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.