President Obama Calls For Salary Caps
Wednesday, February 04, 2009SUSIE GHARIB: Top executives of companies getting Federal bailout money are about to get a big pay cut. President Obama today capped their annual compensation at $500,000. The move comes at a time when millions of Americans have lost their jobs and many others are struggling to make ends meet. The president is determined to be sure taxpayers aren't subsidizing lavish pay packages which he described as quote the height of irresponsibility. The new restriction does not require congressional approval. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Next week, the president promises to deliver a big program to rescue the nation's financial system. But first he addressed the public perception that bankers used much of the money they've already gotten from taxpayers to pay $18 billion in bonuses last year.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste, it's a bad strategy and I will not tolerate it as president.
GERSH: Obama says he will cap senior executive pay for companies that get exceptional taxpayer support at $500,000. That includes Citi, AIG and Bank of America for now. Executives would still be able to receive pay in the form of restricted stock, but they wouldn't be able to sell it until the government gets its money back. Treasury Secretary Timothy Geithner will also be working up a long-term overhaul of executive pay.
TIMOTHY GEITHNER, TREASURY SECRETARY: There is a deep sense across the country that those who were not responsible for this crisis are bearing a greater burden than those who were.
GERSH: The new pay rules are another sign Washington is demanding far more from banks that need government help. Corporate jets are out and more lending is in. Mortgage expert Guy Cecala says the Treasury ought to go even further and push banks to offer lower mortgage rates.
GUY CECALA, CEO & PUBLISHER, INSIDE MORTGAGE FINANCE: The government stepped in to subsidize the mortgage market. We have 90 percent of mortgage lending tied to government programs now. The government is not doing that for their health. They are doing it to help consumers, not lenders.
GERSH: Thirty year mortgage rates now average around 5.3 percent. Based on the usual financial benchmarks, Cecala says mortgages should be about 4.5 percent. Bankers argue they've held lending steady which they say is quite an achievement in a declining economy. Mortgage rates have also come down dramatically in recent months. The Financial Services Roundtable's Steve Bartlett says it would be a mistake to think the Treasury can simply dictate interest rates.
STEVE BARTLETT, PRES. & CEO, FINANCIAL SERVICES ROUNDTABLE: You cannot set the price of a product by a phone call saying, well I think that you should charge this for your product. It's really based on supply and demand.
GERSH: Members of Congress will have a chance to make their demands known to banks next week when the CEOs of the nation's largest financial institutions are called to testify about what they've done with the taxpayer money they've received. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
