Since I didnt beleive that compensation structure was a cause of the financial crisis, the executive pay caps and threats of clawbacks always struck me as populist pandering that simply made it less likely banks would be healthy enough to repay TARP funds. Today’s news that BOA will repay TARP, and their apparant motivation of freeing themselves from pay caps, has me reconsidering.
Imagine that the Treasure has taken a close look at the financials of TARP recipients and can see a clear path to repayment, but can also see that the path to repayment is not the most profitable for the bank. If pay caps and other interference significantly increase the probability that the banks will choose to pay back the money if they can, while only slightly decreasing the probability that they will actually be able to pay us back, then they might in fact be the best policies for us.
If you count the value of the policies as a threat to counter future moral hazards, then the probability they were the best policies is even higher.
If it becomes obvious, maybe through leaked internal memos, that this was in fact the Treasury’s justified belief, then I will conclude I was incorrect about these populist policies.
No comments:
Post a Comment