Elvis (the Horse) Has Left the Building

Yahoo! today carried an AP news article about President Obama imposing new caps on executive pay for any financial firm yet to receive part of the $700B Troubled Asset Relief Program (TARP), better known as the first of many federal bailout programs. TARP specifically targeted the financial services sector of the economy, and caused much of the Wall Street vs. Main Street hand-wringing when it was proposed and approved last fall.

Since the approval of using federal funds to bail out huge mistakes on bad bets by investment bankers, hedge funds, and virtually any bank dealing in securitized subprime mortgage loans, many commentators rightly pointed out that C-level executives of those same firms were still clearing huge amounts of money in annual bonuses. The AP article pegged the bonus figure at $18B last year alone.

Those of us living on Main Street had every right to be angry at the payment of these huge bonuses, since we're familiar with the model of rewarding good performance with a bonus. If one of us made the bad bets and mistakes the leaders of these financial institutions made, we'd be fired, not enticed to stay with a handsome year-end bonus. Gregg Easterbrook even railed against the 2008 bonuses in several of his most recent Tuesday Morning Quarterback (TMQ) columns on ESPN's Page 2.

So, this action by Obama, stepping into a leadership void left by the collective members of the U.S. Congress, is a good thing, right? Right?!

I think the key paragraph to note is this one:

The pay cap would apply to institutions that negotiate agreements with the Treasury Department for "exceptional assistance" in the future. The restriction would not apply to such firms as American International Group Inc., Bank of America Corp., and Citigroup Inc., that already have received such help.

Sadly, the analogy that applies here is closing the barn door after the horse is already gone. The article does not mention just how much of the taxpayers' $700B remains unclaimed at this point, but I dare say not many banks will line up to take the bailout funding after today.

While this was a nice gesture by Obama, I don't think it will have a great impact on the TARP program (brought to you by the Department of Redundancy Department), on other federally-funded bailouts of the auto industry, on the upcoming "stimulus" package (really just a pork-laden spending bill by Congress; it's now up to $900B in additional spending not offset in any way by cuts elsewhere or higher taxes -- the shame!), or on other federal legislation.

He does get to look like he's providing leadership and make headlines, though. For whatever that's worth.

One thing I had to note, though: the POTUS makes an annual salary of $400,000. Plus such benefits as a $50K expense account, a $100K nontaxable travel account, and $19K just for entertaining or entertainment. Does he pay taxes on all the income other than the travel account?

I also had to laugh at the past salaries of U.S. Presidents table found on Wikipedia, under the Salary section of the page. I can appreciate they want to state what the equivalent "Salary in 2008 Dollars" is for the salaries established so many years ago. But there is an error in the math here. If you're talking about what something costs, adjusted for inflation, then something that cost $400K in 2001 would cost $471K in 2008 terms (using just the numbers on the Wikipedia page).

However, since the salary of the President has remained the same since 2001, the equivalent purchasing power of $400K is actually less than what it was in 2001, not more. The official Bureau of Labor Statistics' (BLS) own inflation calculator seems to provide the same type of analysis as what is found on the Wikipedia page. If the salary of the President were adjusted to account for rises in the Consumer Price Index (CPI) every year, then Obama would be earning $479K in 2009. But he's only making $400K. Put it this way, if you reverse the numbers in the BLS calculator, Obama's $400K salary in 2008 could purchase only the equivalent of $333,482 of 2001 goods.

That's still more than the vast majority of us living on Main Street earn, so I don't feel sorry for his diminished purchasing power. I just wish Obama could bring real change to Washington. It hasn't happened yet.