Cutting Pay, Wall St. vs Main St.

Joe Nocera of the New York Times has an article today on Obama administration pay czar Kenneth Feinberg’s efforts to rein in top executive pay at banks bailed out by the American taxpayer. You know, a story on the novel subject of accountability and transparency in American business, something that cuts as close to fiction as possible for the journalists tasked with covering Wall Street. Nocera’s piece is a column, not a straight piece of reporting. But in either case, I don’t think this paragraph would be differently written:

And the American International Group is contractually obliged to make bonus payments of nearly $200 million in March 2010. The company has promised to try to reduce that amount by 30 percent. But once again, there is nothing Mr. Feinberg can do because those bonuses were already written into contracts — and there is a high likelihood that the bonuses will create another furor in Congress, just as they did earlier this year. [Emphasis added]

It’s really remarkable how inviolable contracts with Wall Street executive are. Contracts, when written between big banks and investment firms, cannot be broken. To break these contracts would undermine the basic foundations of America and would likely immediately turn the US into a communist country. Or something.

Contrast this with the contracts between automakers and members of the United Auto Workers. Let’s look back and see what Nocera was saying when GM was looking at bankruptcy a year ago.

For instance, it is critical for General Motors to be able to break its contracts with both its unions and its dealers. It needs to dramatically reduce its legacy benefits, perhaps even eliminating health care benefits for union retirees. It needs to close plants. It needs to pay its workers what Toyota workers are paid in the United States — and not a penny more. It needs to reduce the number of brands it sells — which means closing down thousands of dealerships, which is difficult to do because of state laws that protect car dealers. When General Motors shut down Oldsmobile, it cost the company more than $1 billion to buy out the Oldsmobile dealerships across the country. If it slims down its dealerships from 7,000 to a more appropriate 1,500, it will cost many times that amount. [Emphasis added]

Not only was it imperative for Nocera that GM not honor their contract with the union, Nocera was also arguing that GM must find ways to go against laws in states that protect car dealerships. Voiding contracts was not enough, he was arguing for voiding laws!

Another example of a prominent member of the press using two different standards for assessing the sanctity of the contracts of union auto workers and Wall Street executives is Ruth Marcus. Ruth Marcus of the Washington Post went to great lengths to defend AIGs bonuses and contracts while simultaneously chiding unions to renegotiate — and if they didn’t like the deal they got, they could just stop coming in to work. The autoworkers were not only required to renegotiate their previously negotiated contracts, but any protestations by their workers or supporters that these contracts be honored was met by disgust by the pro-business press.

The hypocrisy of  how the contracts of Wall Street executives are being treated versus those of union workers is simply stunning. All I want to see in an economic crisis is fairness. If contracts are inviolable, they are inviolable for everyone, regardless of whether they are between blue collar workers in factories, white collar workers in office complexes, or the multi-millionaire executives on Wall Street. If the economic crisis demands that auto workers take a haircut on their pay, benefits, and pensions, Wall Street executives must be held to the same standard. Conversely, if the contracts between big banks and investment firms and their top executives simply cannot be changed, then it’s time to go back and honor the contracts between the auto industry and organized labor. It’s that simple.

23 thoughts on “Cutting Pay, Wall St. vs Main St.

  1. That’s because the reporters have employment contracts that they would like to think are sacrosanct. Even though they’re working for economically failing institutions in a dying industry, they aren’t like those interchangeable union workers – oh, no. They’re “information workers” don’t you know – far more similar to the brainy and irreplacable masters of the universe who drove the economy into a ditch.


  2. Exactly right. As a retired union leader who served during Nixon’s wage freeze, I kow about inviolable contracts. They are all made to be broken. Hypocrisy would be funny if it wasn’t so damn sad.


  3. These are the things that make me howl in the night: the idea that freedom belongs to a select few, and that we the unselect have an obligation to support their entitlement. I thought this idea was long gone in our country, but this strain of medieval Americans is still quite virulent.


  4. You’d think some of these guys would be shamed by their lack of self-awareness, but appraently that’s not the case.

    Parent 1: “It’s terrible the amount of junk food kids eat these days.”

    Parent 2: “Yeah, it’s awful!”

    Parent 1: “Who’s up for dinner at McDonalds tonight?”


  5. to Jersey Tomato–
    Maybe journalists would like to think their own contracts are sacrosanct, but if you look at what happened to the employees’ contracts at the Boston Globe you’ll see that the owners felt free to break them.


  6. The argument would be that in each instance the behavior is necessary to save the companies. With labor, the companies cannot survive absent massive givebacks. With management, the companies cannot survive absent compensation as promised because the competent executives will flee.

    It’s the same with retirement packages. Labor pensions have to go because companies simply can’t afford to honor their obligations, which were the product of union extortion anyway. Executive retiremement packages have to be honored because otherwise etc. etc.

    It’s just a question of workers in the one circumstance and real people in the other. We can’t treat real people in the same manner as we treat workers because that would be scandalous, it would violate natural law.

    It’s so easy when one views the contrasting situations through the proper frame of reference.


  7. Don’t forget the “contracts” you have with the banks regarding your credit cards. The banksters reserve the right in the contract to change the terms unilaterally! Now that’s an inviolable contract!!!!!


  8. Weldon Berger:
    Yes, that would be the argument. I don’t happen to agree with it – these hypothetical fleeing competent executives aren’t being paid for being competent; if they were, their pay would be much lower.
    However, that is not the argument that Nocera made. Don’t give him credit for something he didn’t say. He holds up the idea of honoring a contract as sacrosanct, period. But, as demonstrated by his previous musings, he is full of it.


  9. Hey, bobbo. No quarrel from me on either point: the argument is complete and utter bullshit and very few people will make it in print even if they arrive at it, which as you note, Nocera probably hasn’t. Just sayin’.


  10. That should read, “the incompetent executives will flee.” The last year has proven their supposed skills are laughably failed.

    And it’s a much-needed hiring stimulus for competent, fresh young MBA’s!


  11. It’s not hypocrisy. They just think blue collar workers are expendable, and Wall Street executives aren’t. It’s blatant class warfare.


  12. “If contracts are inviolable, they are inviolable for everyone, regardless of whether they are between blue collar workers in factories, white collar workers in office complexes, or the multi-millionaire executives on Wall Street.”



  13. Thanks for exposing this charlatan. Why aren’t we outside the NYT demanding his removal? Why isn’t he made to answer for his hypocrisy?


  14. Many of you do not appreciate the level of skill these upper managers and C.E.Os bring to the table. The pay and bonuses they receive for a year adds up to what many of us would call winning the lottery. Year after year. So ask yourself if you have the skills required to reduce the economy of an entire nation to tatters and then woo the victims into covering the losses until you can pick their pockets again! No wonder they deserve such ridiculously outrageous bonuses when you consider that they have not violated any laws! When you stop to think of all the planning and calculating, scheming and conspiring that must have gone on to pull this off, why it is sheer genius. Or we are the biggest bunch of suckers to ever come down the turnpike!


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