Robert Reich On How To Fix Socialized Capitalism

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First, his opening shot (emphasis mine)…

What worries me is the complete lack of accountability by Fannie’s and Freddie’s executives, as well as Wall Street investment bankers also now being insured by taxpayers. We’ve created the worst form of socialized capitalism—private gains combined with public losses.

These executives and bankers are among the best paid in all of corporate America. Their organizations are treated as if they’re giant investor-driven private sector entities as long as they’re healthy. But when they start to go down the tubes they become public entities with public responsibilities, and the rest of us have to bail them out.

It’s so depressing to think that these private giants are being bailed out by taxpayers…who have see absolutely ZERO gains from their business dealings and will see absolutely ZERO gains from these bailouts. The only people who benefit from Freddie and Fannie are the shareholders, the employees and especially the top brass who pull down massive bucks to run these companies into the ground.

And yeah, I know that they give people loans, but that means they get people into debt. And sure, it’s a service, but I’m sure they foreclose on people just as much as other lenders do. After all, they’re private companies with the sole purpose of making money and driving that stock price up.

Here’s Reich’s solution…

Herewith a modest proposal: when taxpayers insure a giant entity against loss—Freddie, Fannie, Wall Street investment banks, whatever—the entities must agree that (1) for the duration of the bailout, their top executives cannot receive total annual compensation higher than that received by the president of the United States, and (2) the government gets 5 percent of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance). If and when the entities become profitable again, taxpayers are thereby compensated for the risk they’ve taken on.

I think this is a lot more fair than what we have now.

What do you think?

  • Tully

    I like it, though I mistrust the government to own stock. It should be distributed to the populace. Leaving it in the hands of government is just giving more booze to a drunk.

    Throw in indictments for some of those previous over-paid CEO’s who created the mess and I’m with you.

  • Phillip Mabry

    I think if we simply let them fail, they would have greater incentive to produce. Moreover, we should send a message to big business that says, “Make your money, fine. But don’t think we’ll bail you out.” No one stepped in to help all those who lost their savings in Enron or WorldCom, all those middle class americans we’re left out to dry. We didn’t offer them a bail out option to save face and make big bucks. So, we shouldn’t let big business push us around with their carrot on a string.

  • kranky kritter

    Yeah, give out those stocks in a taxpayer lottery!

  • mike mcEachran

    Why the hell the executives taking the loss first, then the taxpayers?

  • ExiledIndependent

    Agree with kranky–the government shouldn’t gain anything by this, the people should. And I love the idea of executive compensation, especially in these quasi-government organizations, to be tied to performance.

  • PatHMV

    I’d prefer that the government just not provide these subsidized guarantees to begin with.

    Moreover, limiting the pay just means that the most important (and therefore expensive) decisions will be made not by the capped-salary CEOs but by outside “consultants” hired on a contractual basis to provide advice and management services.

    Never underestimate the ability of greedy people to suck at the government tit. The only real way to stop it is to get the government out of a business like this to begin with.