If that’s right, it remains to ask whether this view of the bailouts
was justified. Were the CEOs and top executives of the big banks and
investment firms really to blame for the financial crisis? Many of the
executives didn’t think so. Testifying before congressional committees
investigating the financial crisis, they insisted they had done all they
could with the information available to them. The former chief executive
of Bear Stearns, a Wall Street investment firm that collapsed in
2008, said he’d pondered long and hard whether he could have done
anything differently. He concluded he’d done all he could. “I just simply
have not been able to come up with anything . . . that would have made
a difference to the situation we faced.”
Other CEOs of failed companies agreed, insisting that they were
victims “of a financial tsunami” beyond their control. A similar attitude
extended to young traders, who had a hard time understanding
the public’s fury about their bonuses. “There’s no sympathy for us anywhere,”
a Wall Street trader told a reporter for Vanity Fair. “But it’s not
as if we weren’t working hard.”
The tsunami metaphor became part of bailout vernacular, especially
in financial circles. If the executives are right that the failure of
their companies was due to larger economic forces, not their own decisions,
this would explain why they didn’t express the remorse that
Senator Grassley wanted to hear. But it also raises a far-reaching question
about failure, success, and justice.
If big, systemic economic forces account for the disastrous loses of
2008 and 2009, couldn’t it be argued that they also account for the
dazzling gains of earlier years? If the weather is to blame for the bad
years, how can it be that the talent, wisdom, and hard work of bankers,
traders, and Wall Street executives are responsible for the stupendous
returns that occurred when the sun was shining?
Confronted with public outrage over paying bonuses for failure,
the CEOs argued that financial returns are not wholly their own doing,
but the product of forces beyond their control. They may have a point.
But if this is true, there’s good reason to question their claim to outsized
compensation when times are good. Surely the end of the cold
war, the globalization of trade and capital markets, the rise of personal
computers and the Internet, and a host of other factors help explain
the success of the financial industry during its run in the 1990s and
in the early years of the twenty-first century.
In 2007, CEOs at major U.S. corporations were paid 344 times
the pay of the average worker. On what grounds, if any, do executives
deserve to make that much more than their employees? Most of
them work hard and bring talent to their work. But consider this: In
1980, CEOs earned only 42 times what their workers did. Were
executives less talented and hardworking in 1980 than they are today?
Or do pay differentials reflect contingencies unrelated to talents and
Or compare the level of executive compensation in the United
States with that in other countries. CEOs at top U.S. companies earn
an average of $13.3 million per year (using 2004–2006 data), compared
to $6.6 million for European chief executives and $1.5 million
for CEOs in Japan. Are American executives twice as deserving as
their European counterparts, and nine times as deserving as Japanese
CEOs? Or do these differences also reflect factors unrelated to the effort
and talent that executives bring to their jobs?
The bailout outrage that gripped the United States in early 2009
expressed the widely held view that people who wreck the companies
they run with risky investments don’t deserve to be rewarded with
millions of dollars in bonuses. But the argument over the bonuses raises
questions about who deserves what when times are good. Do the successful
deserve the bounty that markets bestow upon them, or does
that bounty depend on factors beyond their control? And what are the
implications for the mutual obligations of citizens—in good times and
hard times? Whether the financial crisis will prompt public debate on
these broader questions remains to be seen.
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