer way of measuring CEOs’ success and ultimately will make the performance of American businesses better.

Comments

19 comments on “Simon Johnson: Obama Confused on CEO Compensation

  1. Drew says:

    The president seems pretty bored with his job already (he is a
    job hopper, you know, with the longest part-time job on his
    resume that of being two-term state senator). It appears to me
    that he considers the work of being president to be distracting
    and dilatory, when he should be working on more important
    things, like his spin move off the baseline, or his next
    autobiography. So the question becomes: where does he go
    next? A fifty year old guy is going to do what he’s always done,
    and this guy does not a) work fulltime; b) work for any
    organization or institution for long, because he gets bored when
    people disagree with him and tell him to man up if he feels so
    strongly about something. There’s just no stage large enough
    for him. The problem of being president, as well, is it’s really
    hard to get things done if you don’t like being around people.
    Anyway, the purpose of my Obama-narcissism jab is that I think
    it’s even money he goes to Wall Street in some fashion.
    IOW, he is culturally simpatico with the bankers his faux-
    populist anger attempts to isolate. They all went to the right
    schools, etc. I think that is what you see in the Bloomberg
    interview. He expresses himself truly. He likes hanging out with
    studs like Blankfein. They play the game big. And they have a
    lot of money. So he’ll shrug and say, It’s my turn to get some:
    Obama realpolitik is always predicated on this sort of conceit:
    that which serves Obama is good, intellectual justification to
    follow.
    As a career entrepreneur I note that there is a huge difference
    between the crony, K Street capitalism practiced by aged
    corporations, and the make-something-out-of-nothing ethic
    that produces companies and jobs in 100 person increments.
    This latter is the world that Obama seems bemused by; it would
    be hard to imagine a world he knows less about. It is the world
    that is saying, “You must be joking”, when the president
    suggests that a $5K one-time, rescindable, complicated
    handout is reason enough to incur a $100K/per year staff
    liability. It’s also the world that inhabits the Tea Party
    community, and the unfashionable, state university, main street,
    Chamber of Commerce culture. These people are very
    numerous and also very disturbed because they see confluence
    between the Wall Street rescue scenarios and the ongoing
    diminishment of personal liberties and 10th amendment
    federalism. There are a lot of people out there now saying that
    they are ill-served by the behavior of very large corporations,
    very large political parties, and very large public sector civilian
    populations. Our current politics of condescension dismisses
    them as rubes, bigots, and fools, but that is really a pretty silly
    thing to do.
    The Fed was created in 1913. Since then the dollar has declined
    in real purchasing power (indexed to gold) by 98% and personal
    income taxes have increased by more than an order of
    magnitude. While slow to catch on, people out there are
    catching on. Washington, as an organism, is by design, and of
    necessity, parasitic. It cannot exist without the “out there.”
    Obama, Geithner, the culture of reward rather than production
    which is Wall Street: these people aren’t capitalist. They inhabit
    our own version of a country within a country, the third-world
    oligarchy that has lodged itself in the spine of an otherwise
    healthy body politic. So change is coming. It puzzles me that
    people think Washington is so important, in this context.
    Nobody “out there” aspires to be someone who pulls levers,
    extracts money that doesn’t belong to them, eats at Citronelle
    and gives the bill to someone else, or takes a week off because
    it snows. (Note: 240,000 Federal employees stayed home
    because they were deemed “non-essential”. Yup!)

    Reply

  2. nadine says:

    Dan, I think your assessment of when and how the market used to be regulated vs now, is just completely wrong and at odds with reality. The Federal government controls 100% of the mortgage market now. The Federal government blew up the housing bubble by insisting banks lend to those who couldn’t afford it and then buying the loans no questions asked via Fannie and Freddie. Sure Wall St did too by assuming the housing market could never implode, but the first and biggest blowpipe for the bubble was the Community Reinvestment Act.
    You and questions suffer from similar delusions regarding health care and finance: that the markets have been lightly regulated, and bad performance means they need more regulation. Just the opposite is true. They have both been heavily regulated and loaded with perverse incentives. Adding more regulation will only make things worse. You have to fix the current regulation and get a rational incentive structure in place.
    So when I argue for less regulation I am NOT arguing for no regulation, but less and more rational regulation.
    Wall St. may be protesting the egregiously stupid ideas floating around Capitol Hill now, but in reality, the biggest companies always send lobbyists to get the legislation that will benefit them and hurt the competition. Don’t let the noise fool you.
    Obama knows next to nothing about economics, and what he does know seems grounded more in Marxist than free-market theory. He doesn’t know what a price/earnings ratio is. He thinks you take a loan to increase payroll. He thinks you grow an economy by taking money from those who have it and giving it others more deserving (=your friends in the unions).
    But Obama was off-message when he said “spread the wealth” to Joe the Plumber. He was running as a sober centrist, remember? If he had told his real plans he couldn’t have gotten 40% of the vote even against John McCain.

