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FCIC report: What if the SEC paid like Goldman Sachs?

The report by the Financial Crisis Inquiry Commission, released Thursday, finds that--surprise!--leaders of banks, regulatory agencies and the federal reserve actually do have to take responsibility for what happened leading up to the financial crisis. The disaster was avoidable, the commission finds, warning signs were ignored and there's plenty of blame to spread around. "Some on Wall Street and in Washington with a stake in the status quo may be tempted to wipe away from memory the events of the crisis, or to suggest that no one could have foreseen or prevented them," the report says. They could have.

The commission found that among the many causes of the crisis--and this is even less surprising--was the compensation of bankers and traders. The opportunity to earn aggressive incentives pushed up the risk bank employees were willing to take on, while stock-option bonuses motivated bank managers to wield leverage in hopes of getting higher returns.

What struck me most in the coverage about this entirely predictable finding was the idea not just that high compensation for bankers caused traders to take on more risk, but that regulators couldn't get the best talent to monitor the banks because they weren't able to issues salaries and bonuses on par with their subjects. "Wall Street firms' soaring pay pushed traders to disregard risk," wrote Bloomberg reporters Hugh Son and Michael J. Moore, "and limited regulators' ability to lure top talent to police banks."

Which leaves me wondering: What if the SEC paid the same as Goldman Sachs? It's a completely rhetorical question, of course. But consider it for a moment. If regulators were incented to stop fraud and prevent future financial apocalypses on the same scale that traders were rewarded for selling worthless derivatives, we'd surely be in a very different place today. The best talent coming out of our best universities might not immediately be shipping off to Wall Street, but to Washington instead.

That might result in a wholly different problem, of course, as overzealous regulators tried to make their bonuses by going after small-potatoes corporate peccadilloes, rather than spotting potentially systemic crises. And it disregards the psychic rewards government employees receive for doing work that benefits the public.

While this is little more than fantastical musing--paying government employees on par with Goldman Sachs, obviously, will never happen--the commission's finding still serves as a reminder that public service may not be enough to lure the best and brightest. These are critical jobs monitoring some of the world's largest institutions, which have grown so large as to be able to enact financial pain and suffering not only on themselves, but on the economy at large. Policing them should at the very least be compensated appropriately.

Related content:
Taking away the punchbowl: An interview with FDIC Chairman Sheila Bair

By Jena McGregor

 |  January 28, 2011; 9:11 AM ET |  Category:  Bad leadership , CEO watch , Corporate leadership , Crisis leadership , Economic crisis , Government leadership , Public leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Your model is all wrong. Goldman Sachs is a crime family and people like Mayor Bloomberg, pretty much AL of the politician's from the Northeast, are nothing more than soldiers in that criminal syndicate. Everything they do, from sponsoring the Brady Bunch, to "investigating" Arizona, is a stunt. They should all be arrested, brought to Arizona, and hanged; every dime of their ill gotten gains confiscated and their brats and trophy wives sent packing for the nearest soup kitchen... These are dangerous criminals, international criminals, and people need to recognize that fact and treat them that way.

Posted by: mibrooks27 | January 31, 2011 8:09 AM

This is all well and fine, but where are the prosecutions? Why is Holder not throwing these bozos into jail, including the SEC officials whose willful negligence facilitated the banking industry's rape of our economy? No, it's still business as usual on Wall Street and in Washington. If these SEC boys and girls don't want their jobs, then there are millions ready to take their places.

Posted by: Byrd3 | January 31, 2011 7:24 AM

certified1 writes: "Forget about the best and the brightest. The government is paying for the scrapings from the bottom of the barrel, and that's exactly what they're getting."

Sorry you see it that way, but I'd bet anything there are PLENTY of folks at the SEC who are considerably brighter than you are, and live on their modest salary because public service is important in their lives. I routinely work with Government employees who were honors graduates from the top 10 law schools in the country. They live on the GS salary, and it's not because they're sub-par on the intelligence scale.

Posted by: gasmonkey | January 31, 2011 6:17 AM

Wrong. The SEC does pay like Goldman. It's just that you're tabbing the wrong SEC. Try coaching or playing for SEC football. Very lucrative.

