So Much For The Integrity Of Contracts

by Pejman Yousefzadeh on March 31, 2009

There is, evidently, no limit to the power government seeks to grant itself these days:

It was nearly two weeks ago that the House of Representatives, acting in a near-frenzy after the disclosure of bonuses paid to executives of AIG, passed a bill that would impose a 90 percent retroactive tax on those bonuses. Despite the overwhelming 328-93 vote, support for the measure began to collapse almost immediately. Within days, the Obama White House backed away from it, as did the Senate Democratic leadership. The bill stalled, and the populist storm that spawned it seemed to pass.

But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the “Pay for Performance Act of 2009,” would impose government controls on the pay of all employees — not just top executives — of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

The purpose of the legislation is to “prohibit unreasonable and excessive compensation and compensation not based on performance standards,” according to the bill’s language. That includes regular pay, bonuses — everything — paid to employees of companies in whom the government has a capital stake, including those that have received funds through the Troubled Assets Relief Program, or TARP, as well as Fannie Mae and Freddie Mac.

The measure is not limited just to those firms that received the largest sums of money, or just to the top 25 or 50 executives of those companies. It applies to all employees of all companies involved, for as long as the government is invested. And it would not only apply going forward, but also retroactively to existing contracts and pay arrangements of institutions that have already received funds.

Just think what would have happened if George W. Bush had sought this kind of authority for his Treasury Secretary. We would never have heard the end of talk concerning “the Imperial Presidency.” For the moment, anyway, we are on the verge of granting Tim Geithner vast amounts of power to control the salaries of all employees receiving governmental capital injections.

This goes well beyond any effort to control “excessive CEO compensation,” whatever that means. This constitutes yet another effort on the part of government to control the affairs of business and to expand its authority to heretofore unimagined levels.

How this is supposed to help the economy is anyone’s guess. But it is clear how it is supposed to help power-hungry politicians.

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