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  3. questions says:

    Random WaPo online comment that seems to get at what I’m saying:
    “kramerv43 wrote:
    Yes, we are dissatisfied and angry about the way the federal government is wasting taxpayers money. Many federal programs are duplicated in many different agencies. We want the federal government out of our day to day lives. The primary role of government is to protect its citizens, provide for education so they can take care of themselves..not the government. We need to get rid of this notion that everyone should own as house even they can’t afford it. We need to stop the millions of immigrants allowed into this country every year and deport the illegal immigrants here, so that our legal citizens can find jobs!!!
    We need to get rid of the massive tax code everyone should be able to file their own taxes without having to hire someone to do it for them. A simple one sheet page to file for everyone. Only have deductions for dependents, filing status and charity. We need to cut the taxes accross the board. Cap and trade. heck no, governement run health care, heck no. Our Politicians of both parties need to stop bowing to special interest and start protecting our nation by bring back lost jobs to foreign countries. Yes we need trade, but does that mean we have to have everything made in forgein countries? Our own government started giving companies tax breaks to go overseas and start businesses. Well we need these companies back to our own citizens jobs. Did you know that billions of stimulus money is going to companies in China to build wind tunnels for the US?
    Do we need health care reform, heck yes. Everyone should have to pay for the services they receive. If you want health insurance you should not be denied because of a pre-existing condition. People should be able to buy insurance without having mandates on what is covered. If you don’t need certain procedures then you shouldn’t have to have them in your policy. We need to find ways to drastically cut the cost of medical care. But, forcing people to buy health insurance? I don’t think so.
    Yes, we need to get rid of these career politicians. Two term limits on all of them.”
    http://www.washingtonpost.com/wp-dyn/content/article/2010/02/10/AR2010021004708_Comments.html
    So, term limits so that politicians don’t know anything at all and become completely dependent on permanent bureaucrats, lobbyists and staff.
    No more jobs overseas so that consumer prices go up.
    Cut the cost of medical care — abra cadabra. Everyone should have care, no pre-exisiting conditions, BUT NO MANDATE. Well, so much for policy understanding. So much for the concept of adverse selection that will drive up premium costs. And of course, the government likely shouldn’t be in the business of telling doctors how much they can earn….
    One page tax return that doesn’t bother distinguishing if your income is spent on medical care or you’ve had an unusual loss or sources of income that don’t require any work at all…. Nevermind that many many tax filers use a one page simplified form anyway. It’s only if you have complex sources of income or complex deductions that you have an issue. And deductions save people money and encourage socially good behavior. Doesn’t mean you have to claim them anyway, if you want the simpler form, that is. And if your taxes are that hard to deal with, just pay a couple hundred bucks to an accountant. It’s even easier than a one-page form!
    No cap and trade because, well, heck no. Nevermind anything about climate change or the notion that cap and trade is actually a market based rather than regulation based way of trying to come to grips with the problems associated with burning fossil fuels
    Protect citizens and provide education — but I guess not with agencies or bureaucrats or funded research or whatever makes education possible, and protection — well only from the things we actually need protection from whatever they are — but certainly we don’t need protection from most of the things we’re protected from (dangerous products, bogus services, spoiled food, worst practices….)
    We shouldn’t all be homeowners. Fine. Bush started the ownership society thing for a variety of reasons, some sound and compassionate, some not so much. But if there’s no federal intervention in the housing market, then the single major investment most people have will collapse all the more. We’re in the hole and digging out is one of those messes maybe we need some protection from.
    Ahh, and th’illegals. Gotta get rid of all 12 million of them. And get rid of the legal ones too, I guess. The ones who maybe will buy up a bunch of those abandoned houses I was reading about in today’s WaPo I think it was.
    So tell me, anyone, why one would court the inconsistent, self-contradictory mess of populist anti-government rage at anything.
    My advice is really to stay a mile away from all populist tendencies. You can’t converse, you can’t convince a walking talking self-contradiction.