Posted by: tmaffolter | January 31, 2011 2:59 AM

Having worked at a bank regulator, I can say I would have been grateful to have been paid half, yes half, of what the banksters at Goldman make. My pay was so low I nearly qualified for low-income housing, and I was forced to put my grad-school loans into forbearance - I couldn't afford to pay them, and my agency didn't offer a loan assistance program. Even the ones they have now are a joke compared to average debt of your recent grad school grad. After a year of watching my superiors go through the motions of regulating, I saw it wasn't worth it, and returned to the private sector. The health insurance is much better here, by the way.

Forget about the best and the brightest.

The government is paying for the scrapings from the bottom of the barrel, and that's exactly what they're getting.

Posted by: certified1 | January 31, 2011 12:38 AM

The SEC doesn't even want to pay people prevailing wages. I've had them try to recruit me multiple times, and every time we get to salary the best they can do is ludicrously low compensation. I'm not even a "banking" type either, I'm a tech type, and well they're fairly incompetent when it comes to tech to say the least. So we aren't talking big bonus, or even high compensation, just plain old normal nothing to brag about salary. They can't manage salary offers that I wouldn't be ashamed to take.

It's to the point now where if anyone suggests working for them I automatically answer no. It's not worth my time to engage in negotiations that are structured to fail.

Posted by: Nymous | January 30, 2011 2:15 AM

Pay more to SEC employees for what? Sitting around looking at Internet porn all day, according to a recent IG report. For doing nothing when they had clear evidence shown them of Bernie Madoff's ponzi scheme. For a bunch of do-nothing salary-drawers, the SEC is ideal. No heavy lifting, no action, no nothing.

Posted by: edwardallen54 | January 29, 2011 11:54 PM

The readership is way ahead of Jena.
Sure, the SEC and other agencies could always use more top talent.But if agency
leadership is not dedicated to enforcement, and it most decidedly was not, it doesn't matter how much you pay people to join up.
If, however, you tweak her suggestion to entertain relatively large bonuses for SEC employees based on estimated ROI from enforcement actions, that is something that merits further discussion.Don't know if they have a bonus system or not. Suspect that they do, but probably falls far short of that which could optimize behavior.

Posted by: steveandjanereed1 | January 29, 2011 8:08 PM

what if SEC employees could actually lose their jobs? Despite all the regulatory failures, people like Tim Geithner and Ben Bernanke, as well as the career bureaucrats, are still with us. How about for bank examiners, if a bank you supervise fails, you lose your job and pension - now there's an incentive.

Posted by: iculus | January 29, 2011 7:16 PM

The premise of your article is bogus on its face. People attracted to public service are typically not motivated by the potential for huge compensation packages. Second, the assumption that the Wall Street crowd is that much smarter than SEC employees is not a given. If they were, we would not be in the mess we are in today. What we need to do is analyze why SEC did not perform as we expected. My hypothesis is that it has to do with political interference at the highest level. It is a given that Republicans do not believe in government intervention in the private markets. When regulations are on the books that create some boundaries on the private sector operations, Republican Administrations will do what they can to see that the regulations are not enforced. They do that through a variety of techniques such as denying the resources needed to do the job, or stalling decisions needed to implement enforcement. The people appointed by Republican Administrations tend to be opposed to the very purpose for which the agency was formed. In terms of attracting and retaining bright people, it is devastating when bright people find out that notwithstanding the lofty mission statement, the agency is not going to be allowed to do its work. That is what happened during the Bush Administration. Of course, that did not preclude Wall Street from putting the whole economy at risk with "dumb" schemes that collapsed under their own weight. So much for the best and brightest. At the end of the day, some of the Wall Street crowd ended up with a lot of money, but they will forever be guilty of bringing needless suffering to millions of people whose homes were lost and retirement funds were decimated. Do they care? I would hope some do!

Posted by: cdierd1944 | January 29, 2011 11:34 AM

"best talent?"
"best and brightest?"

Puh-leeze!!

