Private-Sector Solutions to Future Credit Messes

I probably should have focused on solutions instead of slapping around an editorial by Obama. Okay, so it goes:

• Give people frequent flyer or bonus miles for paying their bills, not racking them up.
• Allow banks to set and advertise their own leverage numbers in accordance with their risk level and investment portfolio.
  Example: Bank A, focusing on high-risk investments, is leveraged at 15:1 or 20:1, and their disclaimers state as much. Bank B, focusing on more traditional blue-chip investments, is leveraged at 5:1 or 10:1, tops. Bank C, focusing more on individuals with passbook savings accounts or living on fixed incomes, is leveraged at 2:1, 1:1, or less, meaning that the bank will only loan money if they have it to spare--100% of the depositors would always be able to withdraw all their money, if they saw fit.
• Start a stockholder revolt focused on executive compensation. I've been complaining for years about the Sisters of Mercy and their never-ending stockholder proposals to stop Lockheed Martin, Boeing, and other defense contractors from selling arms to countries that don't like us. I complain about this because the right place to address this issue is with your congressmen and senators and the president. Likewise, just as you shouldn't appeal to the business world to address political matters, you shouldn't be petitioning government to fix problems with corporate governance. And the compensation issue is a governance issue, not a political issue (until the government takes over the business). Having said all that, the focus of the revolt should be to tie awards of all optional compensation, including stock options and bonuses, to specific, measurable performance outcomes, including short-term growth, long-term growth, and ethical compliance.

Other things will come to me, and I welcome other thoughts, but I have a caveat--I'm interested in solutions that can be executed without the need for additional government regulation.

Today's Hypothetical Situation

Okay, try this:

The company you work for just accepted a bail-out. However, President Obama has attached some strings to the deal. The CEO's pay has been frozen (or cut) to $500,000. "Yeah!" you think. "They were stupid, the top guy oughta pay!" But Obama isn't finished. Next, he says that none of his immediate subordinates can make more than $300,000. "Well, fine!" you say. "They were just as culpable." Ah, but that's still not all! Middle managers will no longer be allowed to make anything more than $150,000. After all, fair is fair. Suddenly you start squirming, because you've been looking for a job at that level, and you really had your eye on a house in a great neighborhood with nice schools.

But then comes the coup de grace: Obama says no one else in the company will be allowed to make more than $40,000 a year. You make $41,000, and your budget is tighter than Ebeneezer Scrooge's so you can save for that dream house. Well, now you no longer need to worry about that dream house. Not only can you not afford to save for it, you're going to have to cut back on everything else you buy: groceries, bills, activities, vacations--because you just got a pay cut!

Now you're angry. How dare he tell me, a "little guy," how much I can make? I'm not responsible! I just work here! And what I make is my business anyway! What if I want to earn more? Now you know how the boss feels. Do you REALLY think it's a great idea for companies to accept bailout money if it comes with strings attached? And do you REALLY believe it's so noble to cut particular people's pay in the name of "fairness?" Careful what you wish for.