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  4. DakotabornKansan says:

    “As for the bonuses themselves and the outsized salaries…If you’re moving many billions of dollars, and you take even a small slice of each one, you really do end up “earning” a lot of money. You’re providing a service of some sort to someone who is willing to fork over money for that service, and it’s a private and willingly entered into contract. At this level, the bonuses make sense…” Really?
    What can we Americans expect from this current crop of ultra-wealthy financial capitalists? Not much. Their irresponsible behavior brought the world economy to the brink of collapse and cost millions of innocent Americans their jobs, homes, and 401Ks. Not only did American taxpayers bail them out, they continue to rely on taxpayers for financial stability. In reality, they are wards of the state. “Lemon socialism.” They continue to gamble with other people’s money, knowing the taxpayer will bail them out again.
    “It’s only when we start thinking about the social purposes underlying capital formation that we start to question the size of capital pools.”
    Adam Smith, writing about the rich of his day, said that, “they only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only… the gratification of their own vain and insatiable desires, they inevitably divide with the poor the produce of all their improvements. They are thus led by an invisible hand to make nearly the same distribution of the necessaries of life as…had the earth been divided into equal portions.”
    We should be extremely dubious about today’s ultra-wealthy financial capitalists’ social utility. An unequal society is an ugly society. “A slowly sinking generation; a remorseless assault on the identity of many men; the dissolution of families and the collapse of neighborhoods; a thinning veneer of national amity—the social legacies of the Great Recession are still being written, but their breadth and depth are immense. ..We are living through a slow-motion social catastrophe, one that could stain our culture and weaken our nation for many, many years to come.” – How a New Jobless Era Will Transform America by Don Peck, March 2010 Atlantic
    “The populists simply don’t think enough about what it is that they want, and what follows from their desires.” Populist anger against Wall Street is not because they have corrupted politics, which is already corrupt, but because of the power they yield. Whose capital is it really? They control the people through the people’s own money. Today’s populism represents the moral outrage and political anger at what the unfettered free market capitalism of Wall Street has done to traditional social and political values. The key is not to focus on the bonuses, but on the moral and social consequences of this Great Recession.

    Reply

  5. Dan Kervick says:

    “… won’t they just welcome more government regulation as an even bigger opportunity for them to write the new regulations to their own liking?”
    It appears not, since they are resisting financial regulation in a big way.
    And experience points in the opposite direction from the one you say. During the years when the US economy was more heavily regulated, the US middle class was much more prosperous and secure than it is now.
    I also note that the country finally shook off the lingering effects of the great depression, and enjoyed spectacular growth doubling the size of the economy, during the World War II years, when our economy was given a little bit more coherence and macro-efficiency from some reasonable planning and state capitalist direction. Those years also unified the country around joint participation in a common national project, and left a legacy of solidarity and fellow-feeling that lasted a generation.
    I want market mechanisms to remain the chief factor in setting the prices of things, including the price of human work. But I don’t think it has proved to be either politically healthy or economically rational to allow those mechanisms to work in a completely unregulated and unsupervised fashion. A maximum wage law, ideally not in the form of a strict cap, but a 20-to-1 law or something similar, will allow firms a great deal of latitude and flexibility in setting the internal salary structure that works best for them, and preserve the incentives to excel and advance, while raising the standard of living of most Americans, building democratic commonality and solidarity, and thwarting the collusive arrangement among the nation’s ownership and executive class to waste large quantities of the nation’s wealth on wholly unnecessary compensation bonanzas for those at the top.

    Reply

  6. questions says:

    oops “your” should be “you’re” as in if you’re moving….
    feel free to edit??!

