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Congress, lobbyists debate meaning of risk
MarketWatch ^ | 8/6/2009 | Robert D. Orol

Posted on 08/10/2009 1:00:18 PM PDT by markomalley

When a divided House of Representatives approved controversial legislation last week to give shareholders a vote on executive compensation, they also OKd an even more contentious provision -- one that would require federal regulators write rules for financial firms prohibiting pay packages they believe are risky enough to bring down the entire economic system.

But what incentives in compensation packages are risky enough to bring down the markets? Could government regulators -- such as the Securities and Exchange Commission or the Federal Deposit Insurance Corp. -- understand what constitutes risk?

This is a matter vehemently disputed among conservatives and liberals, in part because the measure would have regulators write rules limiting risky incentive-based employee pay, in addition to executive payments.

GOP lawmakers say it will take Christmas bonuses away from rank-and-file bank employees, while many Democrats, led by Rep. Barney Frank, D-Mass., the drafter of the provision, saying it is a vital component of reform of the system. See full story.

Another concern is whether the measure will be approved in the Senate, even though Banking Committee Chairman Christopher Dodd, D-Conn., a key lawmaker on the issue, has recently pushed for significant new clamps on big payouts. The Obama administration did not include the measure in its proposal on pay changes and White House spokesman Robert Gibbs said there were "some concerns" about the package.

Nevertheless, the Frank provision was driven, in part, by congressional outrage over million-dollar bonuses going to employees of financial institutions despite their roles in expanding the financial crisis. Case in point: 73 employee portfolio managers at American International Group Inc., who were specifically responsible for issuing a significant amount of insurance derivative credit default swaps credited with contributing to the financial crisis, received $1 million or more each in bonuses

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TOPICS: Business/Economy; Crime/Corruption; Extended News; Government
KEYWORDS: bawneyfwank; fascism; tarp
I have a very hard time having any sympathy for Democratic-contributing AIG (67% Dem contributions in 2008), Goldman Sachs (75%), or Citigroup (63%).

But Congress has no business getting in the middle of salaries.

1 posted on 08/10/2009 1:00:18 PM PDT by markomalley
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