Those on Wall Street have been playing casino games with other people's money ... and how that ended up speak a whole lot about themselves!

Posted by: dcone | January 29, 2011 10:50 AM

The people who matter in America (those with the big bucks) arranged to have Depression-era laws repealed on the pretext that they required "modernization." Once repealed, gigantic financial businesses cooperated and colluded to sell worthless mortgages that had been bundled into securities, rated highly and insured against default. The problem was the AAA-rated securities comprised the BBB-rated tranche of all mortgages (the best of the worst), the rating was misleading, to state it politely, and the insurance assumed only a few mortgages would turn non-performing at the same time. Lies! Lies! Lies! But very profitable lies that put America's economic foundation at risk, making necessary bailouts that the GOP considers to have been unnecessary. So why does Our Government let private businesses put our public economy at risk? That's your homework assignment for the week.

Posted by: BlueTwo1 | January 29, 2011 10:47 AM

"Best and Brightest?"

Puhlease!!!!

Those on Wall Street were just playing casino games using other people's money ... and how they ended up speak a whole lot about themselves.

Posted by: dcone | January 29, 2011 10:32 AM


"Best and Brightest?" Puhlease!!

Those on Wall Street was playing casino games using other people's money ... and how that ended up speak for themselves.

Posted by: dcone | January 29, 2011 10:29 AM

If the SEC paid like Goldman-Sachs than the thieves at Goldman would redeploy to the SEC. Let's face it, the SEC exists to run inerference for Wall Street's Con and Fleece the Taxpayer. With a comparable salary at the SEC, they could take cover under a federal shield and do the same dirty work with impunity.

And why shouldn't they. They are after all:

MASTERS OF THE UNIVERSE.

Posted by: knowscience | January 29, 2011 6:14 AM

Another commission report and no accountability at all. Our government is terminally corrupt and the corporate run news media are the willing pimps.

Posted by: rappahanock | January 28, 2011 8:08 PM

I myself have worked for the government (fed, state, & municipal at various times). I can only speak for myself but I can honestly tell you that I did not do so for any compensation reason(s). Health insurance, vacation/sick leave, holidays, those are ok. That's it. Those were not reasons to work for the government. I did so because I saw a need, an injustice sometimes, out there not being met. Anyone working for government for the benefits is working for the wrong reasons. You've actually got to be doing it because you want to help people, change society, things like that. If you work for government you should want to serve.

If you want money or bennies you're better off with the ilk in wall street.

Posted by: spike591011 | January 28, 2011 6:15 PM

Wow, what a naïve article!

Posted by: socallocal | January 28, 2011 3:46 PM

Why should the SEC, IRS or any other government entity pay more money? That's not the way it works here.

It's OTHER countries whose corrupt leaders extract millions of dollars from their governments while in office.

HERE, people serve selflessly for moderate wages, THEN cash them in for stratospheric salaries at Wall Street firms and defense contractors.

Puh-leeze. It's not just about quid. It's about quid pro quo.

Posted by: Itzajob | January 28, 2011 1:30 PM

You can make a similar argument about most important government jobs. Shouldn't those who prosecute white collar crime make as much as those who defend the accused? Shouldn't government doctors make as much as their peers in the private sector? Shouldn't the senior leadership who make system-defining decisions make as much as those with equivalent responsibility at our largest companies? And on and on.

If you are highly skilled, the government underpays you. The government will never be able to match private sector pay for the most important jobs. Period. Many people know that and choose it anyway. For some, maybe that is because they can't cut it in the private sector. For others, maybe it is because they truly do value service.

Some feds need to see their compensation fall, some need to see it rise. Talking about wholesale increases or decreases in pay is using a broadsword for an issue that demands a scalpel.

Posted by: bdg226 | January 28, 2011 1:29 PM

What Ms MacGregor is suggesting is impossible. If you pay people to find irregularities then they will find them in such quantities and for such inconsequentiality that it would make regulation meaningless. It is also unlikely it would have resulted in any oversight that would have effected this crisis. The oversight required would have had to have been at the level of the Fed Chairman to have had any serious effect and the Fed chariman at the time was just fine with what was going on and was happy to let the market sort it out. He got his wish, just not the way he wished for it.

