Won’t Get Fooled Again

One year after the election of Barack Obama and a Democratic supermajority in Congress, there couldn’t have been two more relevant gubernatorial elections to provide some insight into how voters feel about the current Democratic agenda.

It’s almost as if voters had Roger Daltrey of The Who in their head screaming the chorus to their classic “Won’t Get Fooled Again” as they approached the voting stations. These voters would not get fooled into voting for the Democratic agenda again.

While the loud far-right and the loud far-left occupy the majority of television and print media attention, it’s the wide middle that holds all the cards in elections these days and thankfully so. Instead of just ticking off their own parties candidates down the line, the voters in the middle don’t align perfectly on all issues to one party and therefore are required to prioritise their views on issues and vote for the candidate they hate the least. In doing so, they think about all the issues and most importantly, the ultimate consequences of voting for one candidate over another. As they say, elections have consequences – and there is no better example of that than right now.

This is where it’s all falling apart for the Democrats – once someone starts to actually think about the consequences of the Democratic agenda (huge tax increases, deficits as far as the eye can see, government run health care, expansion of unionized labor, economy-killing “environmental” regulation, micromanaging of compensation, etc., etc.), there’s not enough charisma in the world to compensate for the devastating impacts this agenda will have on this and future generations of Americans.

A year-ago, voters in the wide middle got caught out by four very powerful forces – Obamamania, Anti-Bushism, a very weak Republican ticket, and no other viable alternative. This created an environment where it seemed like a vote for change, and an incredibly charismatic individual seemed significant, historic and downright patriotic.

That feeling has passed.

The wide middle is clearly not happy with the Democratic spend and tax agenda, especially against the backdrop of huge unemployment and a stagnant economy. The wide middle is no longer willing to put their policy concerns to the side for the sake of “change” or for the sake of a candidate who is an international rockstar. Substance matters, and it’s about time.

Micromanagement Czars

We are currently inundated with populist outrage regarding Wall Street and their “egregious” pay packages on the false presumption that :

1. all of these companies would have failed without the government bailouts (true in some circumstances, but not others) and/or
2. taxpayer money is being used to pay 7 and 8 figure bonuses to “greedy” Wall Street bankers.

Goldman Sachs has been the lightning rod for this criticism in the media, in Congress and with the Obama administration. Earning $3 billion plus in profits over the last three months and setting aside $11 billion plus (so far) for 2009 compensation generates fantastic headlines and sound bites.

However, of all the entities receiving government money, Goldman Sachs is actually the least deserving of this criticism as they have repaid their government investment in full (which they never wanted or needed in the first place), and on top of that, have also paid interest, dividends and warrant settlements of over $1,000,000,000 – generating a 22% annualised profit for US Taxpayers. This Taxpayer profit does not include the additional billions Goldman Sachs will pay in income taxes ($4 billion accrued for 2009 so far), the billions its employees will pay in income taxes, the thousands of people they employ, the number of businesses supported by their presence on Wall Street and elsewhere, etc. It’s a similar story for JPMorgan, Morgan Stanley and others who have repaid their government obligations.

As a taxpayer, I’m very happy with these investments – generating a return for our country that would make any hedge fund manager jealous.

For entities like Citigroup, AIG, GM, and Chrysler, those who were truly saved by the government investments, I can understand the backlash. US Taxpayers are significant shareholders in these businesses and therefore have every right to criticize the decisions made by management, including compensation decisions, regardless of how misguided those criticisms might be.

However, we need to ensure we project our populist rage equally to everyone making big money while working for entities that receive, or have once received, government assistance.

For example, how about this one:

Dennis O’Connell, who oversees props at New York’s Carnegie Hall, made $530,044 in salary and benefits during the fiscal year that ended in June 2008. The four other members of the full-time stage crew -- two carpenters and two electricians -- had an average income of $430,543 during the same period, according to Carnegie Hall’s tax return.

Great work if you can get it, and honestly, other than the fact that these payments are due to legalized extortion by a too-powerful union against a charity, I think it’s great.

Clearly these guys are the absolute best at their trade, probably have years and years of experience, and contributed to a season of memorable shows, concerts and events at Carnegie Hall. After all, we live in a capitalist society (for now at least) and at the end of the day you are worth what someone is willing to pay you. These guys must be doing something right.

However, using the logic of the media, Congress and Obama administration, this should cause some serious populist outrage because, while largely funded by private donors, a substantial amount of Carnegie Hall's funding is also provided by taxpayers.

The Carnegie Hall annual report for the 2007-2008 fiscal year lists the 13 donors who gave more than $5,000,000 – a list that includes the City of New York, State of New York and the United States Department of Education – i.e. taxpayers.

Given this taxpayer support, should Compensation Czar Feinberg be approving the contracts of prop carpenters and electricians at Carnegie Hall as well?

Where does it stop?

I couldn’t care less about Mr. O’Connell’s paychecks, but the example highlights just how out of control the populist rage is on the topic of compensation.

Our country needs to move on and concentrate on the real issues (out of control government spending, two wars, unemployment, education, etc.), and leave the micro-managing of compensation decisions to someone else.

In fact, cutting off our nose to spite our face is the simplest way of ensuring that Taxpayers lose as much money as possible with these bailout investments. Compensation restrictions will only cripple the ability for these entities to attract and retain the talent required to dig themselves out of their holes and repay the government.

I’m just a random guy giving my own opinion, but Kenneth Langone, co-founder of Home Depot Inc. and a former New York Stock Exchange board member is more qualified to comment and according to Bloomberg, he says the pay cuts are “sheer stupidity.” He continues that “the taxpayers have an enormous financial risk in these companies, and very simply stated, I want the best person. If I needed neurosurgery, I would want the finest doctor I could get, no matter what I had to pay for it.”

Quote of The Week - Oct 16

"This golf-cart fiasco perfectly illustrates tax policy in the age of Obama, when politicians dole out credits and loopholes for everything from plug-in cars to fuel efficient appliances, home insulation and vitamins. Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things—like work and investment—that aren't politically in vogue. If this keeps up, it'll soon make more sense to retire and play golf than work for living."

- WSJ Editorial