    Reply

  7. questions says:

    My take on the comment is that once again, populism leads us down the wrong path.
    I’ve inherited a grand total of under 2 thousand dollars, personally (from a grandmother). I think this is probably not untypical. So why worry about the inheritance tax? Why protect millionaires?
    And yet, we do. I think the cause is two-fold. First, we are horrible at measuring our own likelihood of striking it rich and so we protect the upper crust because we think we’re protecting ourselves.
    Second, there’s some sense of something like fair play — they earned it, they should keep it.
    These two feelings run pretty wide throughout the American sensibility (to the extent that there is such a fictional thing).
    BUT, they run smack into the other strand in populist thinking that wants to carry pitchforks to the banksters and do some serious impaling.
    So which side do you pick? Tax the rich, bonus the rich? I say, keep the hell out of the debate on either side because it’s an inherent tension in our thinking and to pick one is always to inflame the other.
    As for the bonuses themselves, and the outsized salaries, I read an interesting note somewhere (huffpo??) that suggested that the bonuses are related to the general amount of money these people come in contact with in a given year. If your moving many billions of dollars, and you take even a small slice of each one, you really do end up “earning” a lot of money. You’re providing a service of some sort to someone who is willing to fork over money for that service, and it’s a private and willingly entered into contract. At this level, the bonuses make sense.
    It’s only when we start thinking about the social purposes underlying capital formation that we start to question the size of capital pools. Whose capital is it really? To what purposes should such pools be put? Are there public obligations that transcend the private when we think about capital accumulation? Is capital different from other kinds of personal property?
    Since we don’t have straightforward answers to these questions, I don’t see how we can even begin to debate the proper size of someone’s bonus check.
    If capital is all private, then let them do what they want and don’t complain. If there’s a public point to capital, then we need to restructure a whole lot of things to put these public piles of money to good use.
    The populists simply don’t think enough about what it is that they want, and what follows from their desires.
    And Nadine, I don’t think I can sit through a “the market never does anything wrong” post! The market requires rules, agreements, patterns, limitations — the stuff of government — in order to function. A purely private market will not self-regulate, it will collapse of its own weight and its own stupidity. There’s plenty of room for a public role in capital accumulation, but we probably need to do a lot of work to figure out workable boundaries. Getting crazy populist doesn’t help at all.

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  8. nadine says:

    Dan, on the one hand you abhor the idea of the market setting salaries; on the other, you bemoan the control that Wall St. has over the government; yet your only answer is more government control, more ‘spreading the wealth’. Since by your own complaint, the Wall St. fat cats (who gave enormous sums to Obama in 2008) already control the government in crony capitalism, won’t they just welcome more government regulation as an even bigger opportunity for them to write the new regulations to their own liking?
    Liberal desires for ever more government control are like second marriages: the triumph of hope over experience.

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  9. Dan Kervick says:

    “If he were truly a transformational president he would convince the public that the paranoia it feels about increasing marginal tax rates provides them with nothing and those who receive these extraordinary bonuses with everything.”
    True. But like so many in the dominant faction of contemporary Democratic leaders, Obama has very little connection with the egalitarian philosophies which lie at the party’s historic roots. These Democrats are absolutely terrified of their opponents’ rhetoric, and absolutely desperate to convince everyone who will listen that, not only are they not socialists, but they also *don’t have a single socialist bone in their bodies.*
    Of course, if your don’t even have one little socialist bone in your body, you are a radical right-winger.
    Obama actually said something in the campaign about “spreading a little of the wealth around”. I suspect most Americans would be supportive if he took that notion, and ran with it, and made it abundantly plain how its application might succeed in making 90% of us better off.
    But he quickly chickened out, and is still busy trying to impress all the Joe the Plumbers in the world.

    Reply

  10. Dan Kervick says:

    “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
    Maybe we should do a poll and find out if Mr. Obama’s characterization is actually true of “most of the American people”.
    Personally? I think we would do well in this country to engage in a little more begrudging. There is no rational basis for the system of extravagant overcompensation that we permit in this country, according to which it is considered right and proper for each individual to be permitted to suck as much wealth from the common wealth as he can manage by his wit and wiles.
    We could have an economic system that preserves enough of a compensation differential to provide most people with more than enough incentive to work very hard, succeed, excel and advance, while also forcing a substantial part of these wasteful gilded age salaries to be plowed back into firms so as to lift the other 99% of the boats. It will just take a few laws.
    This ultra-free market radicalism has to end. It is the reason most Americans are now at each others’ throats. Laissez faire radicalism and its ideological tolerance of grotesque inequality – which the President seems to have no problem endorsing – is an acid that dissolves and destroys community, commonwealth and any hope of national solidarity based on a sense of commonality of interests.