Just the opinion of one Registered Principal.

Posted by: kchses1 | January 28, 2011 1:26 PM

Your question demonstrates a lack of knowledge on what motivates the public sector, or what motivates the private sector employees. There have been years and years of study concretely demonstrating that higher pay in the public sector doesn't bring in better employees--it brings in employees that are motivated by $$$. Bankers on Wall St, or at least according to the newest research coming out of UPenn, want more certainty and less dependence on the vast bonus world.
Give both types of employees more credit. Sure there are greedy bast@rds out there, but simply thinking that paying the public sector more will make it all better is ill-informed.

Posted by: laajbi | January 28, 2011 1:21 PM

What about the simplistic rules enacted? How is it ever going to work if we everyone chasing the non-existent security of AAA bonds? Our government sponsored entities are still, today, buying 3.5% down mortgages as if the possibility of a 3.5% drop is so remote that the risk is negligible. Idiocy.

It is certainly true that compensation structure focused on short term results produce the incentive to pursue short term results. The real question is why shareholders allow this.

Posted by: staticvars | January 28, 2011 1:20 PM

Is this article saying high compensation attracts "top talent" or "the best and the brightest", or just the greediest? If the Administration in power staffs or appoints only those who believe in small government or that “government regulation is the problem” or are told to let the industry police itself – is it any wonder that nothing gets scrutinized, and congressional inquiries are merely entertainment for the constituents?

Just two words refute this column for the pabulum it is “Brooksley Born”. Now there is a subject for "Leadership".

http://en.wikipedia.org/wiki/Brooksley_Born

Posted by: shadowmagician | January 28, 2011 12:39 PM

I am the first to admit I am way outside the world that understands high finance. When my very rich lawyer brother tried to explain derivatives (his line of work) a few years before the crash it sounded like the biggest pile of horse sh*t I’d ever heard. It turns out I was right. From an outside point of view it does not seem that we needed better educated regulators. We needed more honest regulators that weren’t either in on the scam or afraid to say anything and be fired in the anti-regulation administration that marched us off the plank. Still everyday we hear somebody on the right telling us that it’s all the government regulations that are keeping our economy from coming back. We seem to fall for that trick every time.

Posted by: SETinVA | January 28, 2011 12:33 PM

What if the incompetents at the SEC were SACKED for their dereliction of duty, and replaced with people who earned whatever taxpayer salary that they were paid.

Posted by: hared | January 28, 2011 11:31 AM

When will anyone at the Post finally get to Wendy and Phil Gramm and their slight of hand regulations with Eron and the Banking industry's insurance scheme? Although the rush to deregulation in the 90s was the birth of the problem Wendy and Phil signed our destiny.They sold everyone and the US economy down the river for greed. This guy who has failed at everything was a successful lying senator that disgraced his office by slyly placing into a last minute appropriations measure as Chair of the Banking Committee these devistating financial products and then leaves to be an executive to one of the prime bank offenders that are looking to be bailed out along with B of A. I wish I had learned of this in the Post but evidently they'd rather go after the the political theme reasons for the fianancial meltdown. I hope someone exposes these sleezely people(Gramms) in the mainstream media so we (US citizens) don't allow the same thing to happen again by some other greedy,patriotic, right wing, private sector advocate Americans willing to trash the US economy for the benefit of a few. We can't seem to depend on our representatives or our HONEST, ETHICAL, INTEGRITY ABOUND financial institutions to do anything so we have to depend on the 5th estate...or can we?

Posted by: Clemmonswilliam | January 28, 2011 10:58 AM

The agencies that regulate financial industries are already on a scale above the regular GS-levels, including the SEC and CFTC, if not others as well, so your thought has already been implemented. However, the chasm between government and industry pay is still wide ... isn't it worth asking whether the pay structure at places like Goldman Sachs is inappropriately structured to incentivize conduct that put the economy at risk?

Posted by: newtodc1 | January 28, 2011 10:40 AM

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