President Obama, Are You Listening?

In an announcement I loved reading this morning out of Great Britain, Chancellor of the Exchequer Alistair Darling proclaimed a 50% tax on all bank bonuses over 25,000 pounds, translating into $40,800. That low limit effectively captures the vast majority of bonuses that will be paid.

I found it very curious that within a half hour of that announcement, a member of the board of Goldman Sachs, William George, was quoted as saying that his firm is taking a “very hard look” at whether to pay people less because of public outrage over bonuses. My educated guess says they will do one of two things: One, they will impose a temporary restraint until the outrage dies down; Two, they will decide that their pay policy can’t be changed because it will result in a “talent exodus,” a matter which I have addressed before.

Indeed, the reaction of the US financial community supported the latter conclusion. “We don’t think it is at all likely that Treasury-IRS would impose a 50 percent tax on banker bonuses,” said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. “This pay cut would likely cause an exodus of talent.” I have stated repeatedly in the previous columns that while it may be true that there would be a temporary exodus of talent, the attitude that that talent cannot be replaced is utterly ridiculous.

The only voice quoted that agreed with the idea of a US bonus tax is the one I respect the most. Clyde Prestowitz, whose book, Three Billion New Capitalists, was a warning shot across the economic bow of the country when we still believed that what has happened could not happen, called the bonus tax “a great idea that is justified by the taxpayer supported bailouts.” He added, “There’s a lot of pain and agony out there because of their malfeasance.”

His statements are confirmed by a Bloomberg National Poll released today that almost two thirds of Americans rate bankers lower than Congressmen, lawyers and insurance companies. With polls released in the past few months showing favorable ratings of Congress hovering in the teens, I suspect that the true number of people who give bankers that low a rating is closer to 80%. Bloomberg’s study only polled 1000 adults, hardly enough to produce a completely accurate reading.

Is President Obama listening? Is Tim Geithner? Mr. Geithner recently paid lip service to the “irresponsibly high bonuses” being paid on Wall St. this year, but no further action is currently being contemplated, and it’s obvious that the people paid to watch the banking system also expect nothing to be done.

I suggest that Mr. Prestowitz is correct. It is time to follow the lead of the British and impose a bonus tax of at least 50%. This would accomplish two important objectives: First, it would show that those elected to govern are listening to the will of the people who elected them. Second, it would send a clear signal to Wall St. that their actions are wrong and completely out of touch with economic reality. This is something the majority of Americans already seem to know.

Finally, it is worth remembering that last year, in the immediate wake of the banking crisis that started this economic turmoil, British bankers apologized for their irresponsibility. American bankers had the nerve to blame “excessive regulation” for the crisis. It’s time to remind them that the fallout from their willful transgressions is far from forgiven.

**The source of all quotes in this article is Bloomberg.com