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  11. JC says:

    Mr. Johnson says:
    “–we have to wait until Friday for the full text of the interview.”
    But he didn’t wait. When he wrote the article, Mr. Johnson didn’t even have Obama’s full answer to the one question that is the subject of his piece.
    I think we already know where President Obama stands on these huge bonuses. We don’t need him to erupt in outrage every time another is announced.
    At least Mr. Johnson posted an update to his piece later in the morning– but I ran into people freaking out at every website I visited today, and none of them really knew what President Obama had actually said.
    I think the claims made against Obama were unfounded to begin with, and Mr. Johnson should have waited, as he himself suggested in the beginning of his piece.

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  12. DakotabornKansan says:

    Obama, “I know both those guys; they are very savvy businessmen, and I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
    So Obama’s moral compass points to the “virtues” of the unfettered free market of Wall Street, who contributed to so much misery for so many people?
    Do you suppose the following “transformed” Americans share Obama’s view?
    “A slowly sinking generation; a remorseless assault on the identity of many men; the dissolution of families and the collapse of neighborhoods; a thinning veneer of national amity—the social legacies of the Great Recession are still being written, but their breadth and depth are immense. ..We are living through a slow-motion social catastrophe, one that could stain our culture and weaken our nation for many, many years to come. We have a civic — and indeed a moral — responsibility to do everything in our power to stop it now, before it gets even worse.” – How a New Jobless Era Will Transform America by Don Peck, March 2010 Atlantic
    Where is the evidence of President Obama’s civic and moral responsibility to do everything in his power to stop this slow-motion social catastrophe now, before it gets even worse, in that statement?

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  13. WigWag says:

    The irony of course is that $9 million for Blankfein and $17 million for Dimon are relatively small bonuses for the CEOs of Goldman Sachs and J.P. Morgan-Chase. A large number of American CEOs make significantly more than this.
    What’s really galling is that the bonuses that that Blankfein and Dimon are receiving are not even the largest bonuses being handed out to Goldman Sachs partners or J.P Morgan-Chase employees. Several traders and investment bankers at both firms are actually getting larger bonuses than their CEOs.
    Blankfein and Dimon accepted relatively small (by Wall Street standards) bonuses because they knew that what they got would be scrutinized by the press while what other Goldman or J.P. Morgan bankers got would not be.
    What the press should be looking at is not the bonus money that Blankfein and Dimon received; instead they should be scrutinizing what the largest bonuses given out at these firms were.
    Of course, Obama is in a certain way to blame for all of this but not because of the inartful statement that Simon Johnson cites. Obama promised to be a transformational president; he’s been anything but.
    If he were truly a transformational president he would convince the public that the paranoia it feels about increasing marginal tax rates provides them with nothing and those who receive these extraordinary bonuses with everything. Ronald Reagan instilled in the public consciousness revulsion for higher marginal rates; Reagan’s mantra was to flatten tax rates. The man who promised us that he would be a transformational President has done nothing to change that.
    If the top marginal rates were, let’s say, 50 percent of all income between $1 million and $5 million and 75 percent of all compensation above $5 million, these extraordinary bonuses would be much easier to take.

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  14. erichwwk says:

    susan writes:
    “Obama is worried that all that Wall Street loot he and other Dems have been raking in will soon be filling the pockets of Republicans if he doesn’t lighten up on them.”
    I think Wall Street will gladly accept being called “fat cats”,and a few wrist slaps, as long as they can retain the majority of their monopoly rights to fleece the public. After all, for the years 1989-2010 of the $31,437,825 Goldman Sachs spent to rent that “right to extort”, almost 2/3 [64%]went to Democrats.
    http://www.opensecrets.org/orgs/list.php?order=A
    After all, when Obama couldn’t fins employment after Columbia as a community organizer, he accepted employment at a fore runner of the Economist. This is a decent enough publication, but openly a free market advocacy rag, disallowing writers to write under their own byline, lest this advocacy position be compromised. And the University of Chicago is not known for its progressive views, or opposition to “greed is good”.
    After all, isn’t “Treasury Dept” essentially a euphemism for “Gold Sachs”?
    Thus rather than seeing the more than $17 million
    “earned” by baseball players itself a result of anti-trust exemption and essentially a “rent” and due to open market suppression, Obama uses it to justify other “rents”.

