CNBC: Flaherty Says Bailouts Fuel Wall Street Pay

Today I debated Wall Street pay with Keith Boykin of The Daily Voice. CNBC hosts were Melissa Francis, Larry Kudlow and Trish Regan. Here is a transcript:

Larry Kudlow: Is Wall Street pay too high? Here is what you said: Dave from Texas, “Absolutely they are overpaid. How many other American businesses have this kind of compensation”? But David from Illinois, “If we would stop being concerned about what someone else is making and focus on our own lives, the country would be better off”. Woah. Joining us now to see if the country is better off, Keith Boykin, editor of the Daily Voice and a CNBC contributor and Peter Flaherty, President of the National Legal and Policy Center. Keith Boykin, why do we bother to play these silly games? Who is making what compared to who and how and why? Isn’t that just a little class warfare?

Keith Boykin: Well, I don’t think that it is class warfare. I think that it is just public information to know who is getting paid what. The reality is as was pointed out on the program before, there is excessive compensation on Wall Street. People understand that. It is outrageous. The American people, I think on Main Street are not happy about that. But you know, quite frankly Larry, I am over being outraged about it. What outrages me is not that they are getting paid so much; they have the right to get paid whatever they want, especially for the companies that are not under TARP anymore, which is basically everybody. But what they don’t have the right to do is to collect billions and billions of dollars and then complain that the Obama Administration policies are somehow hurting business. Obviously they are not hurting if they are making this much money. It just doesn’t add up. I am tired of all the complaining and carping from Wall Street.

Melissa Francis: Peter, I mean, are we sure that the Wall Street Journal is even right? Crains is reporting that bonuses are going to be ten percent of what they were last year. Do you think Wall Street bonuses are going to be enormous this year?

Peter Flaherty: I understand that there is some question about the methodology of the Wall Street Journal article this morning. But leaving that aside, I would say that compensation on Wall Street is too high, but I’m not surprised at all. The profits and revenue of these companies have been boosted by a whole series of government protections and subsidies unavailable to people on Main Street. That is why people are so upset. Now that said, I do not think we need a pay czar running around anymore. Ken Feinberg has plenty to do in his new job. I think that the sooner we return these companies to a competitive free market situation, the better. That means, getting rid of the pay czar and getting rid of all these subsidies and special protections.

Trish Reagan: Keith, it sounds like from what you said earlier, and we should document this moment in time, that you are agreeing with Peter that there shouldn’t be a pay czar, that these guys and gals deserve to be paid whatever the market thinks they should be paid.

Keith Boykin: Well, I didn’t say that. I think that Ken Feinberg still has a job to play. He is playing that role. But it only applies to those companies that are still under TARP which is fewer and fewer. I do not know if there are any companies that are still under TARP right now because most of them have already repaid it.

Trish Reagan: So are they paid too much? Are these bankers being paid too much?

Keith Boykin: Yes. Of course they are paid too much. I mean, really, are people really worth what they are getting paid? The market can dictate that people can get paid whatever they want. I have no problem with that.

Melissa Francis: Great.

Peter Flaherty: But, we are having the wrong debate here.

Keith Boykin: If you want to pay someone a hundred billion dollars, pay them a hundred billion dollars, I don’t care. But the reality is that I don’t want to hear these people complaining at the same time that the Obama Administration policies are hurting their businesses when they are making money hand over fist.

Trish Reagan: The debate of course, the question that we want you to answer here guys is whether or not you think these guys are being overpaid…

Keith Boykin: Yes.

Trish Reagan: …and Keith this is why I am saying…

Peter Flaherty: Yes.

Keith Boykin: Yes. Yes.

Trish Reagan: …and Peter you agree.

Peter Flaherty: Yes. In a totally free market, they would be paid a lot less. A banker would have to be pretty dumb not to make money in a zero percent interest rate environment. Now as far as the Obama Administration and Wall Street, it has propped it up completely. Despite the rhetoric, we have had TARP, we had TALF. We had the extension of the FDIC insurance. Above all, we have had zero percent interest rates. We have had Tim Geithner’s public, private investment partnership, or whatever he calls it. It is an absolute outrage and that is why the American people are going to rebel on November 2 against all these bailouts and the culture of bailouts that allows profits to be taken away and privatized and losses to be socialized.

Melissa Francis: Keith let me ask you, I mean if you look at the Wall Street Journal’s numbers, revenue is up. Compensation as a percentage of revenue is flat. So maybe they are not being enough according to the Journal’s numbers.

Larry Kudlow: It is actually lower than it was five years ago.

Trish Reagan: Yeah, exactly, lower than in two thousand and seven.

Keith Boykin: Look, again, I want to be very clear. I think that the people on Wall Street should pay themselves whatever they want. I don’t think it is fair. I think it is hypocritical. I just don’t like the idea that these are the same people who are complaining about the policies that are actually benefiting them more than anybody else.

Peter Flaherty: We are having the wrong debate here.

Keith Boykin: You guys, maybe these are two different debates.

Peter Flaherty: Excessive compensation on Wall Street is a symptom of a problem. It is not a problem in itself. The problem is that Wall Street has been bailed out time and time again. Eighty Four, Continental Illinois. Ninety Five, Mexico, which was in hock to Wall Street. Ninety Eight we had long term Capital Management and of course in two thousand and eight, we had everybody. If the government didn’t go in there and save Bear Stearns, maybe Lehman would not have failed.

Melissa Francis: Yeah. Keith, what about that argument. That is what people on Main Street are going to say. These guys would not even still be in business, they would not even have jobs if the taxpayer had not have bailed them out. And now, they are paying themselves these huge bonuses. How do we respond to that? Keith how do we respond to that? Peter? Either of you?

Keith Boykin: I agree. I made that argument one time on CNBC and a few minutes after I got off the air the CEO of a major bank called me up and yelled at me to tell me I was wrong that they really didn’t need the TARP money they were taking. But, the truth is the banking industry and the financial industry in general wouldn’t be in business if it were not for the support the government gave them.

Larry Kudlow: Yeah, but it is the vilification.

Keith Boykin: If it were in business, it would be severely diminished.

Melissa Francis: Do away with big to fail now?

Peter Flaherty: What is wrong with allowing people to go broke?

Trish Reagan: Right.

Melissa Francis: There you go.

Peter Flaherty: People say, well this is something for shareholders…

Melissa Francis: There you go, Peter.

Peter Flaherty: …well, I have sponsored shareholder proposals on “say on pay” and in one case we got thirty eight percent of the vote, which is pretty good for a dissident resolution. Guess what management did – they ignored us. We have to allow people to go broke that is the only think they understand.

Larry Kudlow: They should have gone broke and they should have gone into bankruptcy. The trouble, Keith is that the Obama Administration couldn’t stop. They couldn’t help themselves. So they insulted and vilified the fat cat bankers. So if you look at the reports this morning, eighty percent of the Wall Street money, eighty percent is going to Republican candidates. It is all about the insults. It is not about bail out.

Trish Reagan: It has turned into class warfare.

Larry Kudlow: It is very personal. It is because the wives are sick and tired of being insulted by the White House.