Wall Street Entitlement

Monday on the NewsHour, Jim Lehrer interviewed Dean Baker of the Center for Economic and Policy Research and Robert Glauber, currently at Harvard's Kennedy School of Government and formerly CEO of the National Association of Securities Dealers.

After a chat about Obama's newly named economic team, the discussion turned to the Citigroup bailout. Both guests agreed that Citi was "too big to fail," but Baker questioned the deal the government made, pointing out that although the $20 billion put on the table was virtually enough to purchase Citi outright at its current market value, the government had settled for considerably less. He wryly noted that Warren Buffet had been able to negotiate a much better deal for himself when he came to the aid of the much stronger Goldman Sachs. Furthermore, Baker warned that if Citi's management, rather than being fired for ruining the company, remains comfortably in place, it will become the very embodiment of "moral hazard."

Glauber immediately countered the crazy notion that management should be held accountable, arguing that it would "misplaced" to axe Citi's CEO, Vikram Pandit, since Mr. Pandit was not at Citi when most of the decisions were taken that ultimately led to the firm's meltdown. Thus, Pandit, who got $216 million just for taking the job, is in no way accountable for the $10.4 billion his company lost in the first nine months of his tenure, nor for the 88% decline in its stock price. Nice work if you can get it.

Glauber went on to dismiss concerns about the terms of the deal, explaining that the government's role is not to maximize value for the taxpayer in hard measures like ROI, but rather to provide the softer comfort of "stability to the financial markets."

Lehrer then turned the discussion to the hapless auto makers, asking Baker to comment on the irony that huge bailouts for financial firms can be put together over a weekend, whereas the government is much stingier about helping the Big Three. Baker agreed that a double standard prevails, observing with wonder that many resent the $57,000 pay of an auto worker and yet seem untroubled by payments of millions of dollars to bank executives who run their firms into the ground.

Lauber did not directly address the compensation issue, and instead fumbled to reiterate that well, Citigroup, being at the "center of the financial system," is simply too important to fail. The auto industry, on the other hand, while very important, must present a "viable plan" to justify its aid or the government would simply be throwing good money after bad. He conceded that this plan will probably involve "some cuts in the wages of the people that work for them [the Big Three]."

For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.