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  15. susan says:

    Obama is worried that all that Wall Street loot he and other Dems have been raking in will soon be filling the pockets of Republicans if he doesn’t lighten up on them.
    Obama badly needs to be challenged in a primary.

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  16. Bart says:

    The last refuge of the clueless is a sports analogy.

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  17. Neo says:

    Methinks this had something to do with it …“The expectation in Washington is that ‘We can kick you around, and you are still going to give us money,’ ” said a top official at a major Wall Street firm, speaking on the condition of anonymity for fear of alienating the White House. “We are not going to play that game anymore.”

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  18. erichwwk says:

    I should also remark on the irony of the Obama administration exempting military expenditures from cost saving consideration. As military expenditures are by far the largest of the discretionary budget items, many introductory economics text start with the Pareto statement, with the initial choice of improving ones lot by choosing among the possible combinations that Pareto describes, guns or butter.
    What the administration is essentially saying, that unlike the Chinese (who have averaged in the double digit growth rates now for three decades)is that we will focus on appropriating wealth from others, rather than creating it ourselves. While this may have worked in a world where folks where isolated, and “the only good Indian is a dead Indian”, the world has adjusted to power asymmetry, and there are now major limitations to that tactic, and effective ways of countering that by guerrilla warfare and appealing to humanities sense of decency.
    This is why I make the CMRR building at Los Alamos National labs the “line in the sand”. It is a litmus test of whether we move forward by getting our butter by taking it from others, or whether we will try to churn it ourselves.
    http://thebulletin.org/web-edition/op-eds/the-obama-disarmament-paradox

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  19. erichwwk says:

    “What we have now is not a free market. It is rather one of the most complete (and awful) instances ever of savvy businessmen capturing a state and the minds of the people who run it.”
    What I have been saying since at least September, 2005:
    Bush’s Energy Plan: A Joke? – The Washington Note
    Posted by erichwwk, Sep 27 2005, 10:23AM – Link ….. What they are for is markets for their friends and everyone else can go take a flying fuck! …
    http://www.thewashingtonnote.com/archives/2005/09/bushs_energy_pl/
    [all that remains on google, TWN archives only a monthly aggregation, sans comments]
    I wish all those “free market” ideologues who quote Adam Smith (who DID get it right) to justify non-intervention would ACTUALLY READ the “Wealth of Nations”. They would discover that Adam Smith’s correctly observed that the natural evolution of FREE (as opposed to COMPETITIVE) markets, is for folks to get together to fix prices and screw the public. It is easier to make a living by collecting monopoly rents, than by making a product that people prefer under competitive conditions. Cheaper to fix the game rather than to play the game fairly. Cheaper to buy a judge or a politician than invest in machines or people. In a nutshell, the American way has become the art of cheating.
    Simon is right to trace it’s current manifestation to the Reagan area, under the tutelage of General Electric, who hired Milton and Rose Friedman, as well as Reagan, to fix the political and judicial system to grant their right to monopolize, and “earn” income by rent. CEO share [Fortune 500] jumped from 30x average wages, to the x300-600 range [I can’t keep up] despite overwhelming empirical evidence [beginning with Peter Drucker, but including many others, eg Robert Solow, Gar Alperovitz] that it was difficult to make a case that earnings in excess of 30x average wages was based on real individual productivity, rather than monopoly rents. During 2007 [from memory, it might have been 2008], the top 50 hedge fund managers “earned” 19,000 times average earnings, just to put the amount of wealth CAPTURED by the financial sector into perspective.
    As the Title of a James Galbraith book implies, we have become a predator nation.
    of course, as Garry Wills writes in his book: “Bomb Power: the Modern Presidency and the Security State”, the Manhattan Project was also an important contributing factor.
    “The efforts of men are utilized in two different ways: they are directed to the production or transformation of economic goods, or else to the appropriation of goods produced by others”
    —Vilfredo Pareto

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