• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Unintended Consequences on Executive Pay III: Exit Goldman

    Is it any coincidence that on the same day that the Obama Administration announces restrictions on executive pay for companies taking government bailout money, Goldman Sachs announced that it is pulling out of the government’s Troubled Asset Relief Program?

    The investment bank, says CFO David Viniar, is chafing under the restrictions that came attached to its $10 billion loan. The new pay rules, which could be applied to existing TARP participants in a later iteration, may have been the last straw. “We would like to get out from under that,” said Viniar. Goldman intends to pay back the loan by the end of the year.

    Goldman’s move may presage a stampede out of the government program for financial institutions that can afford to do so. The new pay caps may also drive away institutions that have not yet taken government funds, as well as those that are weighing taking more money.

    Though unintended by the Administration, this is not a bad thing. As the Journal snarked this morning, “We assume this means that from here to eternity Goldman will not be too big to fail.” No doubt at least a few other banks will decide that they, too, are in good enough shape to go it alone. That decision could give them an enormous comparative advantage in the battle for top talent, as other firms become subject to the caps.

    More broadly, this episode should remind businesses to be wary of getting in bed with the government because, inevitably, politics will intrude. In other words, there will always be strings attached—many tangled strings that stifle productivity and growth. That lesson, overlooked in recent months, is an important one, and it comes at an especially auspicious time, as plans for an even bigger banking bailout are taking shape.

    (For previous posts on the unintended consequences of the Obama Administration’s pay cap scheme, see here and here.)

    Posted in Economics [slideshow_deploy]

    2 Responses to Unintended Consequences on Executive Pay III: Exit Goldman

    1. Pingback: frankhagan.com » How to Save Finance: Pay Caps

    2. Jonathan Brook says:

      This is crazy. Without FDIC backing, Goldman couldn't fund itself and would be out of business. The $10 BB is a side show. The real point is that without Uncle Sugar guaranteeing new bonds all these banks would be toast. Don't let the free marketeer's fool you. Unfettered executive pay under the motto of les affaires and the heads I win tails you lose mentality of Wall St. got us in this mess. Clearly paying people a lot of money didn't work to well.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×